INDIA

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Income Tax Act,

1961
[43 of 1961]
[As Amended by Finance (No. 2) Act, 2004]

For use by firm

personnel only

INCOME-TAX ACT, 1961*

[43 OF 1961]
[AS AMENDED BY FINANCE (NO. 2) ACT, 2004]
NOTE :- PLEASE IGNORE FOOTNOTE REFERENCES

An Act to consolidate and amend the law relating to

income-tax and super-tax
BE it enacted by Parliament in the Twelfth Year of the Republic of India as follows :

CHAPTER I
PRELIMINARY
Short title, extent and commencement.
1
1. 2(1) This Act may be called the Income-tax Act, 1961.
(2) It extends to the whole of India.
(3) Save as otherwise provided in this Act, it shall come into force on the 1st day of
April, 1962.
Definitions.
2. 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 5
[ (1A)] 6agricultural income7 means8
9
[(a) any rent10 or revenue derived from land10 which is situated in India and
is used for agricultural purposes;]
(b) any income derived from such land10 by
(i) agriculture10; 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-inkind to render the produce raised or received by him fit to be taken
to market10; or
(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 :
9
[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 outbuilding, 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
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 Gazette11.]
12 13
[ [Explanation 1.]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 ;]
14
[Explanation 2.For the removal of doubts, it is hereby declared that
income derived from any building or land referred to in sub-clause (c)
arising from the use of such building or land for any purpose (including
letting for residential purpose or for the purpose of any business or
profession) other than agriculture falling under sub-clause (a) or sub-clause
(b) shall not be agricultural income;]
15 16
[ [(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 17[three-fourths] 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,

(2)
(3)
(4)
(5)

(6)

20

(7)

23

[(7A)

(8)
(9)
28

[(9A)
(10)

30

[(11)

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 ;]
annual value, in relation to any property, means its annual value as
determined under section 23 ;
18
[* * *]
Appellate Tribunal means the Appellate Tribunal constituted under
section 252 ;
approved gratuity fund means a gratuity fund which has been and
continues to be approved by the 19[Chief Commissioner or Commissioner]
in accordance with the rules contained in Part C of the Fourth Schedule ;
approved superannuation fund means a superannuation fund or any part
of a superannuation fund which has been and continues to be approved by
the 19[Chief Commissioner or Commissioner] in accordance with the rules
contained in Part B of the Fourth Schedule ;
assessee21 means a person by whom 22[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 ;
Assessing Officer means the Assistant Commissioner 24[or Deputy
Commissioner] 25[or Assistant Director] 24[or Deputy Director] 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 26[Joint Commissioner or Joint Director] 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 ;]
assessment27 includes reassessment ;
assessment year means the period of twelve months commencing on the
1st day of April every year ;
Assistant Commissioner means a person appointed to be an Assistant
Commissioner of Income-tax 29[or a Deputy Commissioner of Income-tax]
under sub-section (1) of section 117 ;]
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 ;
block of assets means a group of assets falling within a class of assets
comprising
(a) tangible assets, being buildings, machinery, plant or furniture;

(b) intangible assets, being know-how, patents, copyrights, trade-marks,

licences, franchises or any other business or commercial rights of
similar nature,
in respect of which the same percentage of depreciation is prescribed ;]
(12) Board means the 31[Central Board of Direct Taxes constituted under the
Central Boards of Revenue Act, 1963 (54 of 1963)] ;
32
[(12A) books or books of account includes ledgers, day-books, cash books,
account-books and other books, whether kept in the written form or as printouts of data stored in a floppy, disc, tape or any other form of electromagnetic data storage device;]
33
(13) business34 includes any trade34, commerce or manufacture or any
adventure34 or concern in the nature of trade34, commerce or manufacture ;
33
(14) capital asset means property35-36 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 ;
37
[(ii) personal effects38, that is to say, movable property (including wearing
apparel and furniture, but excluding jewellery) held for personal use38 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 semi-precious 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 ;]
39
[(iii) agricultural land40 in India, not being land situate
(a) in any area which is comprised within the jurisdiction of a
municipality40 (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 population40 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
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 Gazette41;]
42
[(iv) 6 per cent Gold Bonds, 1977,43[or 7 per cent Gold Bonds, 1980,] 44[or
National Defence Gold Bonds, 1980,] issued by the Central Government
;]
45
[(v) Special Bearer Bonds, 1991, issued by the Central Government ;]
46
[(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999
notified by the Central Government ;]

47

charitable purpose49 includes relief of the poor, education49, medical

relief, and the advancement of any other 49object of general public utility 50[*
* *] ;
51
[(15A) Chief Commissioner means a person appointed to be a Chief
Commissioner of Income-tax under sub-section (1) of section 117 ;]
52 53
[ [(15B)]
child, in relation to an individual, includes a step-child and an
adopted child of that individual ;]
54
[(16) Commissioner means a person appointed to be a Commissioner of
Income-tax under sub-section (1) of section 117 55[* * *] ;]
56
[(16A) Commissioner (Appeals) means a person appointed to be a Commissioner
of Income-tax (Appeals) under sub-section (1) of section 117 ;]
57
[(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 ;]
(18) company in which the public are substantially interesteda company is
said to be a company in which the public58 are substantially interested
59
[(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]
60
[(aa) if it is a company which is registered under section 25 of the Companies
Act, 1956 (1 of 1956)61 ; 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]
62
[(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 63 of the Companies Act, 1956 (1 of
1956), to be a Nidhi or Mutual Benefit Society ; or]
(15)

48

64

[(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 ;]
65
[(b) if it is a company which is not a 66private company as defined in the
Companies Act, 1956 (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 accordance with the
Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any
rules made thereunder ;
67
[(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 68[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 (2 of 1912), or under any other law for the
time being in force in any State for the registration of co-operative
societies ;
69
[(19A) Deputy Commissioner means a person appointed to be a Deputy
Commissioner of Income-tax 70[* * *] under sub-section (1) of section 117 ;
71
[(19AA) demerger, in relation to companies, means the transfer, pursuant to a
scheme of arrangement under sections 391 to 39472 of the Companies Act,
1956 (1 of 1956), by a demerged company of its one or more undertakings
to any resulting company in such a manner that
(i) all the property of the undertaking, being transferred by the demerged
company, immediately before the demerger, becomes the property of the
resulting company by virtue of the demerger;

(ii) all the liabilities relatable to the undertaking, being transferred by the
demerged company, immediately before the demerger, become the
liabilities of the resulting company by virtue of the demerger;
(iii) the property and the liabilities of the undertaking or undertakings being
transferred by the demerged company are transferred at values
appearing in its books of account immediately before the demerger;
(iv) the resulting company issues, in consideration of the demerger, its
shares to the shareholders of the demerged company on a proportionate
basis;
(v) the shareholders holding not less than three-fourths in value of the
shares in the demerged company (other than shares already held therein
immediately before the demerger, or by a nominee for, the resulting
company or, its subsidiary) become shareholders of the resulting
company or companies by virtue of the demerger,
otherwise than as a result of the acquisition of the property or assets of the
demerged company or any undertaking thereof by the resulting company;
(vi) the transfer of the undertaking is on a going concern basis;
(vii) the demerger is in accordance with the conditions, if any, notified under
sub-section (5) of section 72A by the Central Government in this behalf.
Explanation 1.For the purposes of this clause, undertaking shall include
any part of an undertaking, or a unit or division of an undertaking or a
business activity taken as a whole, but does not include individual assets or
liabilities or any combination thereof not constituting a business activity.
Explanation 2.For the purposes of this clause, the liabilities referred to in
sub-clause (ii), shall include
(a) the liabilities which arise out of the activities or operations of the
undertaking;
(b) the specific loans or borrowings (including debentures) raised, incurred
and utilised solely for the activities or operations of the undertaking; and
(c) in cases, other than those referred to in clause (a) or clause (b), so much
of the amounts of general or multipurpose borrowings, if any, of the
demerged company as stand in the same proportion which the value of
the assets transferred in a demerger bears to the total value of the assets
of such demerged company immediately before the demerger.
Explanation 3.For determining the value of the property referred to in
sub-clause (iii), any change in the value of assets consequent to their
revaluation shall be ignored.
Explanation 4.For the purposes of this clause, the splitting up or the
reconstruction of any authority or a body constituted or established under a
Central, State or Provincial Act, or a local authority or a public sector
company, into separate authorities or bodies or local authorities or
companies, as the case may be, shall be deemed to be a demerger if such
split up or reconstruction fulfils 73[such conditions as may be notified in the
Official Gazette74, by the Central Government];
(19AAA) demerged company means the company whose undertaking is transferred,
pursuant to a demerger, to a resulting company;]
(19B) Deputy Commissioner (Appeals) means a person appointed to be a
Deputy Commissioner of Income-tax (Appeals) 75[or an Additional

76

[(19C)
(20)
79

[(21)

(22)

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

117 ;]
Deputy Director means a person appointed to be a Deputy Director of
Income-tax 77[* * *] under sub-section (1) of section 117 ;]
78
director, manager and managing agent, in relation to a company,
have the meanings respectively assigned to them in the Companies Act,
1956 (1 of 1956) ;
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 80[an Additional Director of Income-tax or] a 81[Joint]
Director of Income-tax or an Assistant Director 82[or Deputy Director] of
Income-tax ;]
83-84
dividend85 includes
(a) any distribution85 by a company of accumulated profits85, 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 distribution85 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 profits86, whether capitalised or not ;
(c) any distribution86 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 distribution87 to its shareholders by a company on the reduction of
its capital, to the extent to which the company possesses accumulated
profits87 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) 88[made after the 31st day of
May, 1987, by way of advance or loan to a shareholder 89, 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
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 profits87 ;
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 ;

90

[(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, 91[and before the 1st day
of April, 1965] ;]
(ii) any advance or loan made to a shareholder 92[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;
93
[(iv) any payment made by a company on purchase of its own shares from a
shareholder in accordance with the provisions of section 77A 94 of the
Companies Act, 1956 (1 of 1956);
(v) any distribution of shares pursuant to a demerger by the resulting
company to the shareholders of the demerged company (whether or not
there is a reduction of capital in the demerged company).]
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 sub-clause
(c) shall include all profits of the company up to the date of liquidation,
95
[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].
96
[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 ;]
97
[(22A) domestic company means an Indian company, or any other company
which, in respect of its income liable to tax under this Act, has made the
prescribed arrangements for the declaration and payment, within India, of
the dividends (including dividends on preference shares) payable out of
such income ;]
98
[(22AA) document includes an electronic record as defined in clause (t)99 of subsection (1) of section 2 of the Information Technology Act, 2000 (21 of
2000);]
1 2
[ [(22B)] fair market value, in relation to a capital asset, means

(i) the price that the capital asset would ordinarily fetch on sale in the open
market on the relevant date ; and
(ii) where the price referred to in sub-clause (i) is not ascertainable, such
price as may be determined in accordance with the rules made under this
Act ;]
3
(23) firm, partner and partnership have the meanings respectively
assigned to them in the Indian Partnership Act, 1932 (9 of 1932) ; but the
expression partner shall also include any person who, being a minor, has
been admitted to the benefits of partnership ;
4
[(23A) foreign company means a company which is not a domestic company ;]
5(24)income6 includes6
(i) profits and gains6 ;
(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 sub-clause (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 ;]
(iii) the value of any perquisite or profit in lieu of salary taxable under
clauses (2) and (3) of section 17 ;
9-13[(iiia) any special allowance 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 perquisite14, 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 ;
15[(iva) the value of any benefit or perquisite14, 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 subclause 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 ;
16[(va)any sum chargeable to income-tax under clause (iiia) of section 28;]
17[(vb)any sum chargeable to income-tax under clause (iiib) of section 28;]
18[(vc) any sum chargeable to income-tax under clause (iiic) of section 28;]
19[(vd)] the value of any benefit or perquisite taxable under clause (iv) of
section 28;
20[(ve) any sum chargeable to income-tax under clause (v) of section 28;]
(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 ;
(viii) 21[Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original subclause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964.]
22[(ix) any winnings from lotteries23, 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.]
24[Explanation.For the purposes of this sub-clause,
(i) lottery includes winnings from prizes awarded to any person by
draw of lots or by chance or in any other manner whatsoever, under
any scheme or arrangement by whatever name called;
(ii) card game and other game of any sort includes any game show, an
entertainment programme on television or electronic mode, in which
people compete to win prizes or any other similar game ;]
25[(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 ;]
26[(xi) any sum received under a Keyman insurance policy including the sum
allocated by way of bonus on such policy.
Explanation.For the purposes of this clause*, the expression
Keyman insurance policy shall have the meaning assigned to it in the
Explanation to clause (10D) of section 10;]
27[(xii) any sum referred to in 27a[clause (va)] of section 28;]
The following sub-clause (xiii) shall be inserted after sub-clause (xii)
in clause (24) of section 2 by the Finance (No. 2) Act, 2004, w.e.f. 1-42005 :
(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;
(25) Income-tax Officer means a person appointed to be an Income-tax Officer
under 28[* * *] section 117 ;
29
[(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 30[and the Union territories specified in sub-clause (iii) of this
clause]) ;
31
[(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 ;
32
[(iii) in the case of any of the Union territories of Dadra and Nagar 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 33[registered or, as the case may be, principal office of the
company, corporation, institution, association or body] in all cases is in
India ;
(27) 34[* * *]
(28) Inspector of Income-tax means a person appointed to be an Inspector of
Income-tax under sub-section 35[(1)] of section 117 ;
36 37
[ (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 ;]
38
[(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 ;]
39
[(28BB) insurer means an insurer, being an Indian insurance company, as defined
under clause (7A) of section 240 of the Insurance Act, 1938 (4 of 1938),
which has been granted a certificate of registration under section 3 of that
Act;]
41
[(28C) Joint Commissioner means a person appointed to be a Joint
Commissioner of Income-tax or an Additional Commissioner of Income-tax
under sub-section (1) of section 117;
(28D) Joint Director means a person appointed to be a Joint Director of Incometax or an Additional Director of Income-tax under sub-section (1) of section
117;]

(29) legal representative has the meaning assigned to it in clause (11) of

section 2 of the Code of Civil Procedure, 1908 (5 of 1908)42 ;
43
[(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 ;]
44
[(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 45-46[, association of 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 47[, and for the
purposes of sections 92, 93 48[* * *] and 168, includes a person who is not
ordinarily resident within the meaning of clause (6) of section 6] ;
49
(31) person includes
(i) an individual50,
(ii) a Hindu undivided family50,
(iii) a company,
(iv) a firm51,
(v) an association of persons51 or a body of individuals51, whether
incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding
sub-clauses.
52
[Explanation.For the purposes of this clause, an association of persons
or a body of individuals or a local authority or an artificial juridical person
shall be deemed to be a person, whether or not such person or body or
authority or juridical person was formed or established or incorporated with
the object of deriving income, profits or gains;]
(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 ;
53
(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
54
[Assessing] Officer has served a notice of his intention of treating him
as the principal officer thereof ;
55
(36) profession includes vocation56 ;

57

[(36A) public sector company means any corporation established by or under any
Central, State or Provincial Act or a Government com-pany58 as defined in
section 617 of the Companies Act, 1956 (1 of 1956) ;]
(37) 59public servant has the same meaning as in section 21 of the Indian Penal
Code (45 of 1860) ;
60
[(37A) rate or rates in force or rates in force, in relation to an assessment year
or financial year, means
(i) for the purposes of calculating income-tax under the first proviso to subsection (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 charge-able under the head Salaries
61
[* * *] or 62[computation of the advance tax payable under Chapter
XVII-C in a case not falling under 63[section 115A or section 115B 64[or
section 115BB 65[or section 115BBB] or section 115E] or] section 164
64
[or section 164A 66[* * *]] 67[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 68[in a case falling under section 115A or section
115B 69[or section 115BB 70 [or section 115BBB] or section 115E] or
section 164 69 [or section 164A 71[* * *]] 72[or section 167B], the rate or
rates specified in section 115A or 73[section 115B or section 115BB 74[or
section 115BBB] or section 115E or section 164 or section 164A 71[* *
*] 72[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
75
[,194B] 76[, 194BB] 77[and 194D], the rate or rates of income-tax
specified in this behalf in the Finance Act of the relevant year ;]
78
[(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 ;]
79
(38) recognised provident fund means a provident fund which has been and
continues to be recognised by the 80[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 (19 of 1952) ;
(39) 81[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;]
(40) regular assessment means the assessment made under 82[sub- section (3)
of] section 143 or section 144 ;
(41) relative, in relation to an individual, means the husband, wife, brother or
sister or any lineal ascendant or descendant of that individual ;
83
[(41A) resulting company means one or more companies (including a wholly
owned subsidiary thereof) to which the undertaking of the demerged
company is transferred in a demerger and, the resulting company in
consideration of such transfer of undertaking, issues shares to the
shareholders of the demerged company and includes any authority or body

or local authority or public sector company or a company established,

constituted or formed as a result of demerger;]
(42) resident means a person who is resident in India within the meaning of
section 6 ;
84 85
[ (42A) 86[short-term capital asset means a capital asset held by an assessee for not
more than 87[thirty-six] months immediately preceding the date of its
transfer :]
88
[Provided that in the case of a share held in a company 89[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 thirtysix months, the words twelve months had been substituted.]
90
[Explanation 1].(i) 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 91[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 ;
92
[(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 ;]
93
[(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 ;
(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 ;]
94
[(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 ;]
95
[(g) 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 demerger, there shall be included the period for which the share or
shares held in the demerged company were held by the assessee ;]
96
[(h) in the case of a capital asset, being trading or clearing rights of a
recognised stock exchange in India acquired by a person pursuant to
demutualisation or corporatisation of the recognised stock exchange in

India as referred to in clause (xiii) of section 47, there shall be included

the period for which the person was a member of the recognised stock
exchange in India immediately prior to such demutualisation or
corporatisation;
(ha) in the case of a capital asset, being equity share or shares in a company
allotted pursuant to demutualisation or corporatisation of a recognised
stock exchange in India as referred to in clause (xiii) of section 47,
there shall be included the period for which the person was a member of
the recognised stock exchange in India immediately prior to such
demutualisation or corporatisation;]
(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 ;]
97
[Explanation 2.For the purposes of this clause, the expression
security98 shall have the meaning assigned to it in clause (h) of section 2
of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) ;]
99
[(42B) short-term capital gain means capital gain arising from the transfer of a
short-term capital asset ;]
1
[(42C) slump sale means the transfer of one or more undertakings as a result of
the sale for a lump sum consideration without values being assigned to the
individual assets and liabilities in such sales.
Explanation 1.For the purposes of this clause, undertaking shall have
the meaning assigned to it in Explanation 1 to clause (19AA).
Explanation 2.For the removal of doubts, it is hereby declared that the
determination of the value of an asset or liability for the sole purpose of
payment of stamp duty, registration fees or other similar taxes or fees shall
not be regarded as assignment of values to individual assets or liabilities ;]
2
[(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 ;]
3
[(43A) tax credit certificate means a tax credit certificate granted to any person in
accordance with the provisions of Chapter XXII-B 4 and any scheme made
thereunder ;]
(43B) 5[* * *]
6
[(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 ;
(46) 7[* * *]
8
(47) 9[transfer10 , in relation to a capital asset, includes,
(i) the sale10, exchange10 or relinquishment10 of the asset ; or
(ii) the extinguishment of any rights therein10 ; 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 ;] 11[or]
11
[(v) any transaction involving the allowing of the possession of any
immovable property to be taken or retained in part performance of a
contract of the nature referred to in section 53A 12 of the Transfer of
Property Act, 1882 (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 immov-able 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.]
(48) 13[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
14

[Previous year defined.

3. For the purposes of this Act, previous year means the financial year immediately
preceding the assessment year :
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.]

CHAPTER II
BASIS OF CHARGE
Charge of income-tax.
15
4. 16(1) Where any Central Act enacts that income-tax17 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 18[subject to the provisions (including
provisions for the levy of additional income-tax) of, this Act] 19 in respect of the total
income19 of the previous year 20[* * *] 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.
Scope of total income.
21
5. 22(1) Subject to23 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 received23 or is deemed to be received23 in India in such year by or on

behalf of such person ; or

(b) accrues23 or arises23 or is deemed23 to accrue or arise to him in India during

such year ; or
(c) accrues23 or arises23 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 derived from
a business controlled in or a profession set up in India.
(2) Subject to24 the provisions of this Act, the total income 24 of any previous year of a
person who is a non-resident includes all income from whatever source derived which

(a) is received24 or is deemed to be received24 in India in such year by or on

behalf of such person ; or
(b) accrues24 or arises24 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
received24 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 24 or
arisen24 or is deemed to have accrued24 or arisen24 to him shall not again be so
included on the basis that it is received or deemed to be received by him in India.
25

[Apportionment of income between spouses governed by Portuguese

Civil Code.
5A. (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 Salaries, such
income shall be included in the total income of the spouse who has actually earned it.]
25

[Apportionment of income between spouses governed by Portuguese

Civil Code.
5A. (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 Salaries, such
income shall be included in the total income of the spouse who has actually earned it.]
Residence in India.
26
6. 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
(b) 27[* * *]
(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.
28
[Explanation.In the case of an individual,
(a) being a citizen of India, who leaves India in any previous year 29[as a
member of the crew of an 30Indian 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 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) 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 subclause (c) shall apply in relation to that year as if for the words sixty
days, occurring therein, the words one hundred and 31[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 management32 of its affairs32 is situated wholly32 outside
India.
(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 management32 of its affairs32 is situated
wholly32 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.

33

[(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 been a non-resident in India in nine out of the ten
previous years preceding that year, or has during the seven previous
years preceding that year been in India for a period of, or periods
amounting in all to, seven hundred and twenty-nine days or less; or
(b) a Hindu undivided family whose manager has been a non-resident in
India in nine out of the ten previous years preceding that year, or has
during the seven previous years preceding that year been in India for a
period of, or periods amounting in all to, seven hundred and twentynine days or less.]

Income deemed to be received.

7. 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 ;
33a
[(iii) the contribution made, by the Central Government in the previous year, to
the account of an employee under a pension scheme referred to in section
80CCD.]
Dividend income.
8. 34[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 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 ;
35
[(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.
36
9. 37(1) The following incomes shall be deemed38 to accrue or arise in India :
39
(i) all income accruing or arising, whether directly or indirectly, through or
from any business connection40 in India, or through or from any property40
in India, or through or from any asset or source of income in India, 41[* * *]
or through the transfer of a capital asset situate in India.
42
[Explanation 1]For the purposes of this clause
(a) in the case of a business of which all the operations 43 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 operations43 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 operations which are confined to
the purchase of goods in India for the purpose of export ;
44
[* * *]
45
[(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 ;]
46
[(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,
no income shall be deemed to accrue or arise in India to such individual,
firm or company through or from operations47 which are confined to the
shooting of any cinematograph film in India.]
48
[Explanation 2.For the removal of doubts, it is hereby declared that
business connection shall include any business activity carried out
through a person who, acting on behalf of the non-resident,
(a) has and habitually exercises in India, an authority to conclude contracts
on behalf of the non-resident, unless his activities are limited to the
purchase of goods or merchandise for the non-resident; or
(b) has no such authority, but habitually maintains in India a stock of goods
or merchandise from which he regularly delivers goods or merchandise
on behalf of the non-resident; or
(c) habitually secures orders in India, mainly or wholly for the non-resident
or for that non-resident and other non-residents controlling, controlled
by, or subject to the same common control, as that non-resident:
Provided that such business connection shall not include any business
activity carried out through a broker, general commission agent or any
other agent having an independent status, if such broker, general
commission agent or any other agent having an independent status is acting
in the ordinary course of his business :
Provided further that where such broker, general commission agent or any
other agent works mainly or wholly on behalf of a non-resident (hereafter in
this proviso referred to as the principal non-resident) or on behalf of such
non-resident and other non-residents which are controlled by the principal
non-resident or have a controlling interest in the principal non-resident or
are subject to the same common control as the principal non-resident, he
shall not be deemed to be a broker, general commission agent or an agent
of an independent status.
Explanation 3.Where a business is carried on in India through a person
referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only
so much of income as is attributable to the operations carried out in India
shall be deemed to accrue or arise in India;]

(ii) income which falls under the head Salaries, if it is earned49 in India.
50
[Explanation.For the removal of doubts, it is hereby declared that the
income of the nature referred to in this clause payable for
(a) service rendered in India; and
(b) the rest period or leave period which is preceded and succeeded by
services rendered in India and forms part of the service contract of
employment,
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 ;
51
[(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 royalty52 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, design, 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 :
53
[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 non-resident 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 54[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 subsection (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 55[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 ;
56
[(iva) the use or right to use any industrial, commercial or scientific equipment
but not including the amounts referred to in section 44BB;]
(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 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 56[(iv), (iva) and] (v).
57
[Explanation 3.For the purposes of this clause, computer software
means any computer programme recorded on any disc, tape, perforated
media or other information storage device and includes any such
programme or any customized electronic data;]
(vii) income by way of fees for technical services payable58 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 :
59
[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.]
60
[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 61[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 construction62, 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.
CHAPTER III
INCOMES WHICH DO NOT FORM PART
OF TOTAL INCOME
Incomes not included in total income.
10. 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 ;
63
(2) 64[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 ;
65
[(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) 66[***]
67[(4)(i) in the case of a non-resident, any income by way of interest on such
securities or bonds as the Central Government may, by notification in the
Official Gazette68, specify in this behalf, including income by way of
premium on the redemption of such bonds :
69[Provided that the Central Government shall not specify, for the purposes
of this sub-clause, such securities or bonds on or after the 1st day of June,
2002;]
70[71(ii) 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 272 of the said Act or is a person who has been
permitted by the Reserve Bank of India to maintain the aforesaid
Account ;]]
The following second proviso shall be inserted after the proviso to subclause (ii) of clause (4) of section 10 by the Finance (No. 2) Act, 2004,
w.e.f. 1-4-2006 :
Provided further that nothing contained in this sub-clause shall apply to
any income by way of interest paid or credited on or after the 1st day of
April, 2005 to the Non-Resident (External) Account of such individual;
73
[(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 74[before the 1st day of June, 2002] by the Central
Government as that Government may, by notification in the Official
Gazette75, 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 person shall be deemed to be of Indian origin if he, or either of his
parents or any of his grandparents, 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 ;]
76
[(5) in the case of an individual, the value of any travel concession or 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 prescribed77 (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; ]
78
(5A) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.]
(5B) 79[***]
(6) in the case of an individual who is not a citizen of India,
(i) 80[***]
81
[(ii) the remuneration received by him as an official, by whatever name
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 ;
(via) 82[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]
(vii) 83[Omitted by the Finance Act, 1993, w.e.f. 1-4-1993;]
(viia) 84[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(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 ;
(ix) 85[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]
(x) 86[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]
87
[(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 referred 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 ;]
88
[(6A) 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 89[but
before the 1st day of June, 2002] 90-91[and,
(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 92[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;]
93
[(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 94[before the 1st day of June, 2002] 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 94[before that date] by the Central
Government, the tax so paid ;]
95[(6BB) where in the case of the Government of a foreign State or a foreign
enterprise deriving income from an Indian company engaged in the business
of operation of aircraft, as a consideration of acquiring an aircraft or an
aircraft engine (other than payment for providing spares, facilities or
services in connection with the operation of leased aircraft) on lease under
96[an agreement entered after the 31st day of March, 1997 96a[but before
the 1st day of April, 1999] and approved by the Central Government in this
behalf] and the tax on such income is payable by such Indian company
under the terms of that agreement to the Central Government, the tax so
paid.
Explanation.For the purposes of this clause, the expression foreign
enterprise means a person who is a non-resident;]
97
[(6C) any income arising to such foreign company, as the Central Government
may, by notification98 in the Official Gazette, specify in this behalf, by way
of 99[royalty or] 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
[(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 authority3 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 member is
required to pay any income or social security tax to the Government of that
foreign State 4[or, as the case may be, country of origin of such member];
5 6
[ (10) 7(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 allIndia 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 48 of that Act ;
(iii) 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 dependants

on his death, to the extent it does not, in either case, exceed one-half
months salary for each year of completed service9, 10[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 11 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 clause12 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 13[shall not
exceed the limit so specified] :
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 14[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.
15
[* * *]
Explanation.16[In this clause, and in clause (10AA)], salary shall have
the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth
Schedule ;]
17 18
[ (10A) 19(i) any payment in commutation of pension received under the Civil
Pensions (Commutation) Rules of the Central Government or under any
similar scheme applicable 20[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 ;
21
[* * *]
22
[(iii) any payment in commutation of pension received from a fund under
clause (23AAB) ;]
23 24
[ (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 25retirement
26
[whether] on superannuation or otherwise ;

(ii) any payment of the nature referred 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 27[whether] on superannuation or
otherwise as does not exceed 28[ten] months, calculated on the basis of the
average salary drawn by the employee during the period of ten months
immediately preceding his retirement 27[whether] on superannuation or
otherwise, 29[subject to such limit as the Central Government may, by
notification in the Official Gazette, specify in this behalf having regard to
the limit30 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 31[shall not exceed the limit
so specified] :
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 32[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.
33
[* * *]
Explanation.For the purposes of sub-clause (ii),
34
[* * *] 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 ;
35
[* * *]
36
[(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, 37[at the time of his retrenchment :
Provided that the amount exempt under this clause shall not exceed
i
(i)
an amount calculated in accordance with the provisions of
38
clause (b) of section 25F of the Industrial Disputes Act, 1947 (14 of
1947) ; or
39
[(ii) such amount, not being less than fifty thousand rupees, as the Central
Government may, by notification 40 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 circum- stances, 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 ;
41
(c) the expressions employer and workman shall have the same
meanings as in the Industrial Disputes Act, 1947 (14 of 1947);]
42
[(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 ;]
43
[(10C) 44any amount received 44a 45[or receivable] 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 46[authority ; or]
47
[(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 (3 of 1956) ;
or
(vii) an Indian Institute of Technology within the meaning of clause (g) of
section 3 48 of the Institutes of Technology Act, 1961 (59 of 1961) ; or
49
[(viia) any State Government; or]
50
[(viib) the Central Government; or]
51
[(viic) an institution, having importance throughout India or in any State or
States, as the Central Government may, by notification in the Official
Gazette52, specify in this behalf; or]
(viii) such institute of management as the Central Government may, by
notification53 in the Official Gazette, specify in this behalf,]
54
[on his] 54a[voluntary retirement or termination of his service, in
accordance with any scheme or schemes of voluntary retirement or in the
case of a public sector company referred to in sub-clause (i), a scheme of

voluntary separation, to the extent such amount does not exceed five lakh
rupees] :
Provided that the schemes of the said companies or authorities 55[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
economic viability) as may be 56prescribed 57[***] :
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 ;]
58
[(10CC) in the case of an employee, being an individual deriving income in the
nature of a perquisite, not provided for by way of monetary payment,
within the meaning of clause (2) of section 17, the tax on such income
actually paid by his employer, at the option of the employer, on behalf of
such employee, notwithstanding anything contained in section 200 59 of the
Companies Act, 1956 (1 of 1956);]
60
[(10D) any sum received under a life insurance policy, including the sum allocated
by way of bonus on such policy, other than
(a) any sum received under sub-section (3) of section 80DD or sub-section
(3) of section 80DDA; or
(b) any sum received under a Keyman insurance policy; or
(c) any sum received under an insurance policy issued on or after the 1st
day of April, 2003 in respect of which the premium payable for any of
the years during the term of the policy exceeds twenty per cent of the
actual capital sum assured:
Provided that the provisions of this sub-clause shall not apply to any
sum received on the death of a person:
Provided further that for the purpose of calculating the actual capital
sum assured under this sub-clause, effect shall be given to the
Explanation to sub-section (2A) of section 88.
Explanation.For the purposes of this clause, Keyman insurance policy
means a life insurance policy taken by a person on the life of another
person who is or was the employee of the first-mentioned person or is or
was connected in any manner whatsoever with the business of the firstmentioned person;]
(11) any payment from a provident fund to which the Provident Funds Act, 1925
(19 of 1925), applies 61[or from any other provident fund set up by the
Central Government and notified62 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 ;
63
[(13) any payment from an approved superannuation fund made
(i) on the death of a beneficiary ; or
(ii) to an 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;]
64 65
[ (13A) any special allowance specifically granted to an assessee by his employer to
meet expenditure actually incurred on payment of rent (by whatever name
called) in respect of residential accommodation occupied by the assessee, to
such extent 66[* * *] as may be prescribed67 having regard to the area or
place in which such accommodation is situate and other relevant
considerations.]
68
[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 ;]
69
[(14) (i) 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 incurred 70 in
the performance of the duties of an office or employment of profit 70, 71[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
profit72 are ordinarily performed by him or at the place where he ordinarily
resides, or to compensate him for the increased cost of living, 73[as may be
prescribed and to the extent as may be prescribed] :]
74
[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 ;]
(14A) 75[***]
(15) 76[(i) income by way of interest, premium on redemption or other payment
on such securities, bonds, annuity certificates, savings certificates, other
certificates issued by the Central Government and deposits as the Central
Government may, by notification77 in the Official Gazette, specify in this
behalf, subject to such conditions and limits as may be specified in the said
notification ;]
78
[(iib) 79[in the case of an individual or a Hindu undivided family,] interest
on such Capital Investment Bonds as the Central Government may, by
notification80 in the Official Gazette, specify in this behalf :]

81

[Provided that the Central Government shall not specify, for the purposes
of this sub-clause, such Capital Investment Bonds on or after the 1st day of
June, 2002;]
82
[(iic) in the case of an individual or a Hindu undivided family, interest on
such Relief Bonds83 as the Central Government may, by notification in the
Official Gazette, specify in this behalf ;]
84
[(iid) interest on such bonds, as the Central Government may, by
notification85 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
(c) any individual to whom the bonds have been gifted by the non-resident
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 sub-clause shall continue
to apply in relation to such individual :
Provided also that in a case where the bonds are encashed 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 :
86
[Provided also that the Central Government shall not specify, for the
purposes of this sub-clause, such bonds on or after the 1st day of June,
2002.]
Explanation.For the purposes of this sub-clause, the expression nonresident 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;
87
[(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 88[clause (ii) of the Explanation to clause
(viia) of sub-section (1) of section 36];]
89
[(iiib) interest payable to the Nordic Investment Bank, being a multilateral
financial institution constituted by the Governments of Denmark, Finland,
Iceland, Norway and Sweden, on a loan advanced by it to a project
approved by the Central Government in terms of the Memorandum of
Understanding entered into by the Central Government with that Bank on
the 25th day of November, 1986;]

The following sub-clause (iiic) shall be inserted after sub-clause (iiib) of clause
(15) of section 10 by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(iiic) interest payable to the European Investment Bank, on a loan granted
by it in pursuance of the framework-agreement for financial co-operation
entered into on the 25th day of November, 1993 by the Central Government
with that Bank;
(iv) interest payable
90
[(a) by Government or a local authority on moneys borrowed by it before
the 1st day of June, 2001 from, or debts owed by it before the 1st
day of June, 2001 to, sources outside India;]
(b) by an industrial undertaking in India on moneys borrowed by it
under 91[a loan agreement entered into before the 1st day of June,
2001 with any such financial institution] in a foreign country as may
be approved92 in this behalf by the Central Government by general
or special order ;
93
(c) by an industrial undertaking in India on any moneys borrowed or
debt incurred by it 94[before the 1st day of June, 2001] in a foreign
country in respect of the purchase outside India of raw materials
95
[or components] or capital plant and machinery, 96[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 97,
having regard to the terms of the loan or debt and its repayment.]
98 99
[ [Explanation 1.]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.]
1
[Explanation 2.For the removal of doubts, it is hereby declared
that the usance interest payable outside India by an undertaking
engaged in the business of ship-breaking in respect of purchase of a
ship from outside India shall be deemed to be the interest payable on
a debt incurred in a foreign country in respect of the purchase
outside India;]
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 ExportImport 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 6[before the 1st day of June, 2001], 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
[(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 8[before the 1st day of June, 2001] 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;]
9
[(f) by an industrial undertaking in India on any moneys borrowed by it
in foreign currency from sources outside India under a loan
agreement approved by the Central Government 10[before the 1st day
of June, 2001] 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;
11[(fa) by a scheduled bank 11a[before the 1st day of April, 2005] 12[to a
non-resident or to a person who is not ordinarily resident within the
meaning of sub-section (6) of section 6] 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 sub-section (1) of section 36;]
13
[(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,
14
[being a company eligible for deduction under clause (viii) of subsection (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 15[before the 1st day of June,
2003], 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 16[items (f) 17[, (fa)] and (g)], the
expression 18foreign currency shall have the meaning assigned to
it in the Foreign Exchange Regulation Act, 1973 (46 of 1973);]
19
[(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
notification20 in the Official Gazette, specify in this behalf;]
21
[(i) by Government on deposits made by an employee of the Central
Government or a State Government 22[or a public sector company],
in accordance with such scheme as the Central Government may, by
notification23 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.]
24 25
[ [Explanation 1].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
26
[(aa) the manufacture of computer software or recording of programme on
any disc, tape, perforated media or other information device; or]
(b) the business of generation or distribution of electricity or any other form
of power; or
27
[(ba) the business of providing telecommunication services; or]
(c) mining; or
(d) the construction of ships; or
28
[(da) the business of ship-breaking; or]
29
[(e) the operation of ships or aircrafts or construction or operation of rail
systems.]]
30
[Explanation 1A.For the purposes of this sub-clause, the expression
interest shall not include interest paid on delayed payment of loan or on
default if it is in excess of two per cent per annum over the rate of interest
payable in terms of such loan.]
31
[Explanation 2.For the purposes of this clause, the expression interest
includes hedging transaction charges on account of currency fluctuation;]
32
[(v) interest on
(a) securities held by the Welfare Commissioner, Bhopal Gas Victims,
Bhopal, in the Reserve Banks SGL Account No. SL/DH 048;
(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 33 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);]
34
[(vi) interest on Gold Deposit Bonds issued under the Gold Deposit
Scheme, 1999 notified by the Central Government;]
35
[(vii) interest on bonds
(a) issued by a local authority; and
(b) specified by the Central Government by notification 36 in the Official
Gazette;]

37[(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 38[39[, not being an
agreement entered into between the 1st day of April, 1997 and the 31st day
of March, 1999,] and] approved by the Central Government in this behalf.
The following proviso shall be inserted in clause (15A) of section 10 by
the Finance (No. 2) Act, 2004, w.e.f. 1-4-2006 :
Provided that nothing contained in this clause shall apply to any such
agreement entered into on or after the 1st day of April, 2005.
Explanation.For the purposes of this clause, the expression foreign
enterprise means a person who is a non-resident;]
40
(16) 41scholarships granted to meet the cost of education;
42
[(17) any 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; 43[*
* *]
44
[(ii) any allowance received by any person by reason of his membership of
Parliament under the Members of Parliament (Constituency Allowance)
Rules, 1986;
(iii) all other allowances not exceeding 45[two thousand] 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 notification46 in the Official Gazette, specify in this
behalf;]]
47
[(17A)any 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 approved48 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 approved48 by the Central Government in this
behalf in the public interest;]
49
[(18) any income by way of
(i) pension received by an individual who has been in the service of the
Central Government or State Government and has been awarded Param
Vir Chakra or Maha Vir Chakra or Vir Chakra or such other
gallantry award as the Central Government may, by notification50 in the
Official Gazette, specify in this behalf;
(ii) family pension received by any member of the family of an individual
referred to in sub-clause (i).
Explanation.For the purposes of this clause, the expression family shall
have the meaning assigned to it in the Explanation to clause (5);]
(18A) 51[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]
(19) 52[* * *]

The following clause (19) shall be inserted after clause (18) of section 10
by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(19) family pension received by the widow or children or nominated heirs, as the
case may be, of a member of the armed forces (including para-military
forces) of the Union, where the death of such member has occurred in the
course of operational duties, in such circumstances and subject to such
conditions, as may be prescribed;
53
[(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:
Provided that for the assessment year commencing on the 1st day of April,
1972, the annual value of every such palace in the occupation54 of such
Ruler during the relevant previous year shall be exempt from income-tax;]
55
(20) the income of a local authority which is chargeable under the head 56[* * *]
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 57[(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];
58
[Explanation.For the purposes of this clause, the expression local
authority means
(i) Panchayat as referred to in clause (d) of article 243 of the Constitution59;
or
(ii) Municipality as referred to in clause (e) of article 243P of the
Constitution59; or
(iii) Municipal Committee and District Board, legally entitled to, or
entrusted by the Government with, the control or management of a
Municipal or local fund; or
(iv) Cantonment Board as defined in section 359 of the Cantonments Act,
1924 (2 of 1924);]
60
(20A) [***]
61 62
[ (21) 63any 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 :
(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
64
[(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:]
65
[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:
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 account are maintained by it in respect of
such business:]
66
[Provided also that where the scientific research association is approved
by the Central Government and subsequently that Government is satisfied
that
(i) the scientific research association has not applied its income in
accordance with the provisions contained in clause (a) of the first
proviso; or
(ii) the scientific research association has not invested or deposited its funds
in accordance with the provisions contained in clause (b) of the first
proviso; or
(iii) the activities of the scientific research association are not genuine; or

(iv) the activities of the scientific research association are not being carried
out in accordance with all or any of the conditions subject to which such
association was approved,
it may, at any time after giving a reasonable opportunity of showing cause
against the proposed withdrawal to the concerned association, by order,
withdraw the approval and forward a copy of the order withdrawing the
approval to such association and to the Assessing Officer;]
(22) 67[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]
(22A) 68[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]
69
[(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 70 in the
Official Gazette, specify 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:]
71
[Provided also that where the news agency has been specified, by
notification, by the Central Government and subsequently that Government
is satisfied that such news agency has not applied or accumulated or
distributed its income in accordance with the provisions contained in the
first proviso, it may, at any time after giving a reasonable opportunity of
showing cause, rescind the notification and forward a copy of the order
rescinding the notification to such agency and to the Assessing Officer;]
(23) 72[Omitted by the Finance Act, 2002, w.e.f. 1-4-2003.]
73 74
[ (23A) any income (other than income chargeable under the head 75[* * *] 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, medicine, accountancy, engineering or architecture or
such other profession76 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 approved 77 for the
purpose of this clause by the Central Government by general or special
order:]
78
[Provided further that where the association or institution has been
approved by the Central Government and subsequently that Government is
satisfied that
(i) such association or institution has not applied or accumulated its income
in accordance with the provisions contained in the first proviso; or

(ii) the activities of the association or institution are not being carried out in
accordance with all or any of the conditions subject to which such
association or institution was approved,
it may, at any time after giving a reasonable opportunity of showing cause
against the proposed withdrawal to the concerned association or institution,
by order, withdraw the approval and forward a copy of the order
withdrawing the approval to such association or institution and to the
Assessing Officer;]
79
[(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 dependants;]
80
[(23AAA) any income received by any person on behalf of a fund established, for
such purposes as may be notified81 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 fulfils 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 rules82
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;]
83
[(23AAB)
any income of a fund, by whatever name called, set up by the Life
Insurance Corporation of India on or after the 1st day of August, 1996 84[or
any other insurer] under a pension scheme,
(i) to which contribution is made by any person for the purpose of
receiving pension from such fund;
(ii) which is approved by the Controller of Insurance 84[or the Insurance
Regulatory and Development Authority established under sub-section
(1) of section 3 of the Insurance Regulatory and Development Authority
Act, 1999 (41 of 1999), as the case may be].
Explanation.For the purposes of this clause, the expression Controller of
Insurance shall have the meaning assigned to it in clause (5B) of section 2
of the Insurance Act, 1938 (4 of 1938)85;]
86
[(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:
87
[Provided also that where the institution has been approved by the Khadi
and Village Industries Commission and subsequently that Commission is
satisfied that
(i) the institution has not applied or accumulated its income in accordance
with the provisions contained in the first proviso; or
(ii) the activities of the institution are not being carried out in accordance
with all or any of the conditions subject to which such institution was
approved,
it may, at any time after giving a reasonable opportunity of showing cause
against the proposed withdrawal to the concerned institution, by order,
withdraw the approval and forward a copy of the order withdrawing the
approval to such institution and to the Assessing Officer.]
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) 88khadi and village industries have the meanings respectively
assigned to them in that Act;]
89
[(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, 89khadi and village
industries have the meanings respectively assigned to them in the Khadi
and Village Industries Commission Act, 1956 (61 of 1956);]
89
[(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;]
90
[(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 scheme91 as the Central Government may, by notification
in the Official Gazette, specify 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;]
92
[(23BBC ) any income of the SAARC Fund for Regional Projects set up by
Colombo Declaration issued on the 21st day of December, 1991 by the
Heads of State or Government of the Member Countries of South Asian
Association for Regional Cooperation established on the 8th day of
December, 1985 by the Charter of the South Asian Association for Regional
Cooperation;]
93
[(23BBD) any income of the Secretariat of the Asian Organisation of the Supreme
Audit Institutions registered as ASOSAI-SECRETARIAT under the
Societies Registration Act, 1860 (21 of 1860) for 94[seven previous years
relevant to the assessment years beginning on the 1st day of April, 2001 and
ending on the 31st day of March, 2008];
(23BBE) any income of the Insurance Regulatory and Development Authority
established under sub-section (1) of section 3 of the Insurance Regulatory
and Development Authority Act, 1999 (41 of 1999);]
95 96
[ (23C) any income received by any person on behalf of
(i) the Prime Ministers National Relief Fund; or
(ii) the Prime Ministers Fund (Promotion of Folk Art); or
(iii) the Prime Ministers Aid to Students Fund; 97[or]
98
[(iiia)the National Foundation for Communal Harmony; or]
99
[(iiiab)any university or other educational institution1 existing1 solely1 for
educational purposes and not for purposes of profit, and which is wholly
or substantially financed by the Government; or
(iiiac) any 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, and which is
wholly or substantially financed by the Government; or
(iiiad) any university or other educational institution2 existing2 solely2 for
educational purposes and not for purposes of profit if the aggregate
annual receipts of such university or educational institution do not
exceed the amount of annual receipts as may be prescribed3; or
(iiiae) any 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, if the aggregate
annual receipts of such hospital or institution do not exceed the amount
of annual receipts as may be prescribed3; or]
4
[(iv) any other fund or institution established for charitable purposes which
may be notified5 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 notified 6 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;
7
[(vi) any university or other educational institution8 existing8 solely8 for
educational purposes and not for purposes of profit, other than those
mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be
approved9 by the prescribed authority10; or
(via) any 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, other than those
mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may be
approved11 by the prescribed autho-rity12 :]
Provided that the fund or trust or institution 13[or any university or other
educational institution14 or any hospital or other medical institution] referred
to in sub-clause (iv) or sub-clause (v) 13[or sub-clause (vi) or sub-clause
(via)] shall make an application in the prescribed form15 and manner to the
prescribed authority16 for the purpose of grant of the exemption, or
continuance thereof, under sub-clause (iv) or sub-clause (v) 13[or sub-clause
(vi) or sub-clause (via)] :
17
[Provided further that the Central Government, before notifying the fund
or trust or institution, or the prescribed authority, before approving any
university or other educational institution or any hospital or other medical
institution, under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via), may call for such documents (including audited annual
accounts) or information from the fund or trust or institution or any
university or other educational institution or any hospital or other medical
institution, as the case may be, as it thinks necessary in order to satisfy itself
about the genuineness of the activities of the fund or trust or institution or
any university or other educational institution or any hospital or other
medical institution, as the case may be, and the Central Government or the
prescribed authority, as the case may be, may also make such inquiries as it
deems necessary in this behalf :]
Provided also that the fund or trust or institution 18[or any university or
other educational institution19 or any hospital or other medical institution]
referred to in sub-clause (iv) or sub-clause (v) 18[or sub-clause (vi) or subclause (via)]
20
[(a) applies its income, or accumulates it for application, wholly and
exclusively to the objects for which it is established and in a case
where more than fifteen per cent of its income is accumulated on or
after the 1st day of April, 2002, the period of the accumulation of the
amount exceeding fifteen per cent of its income shall in no case
exceed five years; and]
21
[(b) does not invest or deposit its funds, other than

(i) any assets held by the fund, trust or institution 22[or any
university or other educational institution23 or any hospital or
other medical institution] where such assets form part of the
corpus of the fund, trust or institution 22[or any university or
other educational institution or any hospital or other medical
institution] as on the 1st day of June, 1973;
24
[(ia) any asset, being equity shares of a public company, held by any
university or other educational institution or any hospital or
other medical institution where such assets form part of the
corpus of any university or other educational institution or any
hospital or other medical institution as on the 1st day of June,
1998;]
(ii) any assets (being debentures issued by, or on behalf of, any
company or corporation), acquired by the fund, trust or
institution 25[or any university or other educational institution 26
or any hospital or other medical institution] before the 1st day
of March, 1983;
(iii) any accretion to the shares, forming part of the corpus
mentioned in sub-clause (i) 27[and sub-clause (ia)], by way of
bonus shares allotted to the fund, trust or institution 25[or any
university or other educational institution or any hospital or
other medical 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:]
Provided also that the exemption under sub-clause (iv) or sub-clause (v)
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,
28
[1993] :
29
[Provided also that the exemption under sub-clause (vi) or sub-clause
(via) shall not be denied in relation to any funds invested or deposited
before the 1st day of June, 1998, 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,
2001 :]
30
[Provided also that the exemption under sub-clause (iv) or sub-clause (v)
29
[or sub-clause (vi) or sub-clause (via)] 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 31[or any university or
other educational institution or any hospital or other medical 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 sub-clause (iv) or sub-clause (v) 32
[or sub-clause (vi) or sub-clause (via)] shall apply in relation to any income
of the fund or trust or institution 32[or any university or other educational
institution or any hospital or other medical institution], being profits and
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
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:]
33
[Provided also that any amount of donation received by the fund or
institution in terms of clause (d) of sub-section (2) of section 80G 34[in
respect of which accounts of income and expenditure have not been
rendered to the authority prescribed under clause (v) of sub-section (5C) of
that section, in the manner specified in that clause, or] which has been
utilised for purposes other than providing relief to the victims of earthquake
in Gujarat or which remains unutilised in terms of sub-section (5C) of
section 80G and not transferred to the Prime Ministers National Relief
Fund on or before the 31st day of March, 35[2004] shall be deemed to be the
income of the previous year and shall accordingly be charged to tax:]
36
[***]
37
[Provided also that where the fund or trust or institution or any university
or other educational institution or any hospital or other medical institution
referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via) does not apply its income during the year of receipt and
accumulates it, any payment or credit out of such accumulation to any trust
or institution registered under section 12AA or to any fund or trust or
institution or any university or other educational institution or any hospital
or other medical institution referred to in sub-clause (iv) or sub-clause (v) or
sub-clause (vi) or sub-clause (via) shall not be treated as application of
income to the objects for which such fund or trust or institution or
university or educational institution or hospital or other medical institution,
as the case may be, is established :
Provided also that where the fund or institution referred to in sub-clause
(iv) or trust or institution referred to in sub-clause (v) is notified by the
Central Government or any university or other educational institution
referred to in sub-clause (vi) or any hospital or other medical institution
referred to in sub-clause (via), is approved by the prescribed authority and
subsequently that Government or the prescribed authority is satisfied that
(i) such fund or institution or trust or any university or other educational
institution or any hospital or other medical institution has not
(A) applied its income in accordance with the provisions contained in
clause (a) of the third proviso; or

(B) invested or deposited its funds in accordance with the provisions

contained in clause (b) of the third proviso; or
(ii) the activities of such fund or institution or trust or any university or
other educational institution or any hospital or other medical institution

(A) are not genuine; or

(B) are not being carried out in accordance with all or any of the
conditions subject to which it was notified or approved,
it may, at any time after giving a reasonable opportunity of showing cause
against the proposed action to the concerned fund or institution or trust or
any university or other educational institution or any hospital or other
medical institution, rescind the notification or, by order, withdraw the
approval, as the case may be, and forward a copy of the order rescinding the
notification or withdrawing the approval to such fund or institution or trust
or any university or other educational institution or any hospital or other
medical institution and to the Assessing Officer;]
38
[(23D) 39[40[41[subject to the provisions of Chapter XII-E, any income of]]
(i) a Mutual Fund registered under the Securities 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
notification42 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 corres-ponding new Bank
constituted under section 3 of the Banking Companies (Acquisition
and Transfer of Under-takings) Act, 1970 (5 of 1970), or under
section 3 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980 (40 of 1980);
(b) the expression public financial institution shall have the meaning
assigned to it in section 4A of the Companies Act, 1956 (1 of
1956)43;]
44
[(c) the expression 45Securities 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
(15 of 1992);]
46
(23E) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003.]
47
[(23EA) any income of such Investor Protection Fund set up by recognised stock
exchanges in India, 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 recognised stock exchange, 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;]
48
[(23EB) any income of the Credit Guarantee Fund Trust for Small 49[***] Industries,
being a trust created by the Government of India and the Small Industries
Development Bank of India established under sub-section (1) of section 3 of
the Small Industries Development Bank of India Act, 1989 (39 of 1989), for
five previous years relevant to the assessment years beginning on the 1st
day of April, 2002 and ending on the 31st day of March, 2007;]
50
[(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 :
Provided that such venture capital fund or venture capital company is
approved for the purposes of this clause by the prescribed authority 51 in
accordance with the rules52 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 :
53
[Provided also that nothing contained in this clause shall apply in respect
of any investment made after the 31st day of March, 1999.]
54
[* * *]
54
[* * *]
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
55
[(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 business of generation or generation and distribution of
electricity or any other form of power or engaged in the business of
providing telecommunication services or in the business of developing,
maintaining and operating any infrastructure facility or engaged in the
manufacture or production of such articles or things (including computer
software) as may be notified56 by the Central Government in this behalf;
(d) infrastructure facility means a road, highway, bridge, airport, port, rail
system, a water supply project, irrigation project, sanitation and
sewerage system or any other public facility of a similar nature as may
be notified by the Board in this behalf in the Official Gazette and which
fulfils the conditions specified in sub-section (4A) of section 80-IA;]
57
[(23FA) any income by way of dividends 58[, other than dividends referred to in
section 115-O], 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 :
Provided that such venture capital fund or venture capital company is
approved, for the purposes of this clause, by the Central Government on an
application made to it in accordance with the rules 59 made in this behalf and
which satisfies the prescribed conditions :
Provided further that any approval by the Central Government 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 :
60
[Provided also that nothing contained in this clause shall apply in respect
of any investment made after the 31st day of March, 2000.]
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
(i) business of
(A) software;
(B) information technology;
(C) production of basic drugs in the pharmaceutical sector;
(D) bio-technology;
(E) agriculture and allied sectors; or
(F) such other sectors as may be notified61 by the Central
Government in this behalf; or
(ii) production or manufacture of any article or substance for which
patent has been granted to the National Research Laboratory or any
other scientific research institution approved by the Department of
Science and Technology;]
62
[(23FB) any income of a venture capital company or venture capital fund set up to
raise funds for investment in a venture capital undertaking.
Explanation 63[1].For the purposes of this clause,
(a) venture capital company means such company
(i) which has been granted a certificate of registration under the
Securities and Exchange Board of India Act, 1992 (15 of 1992),
and regulations made thereunder;
(ii) which fulfils the conditions as may be specified, with the
approval of the Central Government, by the Securities and
Exchange Board of India, by notification in the Official
Gazette, in this behalf;

(b) venture capital fund means such fund

64
[(i) operating under a trust deed registered under the
provisions of the Registration Act, 1908 (16 of 1908) or
operating as a venture capital scheme made by the Unit
Trust of India established under the Unit Trust of India
Act, 1963 (52 of 1963);]
(ii) which has been granted a certificate of registration under
the Securities and Exchange Board of India Act, 1992 (15
of 1992), and regulations made thereunder;
(iii) which fulfils the conditions as may be specified, with the
approval of the Central Government, by the Securities and
Exchange Board of India, by notification in the Official
Gazette, in this behalf; and
65
[(c) venture capital undertaking means a venture capital undertaking referred to in the Securities and Exchange Board of
India (Venture Capital Funds) Regulations, 1996 made under
the Securities and Exchange Board of India Act, 1992 (15 of
1992) and notified as such in the Official Gazette by the Board
for the purposes of this clause; ]]
66
[***]
67 68
[ (23G) any income by way of dividends 69[, other than dividends referred to in
section 115-O], interest or long-term capital gains of an infrastructure
capital fund or an infrastructure capital company 70[or a co-operative bank]
from investments made on or after the 1st day of June, 1998 by way of
shares or long-term finance in 71[any enterprise or undertaking wholly
engaged in the business referred to in sub-section (4) of section 80-IA or a
housing project referred to in sub-section (10) of section 80-IB] 72[or a hotel
project or a hospital project] and which has been approved73 by the Central
Government on an application made by it in accordance with the rules74
made in this behalf and which satisfies the prescribed conditions.
The following proviso shall be inserted in clause (23G) of section 10 by
the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Provided that the income, by way of dividends, other than dividends
referred to in section 115-O, interest or long-term capital gains of an
infrastructure capital company, shall be taken into account in com-puting
the book profit and income-tax payable under section 115JB.
75
[Explanation 1.]For the purposes of this clause,
(a) infrastructure capital company means such company as has made
investments by way of acquiring shares or providing long term finance
to an enterprise wholly engaged 76[in the business referred to in this
clause;]
(b) infrastructure 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 investment by way
of acquiring shares or providing long-term finance to an enterprise
wholly engaged 77[in the business referred to in this clause;]
(c) 78[***]

(d) long-term finance shall have the meaning assigned to it in clause (viii)
of sub-section (1) of section 36;
79
[(e) co-operative bank 80 shall have the meaning assigned to it in clause
(dd) of section 2 of the Deposit Insurance and Credit Guarantee
Corporation Act, 1961 (47 of 1961);
(f) interest includes any fee or commission received by a financial
institution for giving any guarantee to, or enhancing credit in respect of,
an enterprise which has been approved by the Central Government for
the purposes of this clause;]
81
[(g) hotel project means a project for constructing a hotel of not less than
three-star category as classified by the Central Government;
(h) hospital project means a project for constructing a hospital with at
least one hundred beds for patients.]
82
[Explanation 2.For the removal of doubts, it is hereby declared that any
income by way of dividends, interest or long-term capital gains of an
infrastructure capital fund or an infrastructure capital company from
investments made before the 1st day of June, 1998 by way of shares or
long-term finance in any enterprise carrying on the business of developing,
maintaining and operating any infrastructure facility shall not be included
and the provisions of this clause as it stood immediately before its
amendment by the Finance (No. 2) Act, 1998 (21 of 1998) shall apply to
such income;]
83 84
[ (24) any income chargeable under the heads Income from house property and
Income from other sources of
(a) a registered union within the meaning of the 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;
(b) an association of registered unions referred to in sub-clause (a);]
(25) (i) interest on securities which are held by, or are the property of, any
provident fund to which the Provident Funds Act, 1925 (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;
(iii) any income received by the trustees on behalf of an approved
superannuation fund;
85
[(iv) any income received by the trustees on behalf of an approved gratuity
fund;]
86
[(v) any income received
(a) by the Board of Trustees constituted under the Coal Mines Provident
Funds and Miscellaneous Provisions Act, 1948 (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 (19 of 1952), on behalf
of the Deposit-linked Insurance Fund established under section 6C of
that Act;]

87

[(25A) any income of the Employees State Insurance Fund set up under the
provisions of the Employees State Insurance Act, 1948 (34 of 1948);]
88
[(26) 89in the case of a member of a 90Scheduled Tribe as defined in clause (25) of
article 366 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 91[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 (81 of 1971)] 92[or in the Ladakh region
of the State of Jammu and Kashmir], any income which accrues or arises to
him,
(a) from any source in the areas 93[or States aforesaid], or
(b) by way of dividend or interest on securities;]
94
[(26A) any income accruing or arising to any person 95[* * *] from any source in
the district of Ladakh or outside India in any previous year relevant to any
assessment year commencing before the 1st day of April, 96[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, 1962.
97
[Explanation 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)97a 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.]
98
[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;]
(26AA) 99[* * *]
1
[(26B) any income of a corporation established by a Central, State or Provincial Act
or of any other body, institution or association (being a 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 2[members of the Scheduled Castes or the
Scheduled Tribes or backward classes or of any two or all of them].
3
[Explanation.For the purposes of this clause,
(a) 4Scheduled Castes and 5Scheduled Tribes shall have the meanings
respectively assigned to them in clauses (24) and (25) of article 366 of
the Constitution;

(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;]
6
[(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 notified7 as such by the Central Government in the
Official Gazette in this behalf;]
7a
[(26BBB) any income of a corporation established by a Central, State or
Provincial Act for the welfare and economic upliftment of ex-servicemen
being the citizens of India.
Explanation.For the purposes of this clause, ex-serviceman means a
person who has served in any rank, whether as combatant or noncombatant, in the armed forces of the Union or armed forces of the Indian
States before the commencement of the Constitution (but excluding the
Assam Rifles, Defence Security Corps, General Reserve Engineering Force,
Lok Sahayak Sena, Jammu and Kashmir Militia and Territorial Army) for a
continuous period of not less than six months after attestation and has been
released, otherwise than by way of dismissal or discharge on account of
misconduct or inefficiency, and in the case of a deceased or incapacitated
ex-serviceman includes his wife, children, father, mother, minor brother,
widowed daughter and widowed sister, wholly dependant upon such exserviceman immediately before his death or incapacitation;]
8
[(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;]
(28) 9[* * *]
(29) 10[Omitted by the Finance Act, 2002, w.e.f. 1-4-2003.]
11
[(29A) any income accruing or arising to
(a) the Coffee Board constituted under section 4 of the Coffee Act, 1942 (7
of 1942) in any previous year relevant to any assessment year
commencing on or after the 1st day of April, 1962 or the previous year
in which such Board was constituted, whichever is later;
(b) the Rubber Board constituted under sub-section (1) of section 4 of the
Rubber Board Act, 1947 (24 of 1947) in any previous year relevant to
any assessment year commencing on or after the 1st day of April, 1962
or the previous year in which such Board was constituted, whichever is
later;
(c) the Tea Board established under section 4 of the Tea Act, 1953 (29 of
1953)
in any previous year relevant to any assessment year

commencing on or after the 1st day of April, 1962 or the previous year
in which such Board was constituted, whichever is later;
(d) the Tobacco Board constituted under the Tobacco Board Act, 1975 (4 of
1975) in any previous year relevant to any assessment year commencing
on or after the 1st day of April, 1975 or the previous year in which such
Board was constituted, whichever is later;
(e) the Marine Products Export Development Authority established under
section 4 of the Marine Products Export Development Authority Act,
1972 (13 of 1972) in any previous year relevant to any assessment year
commencing on or after the 1st day of April, 1972 or the previous year
in which such Authority was constituted, whichever is later;
(f) the Agricultural and Processed Food Products Export Development
Authority established under section 4 of the Agricultural and Processed
Food Products Export Development Act, 1985 (2 of 1986) in any
previous year relevant to any assessment year commencing on or after
the 1st day of April, 1985 or the previous year in which such Authority
was constituted, whichever is later;
(g) the Spices Board constituted under sub-section (1) of section 3 of the
Spices Board Act, 1986 (10 of 1986) in any previous year relevant to
any assessment year commencing on or after the 1st day of April, 1986
or the previous year in which such Board was constituted, whichever is
later;]
12
13
[(30) 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 scheme14 for replantation or
replacement of tea bushes 15[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 16[Assessing] Officer, along with
his return of income for the assessment year concerned or within such
further time as the 16[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 the Tea Act, 1953 (29 of 1953);]
17
[(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;]
18
[(32) in the case of an assessee referred to in sub-section (1A) of section 64, any
income includible 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 includible;]
19
[(33) any income arising from the transfer of a capital asset, being a unit of the
Unit Scheme, 1964 referred to in Schedule I to the Unit Trust of India
(Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002)20 and where
the transfer of such asset takes place on or after the 1st day of April, 2002;]
21
[(34) any income by way of dividends referred to in section 115-O;
(35) any income by way of,
(a) income received in respect of the units of a Mutual Fund specified under
clause (23D); or
(b) income received in respect of units from the Administrator of the
specified undertaking; or
(c) income received in respect of units from the specified company:
Provided that this clause shall not apply to any income arising from
transfer of units of the Administrator of the specified undertaking or of the
specified company or of a mutual fund, as the case may be.
Explanation.For the purposes of this clause,
(a) Administrator means the Administrator as referred to in clause (a) of
section 2 of the Unit Trust of India (Transfer of Undertaking and
Repeal) Act, 2002 (58 of 2002)20;
(b) specified company means a company as referred to in clause (h) of
section 2 of the Unit Trust of India (Transfer of Undertaking and
Repeal) Act, 2002 (58 of 2002)20;
(36) any income arising from the transfer of a long-term capital asset, being an
eligible equity share in a company purchased on or after the 1st day of
March, 2003 and before the 1st day of March, 2004 and held for a period of
twelve months or more.
Explanation.For the purposes of this clause, eligible equity share
means,
(i) any equity share in a company being a constituent of BSE-500 Index of
the Stock Exchange, Mumbai as on the 1st day of March, 2003 and the

transactions of purchase and sale of such equity share are entered into
on a recognised stock exchange in India;
(ii) any equity share in a company allotted through a public issue on or
after the 1st day of March, 2003 and listed in a recognised stock
exchange in India before the 1st day of March, 2004 and the transaction
of sale of such share is entered into on a recognised stock exchange in
India.]
The following clauses (37) to (39) shall be inserted after clause (36) of
section 10 by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(37) in the case of an assessee, being an individual or a Hindu undivided family,
any income chargeable under the head Capital gains arising from the
transfer of agricultural land, where
(i) such land is situate in any area referred to in item (a) or item (b) of subclause (iii) of clause (14) of section 2;
(ii) such land, during the period of two years immediately preceding the
date of transfer, was being used for agricultural purposes by such
Hindu undivided family or individual or a parent of his;
(iii) such transfer is by way of compulsory acquisition under any law, or a
transfer the consideration for which is determined or approved by the
Central Government or the Reserve Bank of India;
(iv) such income has arisen from the compensation or consideration for
such transfer received by such assessee on or after the 1st day of April,
2004.
Explanation.For the purposes of this clause, the expression
compensation or consideration includes the compensation or
consideration enhanced or further enhanced by any court, Tribunal or other
authority;
(38) any income arising from the transfer of a long-term capital asset, being an
equity share in a company or a unit of an equity oriented fund where
(a) the transaction of sale of such equity share or unit is entered into on or
after the date on which Chapter VII of the Finance (No.2) Act, 2004
comes into force; and
(b) such transaction is chargeable to securities transaction tax under that
Chapter.
Explanation.For the purposes of this clause, equity oriented fund
means a fund
(i) where the investible funds are invested by way of equity shares in
domestic companies to the extent of more than fifty per cent of the total
proceeds of such fund; and
(ii) which has been set up under a scheme of a Mutual Fund specified under
clause (23D) :
Provided that the percentage of equity shareholding of the fund shall be
computed with reference to the annual average of the monthly averages of
the opening and closing figures.
22

[Special provision in respect of newly established undertakings in free trade

zone, etc.

10A. (1) Subject to the provisions of this section, a deduction of such profits and
gains as are derived by an undertaking from the export of articles or things or
computer software for a period of ten consecutive assessment years beginning with
the assessment year relevant to the previous year in which the undertaking begins to
manufacture or produce such articles or things or computer software, as the case may
be, shall be allowed from the total income of the assessee :
Provided that where in computing the total income of the undertaking for any
assessment year, its profits and gains had not been included by application of the
provisions of this section as it stood immediately before its substitution by the Finance
Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section
only for the unexpired period of the aforesaid ten consecutive assessment years :
Provided further that where an undertaking initially located in any free trade zone or
export processing zone is subsequently located in a special economic zone by reason
of conversion of such free trade zone or export processing zone into a special
economic zone, the period of ten consecutive assessment years referred to in this subsection shall be reckoned from the assessment year relevant to the previous year in
which the 23[undertaking began to manufacture or produce such articles or things or
computer software] in such free trade zone or export processing zone :
24
[Provided also that for the assessment year beginning on the 1st day of April, 2003,
the deduction under this sub-section shall be ninety per cent of the profits and gains
derived by an undertaking from the export of such articles or things or computer software :]
Provided also that no deduction under this section shall be allowed to any
undertaking for the assessment year beginning on the 1st day of April, 2010 and
subsequent years.
25
[(1A) Notwithstanding anything contained in sub-section (1), the deduction, in
computing the total income of an undertaking, which begins to manufacture or
produce articles or things or computer software during the previous year relevant to
any assessment year commencing on or after the 1st day of April, 2003, in any special
economic zone, shall be,
(i) hundred per cent of profits and gains derived from the export of such
articles or things or computer software for a period of five consecutive
assessment years beginning with the assessment year relevant to the
previous year in which the undertaking begins to manufacture or produce
such articles or things or computer software, as the case may be, and
thereafter, fifty per cent of such profits and gains for further two consecutive
assessment years, and thereafter;
(ii) for the next three consecutive assessment years, so much of the amount not
exceeding fifty per cent of the profit as is debited to the profit and loss
account of the previous year in respect of which the deduction is to be
allowed and credited to a reserve account (to be called the Special
Economic Zone Re-investment Allowance Reserve Account) to be created
and utilised for the purposes of the business of the assessee in the manner
laid down in sub-section (1B).
(1B) The deduction under clause (ii) of sub-section (1A) shall be allowed only if the
following conditions are fulfilled, namely:
(a) the amount credited to the Special Economic Zone Re-investment Allowance
Reserve Account is to be utilised

(i) for the purposes of acquiring new machinery or plant which is first put
to use before the expiry of a period of three years next following the
previous year in which the reserve was created; and
(ii) until the acquisition of new machinery or plant as aforesaid, for the
purposes of the business of the undertaking other than for distribution
by way of dividends or profits or for remittance outside India as profits
or for the creation of any asset outside India;
(b) the particulars, as may be prescribed26 in this behalf, have been furnished
by the assessee in respect of new machinery or plant along with the return
of income for the assessment year relevant to the previous year in which
such plant or machinery was first put to use.
(1C) Where any amount credited to the Special Economic Zone Re-investment
Allowance Reserve Account under clause (ii) of sub-section (1A),
(a) has been utilised for any purpose other than those referred to in sub-section
(1B), the amount so utilised; or
(b) has not been utilised before the expiry of the period specified in sub-clause
(i) of clause (a) of sub-section (1B), the amount not so utilised,
shall be deemed to be the profits,
(i) in a case referred to in clause (a), in the year in which the amount was so
utilised; or
(ii) in a case referred to in clause (b), in the year immediately following the
period of three years specified in sub-clause (i) of clause (a) of sub-section
(1B),
and shall be charged to tax accordingly.]
(2) This section applies to any undertaking which fulfils all the following conditions,
namely :
(i) it has begun or begins to manufacture or produce articles or things or
computer software 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;
(c) commencing on or after the 1st day of April, 2001 in any special
economic zone;
(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 undertaking
which is formed as a result of the re-establishment, reconstruction or revival
by the assessee of the business of any such undertakings 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) This section applies to the undertaking, if the sale proceeds of articles or things or
computer software exported out of India are received in, or brought into, India by the
assessee in convertible foreign exchange, within a period of six months from the end
of the previous year or, within such further period as the competent authority may
allow in this behalf.
Explanation 1.For the purposes of this sub-section, the expression competent
authority means the Reserve Bank of India or such other authority as is authorised
under any law for the time being in force for regulating payments and dealings in
foreign exchange.
Explanation 2.The sale proceeds referred to in this sub-section shall be deemed to
have been received in India where such sale proceeds are credited to a separate
account maintained for the purpose by the assessee with any bank outside India with
the approval of the Reserve Bank of India.
27
[(4) For the purposes of 28[sub-sections (1) and (1A)], the profits derived from export
of articles or things or computer software shall be the amount which bears to the
profits of the business of the undertaking, the same proportion as the export turnover
in respect of such articles or things or computer software bears to the total turnover of
the business carried on by the undertaking.]
(5) The deduction under 29[this section] shall not be admissible for any assessment
year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in
the prescribed form30, alongwith the return of income, the report of an accountant, as
defined in the Explanation below sub-section (2) of section 288, certifying that the
deduction has been correctly claimed in accordance with the provisions of this
section.
(6) 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
31
[ending before the 1st day of April, 2001], 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, 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) or subsection (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 31[ending before the 1st day of April,
2001];

(iii) no deduction shall be allowed under section 80HH or section 80HHA or

section 80-I or section 80-IA or section 80-IB in relation to the profits and
gains of the 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 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
year.
(7) The provisions of sub-section (8) and sub-section (10) of section 80-IA 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 undertaking referred to in section 80-IA.
32
[(7A) Where any undertaking of an Indian company which is entitled to the
deduction under this section is transferred, before the expiry of the period specified in
this section, to another Indian company in a scheme of amalgamation or demerger,
(a) no deduction shall be admissible under this section to the amalgamating or
the demerged company for the previous year in which the amalgamation or
the demerger takes place; and
(b) the provisions of this section shall, as far as may be, apply to the
amalgamated or the resulting company as they would have applied to the
amalgamating or the demerged company if the amalgamation or demerger
had not taken place.]
(8) Notwithstanding anything contained in the foregoing provisions of this section,
where the assessee, before the due date for furnishing the return of income under subsection (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.
(9) 33[Omitted by the Finance Act, 2003, w.e.f. 1-4-2004.]
(9A) 34[Omitted by the Finance Act, 2003, w.e.f. 1-4-2004.]
Explanation 1 35[Omitted by the Finance Act, 2003, w.e.f. 1-4-2004.]
Explanation 2.For the purposes of this section,
(i) computer software means
(a) any computer programme recorded on any disc, tape, perforated media
or other information storage device; or
(b) any customized electronic data or any product or service of similar
nature, as may be notified36 by the Board,
which is transmitted or exported from India to any place outside India by
any means;
(ii) 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 or any other corresponding law
for the time being in force;
(iii) 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 and Industry;

(iv) export turnover means the consideration in respect of export 37[by the
undertaking] of articles or things or computer software received in, or
brought into, India by the assessee in convertible foreign exchange in
accordance with sub-section (3), but does not include freight,
telecommunication charges or insurance attributable to the delivery of the
articles or things or computer software outside India or expenses, if any,
incurred in foreign exchange in providing the technical services outside
India;
(v) 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,38
specify for the purposes of this section;
(vi) relevant assessment year means any assessment year falling within a
period of ten consecutive assessment years referred to in this section;
(vii) software technology park means any park set up in accordance with the
Software Technology Park Scheme notified by the Government of India in
the Ministry of Commerce and Industry;
(viii) special economic zone means a zone which the Central Government may,
by notification in the Official Gazette, specify as a special economic zone
for the purposes of this section.]
39
[Explanation 3.For the removal of doubts, it is hereby declared that the profits
and gains derived from on site development of computer software (including services
for development of software) outside India shall be deemed to be the profits and gains
derived from the export of computer software outside India.]
40
[Explanation 4.For the purposes of this section, manufacture or produce shall
include the cutting and polishing of precious and semi-precious stones.]
41

[Special provisions in respect of newly established hundred per cent exportoriented undertakings.
10B. (1) Subject to the provisions of this section, a deduction of such profits and
gains as are derived by a hundred per cent export-oriented undertaking from the
export of articles or things or computer software for a period of ten consecutive
assessment years beginning with the assessment year relevant to the previous year in
which the undertaking begins to manufacture or produce articles or things or
computer software, as the case may be, shall be allowed from the total income of the
assessee :
Provided that where in computing the total income of the undertaking for any
assessment year, its profits and gains had not been included by application of the
provisions of this section as it stood immediately before its substitution by the Finance
Act, 2000, the undertaking shall be entitled to the deduction referred to in this subsection only for the unexpired period of aforesaid ten consecutive assessment years :
42
[Provided also* that for the assessment year beginning on the 1st day of April,
2003, the deduction under this sub-section shall be ninety per cent of the profits and
gains derived by an undertaking from the export of such articles or things or computer
software:]

Provided also that no deduction under this section shall be allowed to any
undertaking for the assessment year beginning on the 1st day of April, 2010 and
subsequent years.
(2) This section applies to any undertaking which fulfils all the following conditions,
namely :
(i) it manufactures or produces any articles or things or computer software;
(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 undertaking
which is formed as a result of the re-establishment, reconstruction or revival
by the assessee of the business of any such 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) This section applies to the undertaking, if the sale proceeds of articles or things or
computer software exported out of India are received in, or brought into, India by the
assessee in convertible foreign exchange, within a period of six months from the end
of the previous year or, within such further period as the competent authority may
allow in this behalf.
Explanation 1.For the purposes of this sub-section, the expression competent
authority means the Reserve Bank of India or such other authority as is authorised
under any law for the time being in force for regulating payments and dealings in
foreign exchange.
Explanation 2.The sale proceeds referred to in this sub-section shall be deemed to
have been received in India where such sale proceeds are credited to a separate
account maintained for the purpose by the assessee with any bank outside India with
the approval of the Reserve Bank of India.
43
[(4) For the purposes of sub-section (1), the profits derived from export of articles or
things or computer software shall be the amount which bears to the profits of the
business of the undertaking, the same proportion as the export turnover in respect of
such articles or things or computer software bears to the total turnover of the business
carried on by the undertaking.]
(5) The deduction under sub-section (1) shall not be admissible for any assessment
year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in
the prescribed form44, along with the return of income, the report of an accountant, as
defined in the Explanation below sub-section (2) of section 288, certifying that the
deduction has been correctly claimed in accordance with the provisions of this
section.
(6) 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
45
[ending before the 1st day of April, 2001], 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, 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) or subsection (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 45[ending before the 1st day of April,
2001];
(iii) no deduction shall be allowed under section 80HH or section 80HHA or
section 80-I or section 80-IA or section 80-IB in relation to the profits and
gains of the 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 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
year.
(7) The provisions of sub-section (8) and sub-section (10) of section 80-IA 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 undertaking referred to in section 80-IA.
46
[(7A) Where any undertaking of an Indian company which is entitled to the
deduction under this section is transferred, before the expiry of the period specified in
this section, to another Indian company in a scheme of amalgamation or demerger
(a) no deduction shall be admissible under this section to the amalgamating or
the demerged company for the previous year in which the amalgamation or
the demerger takes place; and
(b) the provisions of this section shall, as far as may be, apply to the
amalgamated or resulting company as they would have applied to the
amalgamating or the demerged company if the amalgamation or the
demerger had not taken place.]
(8) Notwithstanding anything contained in the foregoing provisions of this section,
where the assessee, before the due date for furnishing the return of income under subsection (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 year.
(9) 47[Omitted by the Finance Act, 2003, w.e.f. 1-4-2004.]
(9A) 48[Omitted by the Finance Act, 2003, w.e.f. 1-4-2004.]
Explanation 1. 49[Omitted by the Finance Act, 2003, w.e.f. 1-4-2004.]
Explanation 2.For the purposes of this section,

(i) computer software means

(a) any computer programme recorded on any disc, tape, perforated media
or other information storage device; or
(b) any customized electronic data or any product or service of similar
nature as may be notified50 by the Board,
which is transmitted or exported from India to any place outside India by
any means;
(ii) 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 or any other corresponding law
for the time being in force;
(iii) export turnover means the consideration in respect of export 50a[by the
undertaking] of articles or things or computer software received in, or
brought into, India by the assessee in convertible foreign exchange in
accordance with sub-section (3), but does not include freight,
telecommunication charges or insurance attributable to the delivery of the
articles or things or computer software outside India or expenses, if any,
incurred in foreign exchange in providing the technical services outside
India;
(iv) hundred per cent export-oriented undertaking means an undertaking
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 51 of the Industries (Development and
Regulation) Act, 1951 (65 of 1951), and the rules made under that Act;
(v) relevant assessment years means any assessment years falling within a
period of ten consecutive assessment years, referred to in this section.]
52
[Explanation 3.For the removal of doubts, it is hereby declared that the profits and
gains derived from on site development of computer software (including services for
development of software) outside India shall be deemed to be the profits and gains
derived from the export of computer software outside India.]
53
[Explanation 4.For the purposes of this section, manufacture or produce shall
include the cutting and polishing of precious and semi-precious stones.]
54

[Special provisions in respect of export of certain articles or things.

10BA. (1) Subject to the provisions of this section, a deduction of such profits and
gains as are derived by an undertaking from the export out of India of eligible articles
or things, shall be allowed from the total income of the assessee :
Provided that where in computing the total income of the undertaking for any
assessment year, deduction under section 10A or section 10B has been claimed, the
undertaking shall not be entitled to the deduction under this section :
Provided further that no deduction under this section shall be allowed to any
undertaking for the assessment year beginning on the 1st day of April, 2010 and
subsequent years.
(2) This section applies to any undertaking which fulfils the following conditions,
namely :

(a) it manufactures or produces the eligible articles or things without the use of
imported raw materials;
(b) 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 undertaking
which is formed as a result of the re-establishment, reconstruction or
revival by the assessee of the business of any such undertaking as is
referred to in section 33B, in the circumstances and within the period
specified in that section;
(c) 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 subsection (2) of section 80-I shall apply for the purposes of this clause as they
apply for the purposes of clause (ii) of sub-section (2) of that section;
(d) ninety per cent or more of its sales during the previous year relevant to the
assessment year are by way of exports of the eligible articles or things;
(e) it employs twenty or more workers during the previous year in the process
of manufacture or production.
(3) This section applies to the undertaking, if the sale proceeds of the eligible articles
or things exported out of India are received in or brought into, India by the assessee
in convertible foreign exchange, within a period of six months from the end of the
previous year or, within such further period as the competent authority may allow in
this behalf.
Explanation.For the purposes of this sub-section, the expression competent
authority means the Reserve Bank of India or such other authority as is authorised
under any law for the time being in force for regulating payments and dealings in
foreign exchange.
(4) For the purposes of sub-section (1), the profits derived from export out of India of
the eligible articles or things shall be the amount which bears to the profits of the
business of the undertaking, the same proportion as the export turnover in respect of
such articles or things bears to the total turnover of the business carried on by the
undertaking.
(5) The deduction under sub-section (1) shall not be admissible, unless the assessee
furnishes in the prescribed form54a, along with the return of income, the report of an
accountant, as defined in the Explanation below sub-section (2) of section 288,
certifying that the deduction has been correctly claimed in accordance with the
provisions of this section.
(6) Notwithstanding anything contained in any other provision of this Act, where a
deduction is allowed under this section in computing the total income of the assessee,
no deduction shall be allowed under any other section in respect of its export profits.
(7) The provisions of sub-section (8) and sub-section (10) of section 80-IA 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 undertaking referred to in section 80-IA.
Explanation.For the purposes of this section,
(a) 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 Management Act, 1999

(42 of 1999), and any rules made thereunder or any other corresponding
law for the time being in force;
(b) eligible articles or things means all hand-made articles or things, which
are of artistic value and which requires the use of wood as the main raw
material;
(c) export turnover means the consideration in respect of export by the
undertaking of eligible articles or things received in, or brought into, India
by the assessee in convertible foreign exchange in accordance with subsection (3), but does not include freight, telecommunication charges or
insurance attributable to the delivery of the articles or things outside India;
(d) export out of India shall not include any transaction by way of sale or
otherwise, in a shop, emporium or any other establishment situate in India,
not involving clearance of any customs station 54b as defined in the Customs
Act, 1962 (52 of 1962).]
55

[Meaning of computer programmes in certain cases.

10BB. The profits and gains derived by an undertaking from the production of
computer programmes under section 10B, as it stood prior to its substitution by
section 7 of the Finance Act, 2000 (10 of 2000), shall be construed as if for the words
computer programmes, the words computer programmes or processing or management of electronic data had been substituted in that section.]
56

[Special provision in respect of certain industrial undertakings in NorthEastern Region.

10C. (1) Subject to the provisions of this section, any profits and gains derived by an
assessee from an industrial undertaking, which has begun or begins to manufacture or
produce any article or thing on or after the 1st day of April, 1998 in any Integrated
Infrastructure Development Centre or Industrial Growth Centre located in the NorthEastern Region (hereafter in this section referred to as the industrial undertaking) 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 :
(i) 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 indus-trial
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 ;
(ii) 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 (3)
of section 80-IA shall apply for the purposes of clause (ii) 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 ten consecutive assessment years beginning

with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things.
(4) Notwithstanding anything contained in any other provision of this Act, in
computing the total income of the assessee of any previous year relevant to any
subsequent assessment year,
(i) section 32, section 35 and clause (ix) of sub-section (1) of section 36 shall
apply as if 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, 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 deduction;
(ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or subsection (3) of section 74, in so far as such loss relates to the business of the
industrial 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 or section 80-IA or section 80-IB or section 80JJA in relation to
the profits and gains of the industrial undertakings; 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
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) The provisions of sub-section (8) and sub-section (10) of section 80-IA 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 80IA or section 80-IB, as the case may be.
(6) 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 in any of the relevant assessment
years.
57
[Provided that no deduction under this section shall be allowed to any undertaking
for the assessment year beginning on the 1st day of April, 2004 and subsequent
years.]
Explanation.For the purposes of this section,
(i) Integrated Infrastructure Development Centre means such centres located
in the States of the North-Eastern Region, which the Central Government,
may, by notification in the Official Gazette, specify58 for the purposes of
this section;
(ii) Industrial Growth Centre means such centres located in the States of the
North-Eastern Region, which the Central Government may, by notification
in the Official Gazette, specify58 for the purposes of this section;

(iii) North-Eastern Region means the region comprising the States of

Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland,
Sikkim and Tripura;
(iv) relevant assessment years means the ten consecutive years beginning with
the year in which the industrial undertaking begins to manufacture or
produce articles or things.]
59

Income60 from property held for charitable or religious purposes.

61
11. (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
62
[(a) income derived from property60 held under trust wholly for charitable or
religious purposes, to the extent to which such income 60 is applied60 to such
purposes in India; and, where any such income 60 is accumulated60 or set
apart for application to such purposes in India, to the extent to which the
income so accumulated or set apart60 is not in excess of 63[fifteen] per cent
of the income from such property;
(b) income derived from property held under trust in part60 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 64[fifteen] per cent of the income from such property;
(c) income 65[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
(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;
66
[(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.]
67
[Explanation.For the purposes of clauses (a) and (b),
(1) in computing the 68[fifteen] 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 69[eighty-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) 70[* * *] of section 139 71[* * *] 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 the case referred to in
sub-clause (ii), during the previous year immediately following the previous
year in which the income was derived.]
72
[(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.]
73
[(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, subclause (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.]
74
75
[(2) [Where 76[eighty-five] per cent of the income referred 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:
]
(a) such person specifies, by notice in writing given to the 77[Assessing] Officer
in the prescribed78 manner79, 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;
80
[(b) the money so accumulated81 or set apart is invested or deposited in the
forms or modes specified in sub-section (5)]:]
82
[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:]
83
[Provided further that in respect of any income accumulated or set apart on or after
the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for
the words ten years at both the places where they occur, the words five years had
been substituted.]

84

[Explanation.Any amount credited or paid, out of income referred to in clause (a)

or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is
not applied, but is accumulated or set apart, to any trust or institution registered under
section 12AA or to any fund or institution or trust or any university or other
educational institution or any hospital or other medical institution referred to in subclause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of
section 10, shall not be treated as application of income for charitable or religious
purposes, either during the period of accumulation or thereafter.]
85

[(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
86
[(b) ceases to remain invested or deposited in any of the forms or modes
specified in sub-section (5), or]
(c) is not utilised87 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,
88
[(d) is credited or paid to any trust or institution registered under section 12AA
or to any fund or institution or trust or any university or other educational
institution or any hospital or other medical institution referred to in subclause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause
(23C) of section 10,]
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 88[credited or paid or], as the case may be, of the previous year
immediately following the expiry of the period aforesaid.]
89
[(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
90
[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 91[Assessing] Officer under clause (a) of
sub-section (2):]
92
[Provided that the Assessing Officer shall not allow application of such income by
way of payment or credit made for the purposes referred to in clause (d) of subsection (3) of section 11:]
93
[Provided further that in case the trust or institution, which has invested or
deposited its income in accordance with the provisions of clause (b) of sub-section
(2), is dissolved, the Assessing Officer may allow application of such income for the
purposes referred to in clause (d) of sub-section (3) in the year in which such trust or
institution was dissolved.]
(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 94[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 95[* * *].
96
[(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-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.]
97 98
[ (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) investment in savings certificates as defined in clause (c) of section 299 of
the Government Savings Certificates Act, 1959 (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, 1970 (5 of 1970), or under section 3 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1980 (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 principal 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 1[public sector company]:
2
[Provided that where an investment or deposit in any public sector
company has been made and such public sector company ceases to be a
public sector company,
(A) such investment made in the shares of such company shall be deemed to
be an investment made under this clause for a period of three years from
the date on which such public sector company ceases to be a public
sector company;
(B) such other investment or deposit shall be deemed to be an investment or
deposit made under this clause for the period up to the date on which
such investment or deposit becomes repayable by such 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 3[which is eligible for deduction under clause (viii) of subsection (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 3[which is eligible for deduction
under clause (viii) of sub-section (1) of section 36];
4
[(ixa) 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 urban infrastructure in India.
Explanation.For the purposes of this clause,
(a) long-term finance means any loan or advance where the terms under
which moneys are loaned or advanced provide for repayment along with
interest thereof during a period of not less than five years;
(b) public company5 shall have the meaning assigned to it in section 3 of
the Companies Act, 1956 (1 of 1956);
(c) urban infrastructure means a project for providing potable water
supply, sanitation and sewerage, drainage, solid waste management,
roads, bridges and flyovers for urban transport;]
(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;]
6
[(xi) deposits with the Industrial Development Bank of India established under
the Industrial Development Bank of India Act, 1964 (18 of 1964);]
7
[(xii) any other form or mode of investment or deposit as may be prescribed.8]
9

[Income of trusts or institutions from contributions.

12. 11[(1)] 12Any 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.]
13
[(2) The value of any services, being medical or educational services, made
available by any charitable or religious trust running a hospital or medical institution
or an educational institution, to any person referred to in clause (a) or clause (b) or
clause (c) or clause (cc) or clause (d) of sub-section (3) of section 13, shall be deemed
to be income of such trust or institution derived from property held under trust wholly
for charitable or religious purposes during the previous year in which such services
are so provided and shall be chargeable to income-tax notwithstanding the provisions
of sub-section (1) of section 11.
10

Explanation.For the purposes of this sub-section, the expression value shall be the
value of any benefit or facility granted or provided free of cost or at concessional rate
to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or
clause (d) of sub-section (3) of section 13.]
14
[(3) Notwithstanding anything contained in section 11, any amount of donation
received by the trust or institution in terms of clause (d) of sub-section (2) of section
80G 15[in respect of which accounts of income and expenditure have not been
rendered to the authority prescribed under clause (v) of sub-section (5C) of that
section, in the manner specified in that clause, or] which has been utilised for
purposes other than providing relief to the victims of earthquake in Gujarat or which
remains unutilised in terms of sub-section (5C) of section 80G and not transferred to
the Prime Ministers National Relief Fund on or before the 31st day of March,
16
[2004] shall be deemed to be the income of the previous year and shall accordingly
be charged to tax.]
17

[Conditions as to registration of trusts, etc.

12A. 19The 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:

(a) the person in receipt of the income has made an application for registration
of the trust or institution in the prescribed form20 and in the prescribed
manner to the 21[***] 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, 22[whichever is later and such
trust or institution is registered under section 12AA] :
23
[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 24[***] 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 25 aforesaid
for sufficient reasons;
(ii) from the 1st day of the financial year in which the application is made, if
the 26[***] Commissioner is not so satisfied;]
(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
27
[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 28 duly
signed and verified by such accountant and setting forth such particulars as
may be prescribed.]
(c) 29[***]
18

30

[Procedure for registration.

12AA. (1) The 31[***] Commissioner, on receipt of an application for registration of a

trust or institution made under clause (a) of section 12A, shall
(a) call for such documents or information from the trust or institution as he
thinks necessary in order to satisfy himself about the genuineness of
activities of the trust or institution and may also make such inquiries as he
may deem necessary in this behalf; and
(b) after satisfying himself about the objects of the trust or institution and the
genuineness of its activities, he
(i) shall pass an order in writing registering the trust or institution;
(ii) shall, if he is not so satisfied, pass an order in writing refusing to register
the trust or institution,
and a copy of such order shall be sent to the applicant :
Provided that no order under sub-clause (ii) shall be passed unless the applicant has
been given a reasonable opportunity of being heard.
32
[(1A) All applications, pending before the Chief Commissioner on which no order
has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999,
shall stand transferred on that day to the Commissioner and the Commissioner may
proceed with such applications under that sub-section from the stage at which they
were on that day.]
(2) Every order granting or refusing registration under clause (b) of sub-section (1)
shall be passed before the expiry of six months from the end of the month in which
the application was received under clause (a) of section 12A.]
32a
[(3) Where a trust or an institution has been granted registration under clause (b)
of sub-section (1) and subsequently the Commissioner is satisfied that the activities of
such trust or institution are not genuine or are not being carried out in accordance
with the objects of the trust or institution, as the case may be, he shall pass an order
in writing cancelling the registration of such trust or institution:
Provided that no order under this sub-section shall be passed unless such trust or
institution has been given a reasonable opportunity of being heard.]
33

[Section 11 not to apply in certain cases.

13. (1) Nothing contained in section 11 35[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 36income 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;
(bb) 37[* * *]
(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,
34

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 referred 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 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;
38
[(d) 39in 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 funds40 of the trust or institution are invested40 or deposited40 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 funds40 of the trust or institution invested40 or deposited40 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 41Government 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 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
42
[***];
43
[(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;
44
[(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, 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, 45[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.]
46
[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) 47[and clause
(d)] of sub-section (1), the income or the property 48 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 property48 of the trust or institution is, or
continues to be, lent48 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 48 of the trust or institution is, or
continues to be, made available for the use of any person referred to in subsection (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 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 referred to in sub-section (3) during the previous
year for consideration which is less than adequate;
49
[(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 funds50 of the trust or institution are, or continue to remain, invested50
for any period during the previous year (not being a period before the 1st
day of January, 1971), in any concern50 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 institution50;
(b) any person who has made a substantial contribution to the trust or
institution, 51[that is to say, any person whose total contribution up to the
end of the relevant previous year exceeds 52[fifty] thousand rupees];
(c) where such author, founder or person is a Hindu undivided family, a
member of the family;
53
[(cc) any trustee of the trust or manager (by whatever name called) of the
institution;]
(d) any relative of any such author, founder, person, 54[member, trustee or
manager] as aforesaid;
(e) any concern in which any of the persons referred to in clauses (a), (b), (c)
55
[, (cc)] and (d) has a substantial interest.
(4) Notwithstanding anything contained in clause (c) of sub-section (1) 56[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 capital57 of that concern, the exemption under section 11 55[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 58[funds] of the trust
or the institution have been invested in a concern in which such person has a substantial interest.
59
[(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.]
60
[(6) Notwithstanding anything contained in sub-section (1) or sub-section (2), but
without prejudice to the provisions contained in sub-section (2) of section 12, in the
case of a charitable or religious trust running an educational institution or a medical
institution or a hospital, the exemption under section 11 or section 12 shall not be
denied in relation to any income, other than the income referred to in sub-section (2)
of section 12, by reason only that such trust has provided educational or medical
facilities to persons referred to in clause (a) or clause (b) or clause (c) or clause (cc) or
clause (d) of sub-section (3).]
61
[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);
(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.]
62

[Special provision relating to incomes of political parties.

13A. Any income of a political party which is chargeable under the head 63[***]
Income from house property or Income from other sources or 64[Capital gains
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 65[Assessing] Officer to properly deduce its
income therefrom;
(b) in respect of each such voluntary contribution in excess of 66[twenty]
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 288 :
67
[Provided further that if the treasurer of such political party or any other person
authorised by that political party in this behalf fails to submit a report under subsection (3) of section 29C of the Representation of the People Act, 1951 (43 of 1951)
for a financial year, no exemption under this section shall be available for that
political party for such financial year.]
68
[Explanation.For the purposes of this section, political party means a political
party registered under section 29A of the Representation of the People Act, 1951 (43
of 1951).]
CHAPTER IV

COMPUTATION OF TOTAL INCOME

Heads of income
Heads of income.
69
14. 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.
70
[***]
C.Income from house property.
D.Profits and gains of business or profession.
E.Capital gains.
F.Income from other sources.
71

[Expenditure incurred in relation to income not includible in total income72.

14A.For the purposes of computing the total income under this Chapter, no
deduction shall be allowed in respect of expenditure incurred by the assessee in
relation to income which does not form part of the total income under this Act:]
73
[Provided that nothing contained in this section shall empower the Assessing
Officer either to reassess under section 147 or pass an order enhancing the assessment
or reducing a refund already made or otherwise increasing the liability of the assessee
under section 154, for any assessment year beginning on or before the 1st day of
April, 2001.]
A.Salaries
Salaries.
74
15. 75The following income shall be chargeable to income-tax under the head
Salaries
(a) any salary due76 from an employer or a former employer to an assessee in
the previous year, whether paid76 or not;
(b) any salary paid76 or allowed76 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.
77
[Explanation 1].For the removal of doubts, it is hereby declared that where any
salary paid in advance is 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.
78
[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.]
Deductions from salaries.
79
16. The income chargeable under the head Salaries shall be computed after
making the following deductions, namely :

80

[(i) in the case of an assessee whose income from salary, before allowing a
deduction under this clause,
(A) does not exceed five lakh rupees, a deduction of a sum equal to forty per
cent of the salary or thirty thousand rupees, whichever is less;
(B) exceeds five lakh rupees, a deduction of a sum of twenty thousand
rupees;]
81
[(ii) a deduction in respect of any allowance in the nature of an entertainment
allowance specifically granted by an employer to the 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;]
82
[(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 27683 of the
Constitution, leviable by or under any law.]
(iv) 84[***]
(v) 85[***]
Salary, perquisite and profits in lieu of salary defined.
86
17. 87For the purposes of sections 15 and 16 and of this section,
(1) salary88 includes88
(i) wages;
(ii) any annuity or pension;
(iii) any gratuity88;
(iv) any fees88, commissions, perquisites or profits in lieu of or in addition to
any salary or wages;
(v) any advance of salary;
89
[(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;
89a
[(viii) the contribution made by the Central Government in the previous year,
to the account of an employee under a pension scheme referred to in
section 80CCD;]
90
(2) perquisite includes
91
(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;
(c) by any employer (including a company) to an employee to whom the
provisions of paragraphs (a) and (b) of this sub-clause do not apply
and whose income 92[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 93[fifty] thousand rupees:]
94
[Provided that nothing contained in this sub-clause shall apply to the
value of any benefit provided by a company free of cost or at a
concessional rate to its employees by way of allotment of shares,
debentures or warrants directly or indirectly under 95[any Employees
Stock Option Plan or Scheme of the company offered to such employees
in accordance with the guidelines issued in this behalf by the Central
Government96.]
97
[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;]
(iiia) 98[***]
(iv) any sum paid by the employer in respect of any obligation which, but
for such payment, would have been payable by the assessee;
(v) any sum payable by the employer, whether directly or through a fund,
other than a recognised provident fund or an approved superannuation
fund 99[or a Deposit-linked Insurance Fund established under section
3G of the Coal Mines Provident Fund and Miscellaneous Provisions
Act, 1948 (46 of 1948), or, as the case may be, section 6C of the
Employees Provident Funds and Miscellaneous Provisions Act, 1952
(19 of 1952)], to effect an assurance on the life of the assessee or to
effect a contract for an annuity; and
1
[(vi) the value of any other fringe benefit or amenity 1a as may be
prescribed2 :]
3
[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;
4
[(ii) 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
(a) in any hospital maintained by the Government or any local authority
or any other hospital approved5 by the Government for the purposes
of medical treatment of its employees;
(b) in respect of the prescribed diseases6 or ailments, in any hospital
approved by the Chief Commissioner having regard to the
prescribed guidelines7 :
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 ailment 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 8[fifteen] 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 9[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,
10
[subject to the condition that
(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 :
11
[Provided further that for the assessment year beginning on the 1st day
of April, 2002, nothing contained in this clause shall apply to any employee
whose income under the head Salaries (whether due from, or paid or
allowed by, one or more employers) exclusive of the value of all perquisites
not provided for by way of monetary payment, does not exceed one lakh
rupees.]
Explanation.For the purposes of clause (2),
(i) hospital includes a dispensary or a clinic 12[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;]
13
[* * *]
14
(3) profits15 in lieu of salary includes

(i) the amount of any compensation15 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) 16[,
clause (10A)] 17[, clause (10B)], clause (11), 18[clause (12) 19[, 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 20[* * *], to the extent to which it does not consist of contributions
by the assessee or 21[interest on such contributions or any sum received
under a Keyman insurance policy including the sum allocated by way of
bonus on such policy.
Explanation.For the purposes of this sub-clause, the expression
Keyman insurance policy shall have the meaning assigned to it in
clause (10D) of section 10;]
22
[(iii) any amount due to or received, whether in lump sum or otherwise, by
any assessee from any person
(A) before his joining any employment with that person; or
(B) after cessation of his employment with that person.]
C.Income from house property
Income from house property.
24
22. 25The annual value of property consisting of any buildings or lands appurtenant
thereto of which the assessee is the owner26, 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.
27

[Annual value how determined.

23. (1) 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 or any part of the property is let and the actual rent
received or receivable26 by the owner in respect thereof is in excess of the
sum referred to in clause (a), the amount so received or receivable; or
(c) where the property or any part of the property is let and was vacant during
the whole or any part of the previous year and owing to such vacancy the
actual rent received or receivable by the owner in respect thereof is less than
the sum referred to in clause (a), the amount so received or receivable :
Provided that the taxes levied 28by any local authority in respect of the property shall
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.

Explanation.For the purposes of clause (b) or clause (c) of this sub-section, the
amount of actual rent received or receivable by the owner shall not include, subject to
such rules29 as may be made in this behalf, the amount of rent which the owner cannot
realise.
(2) Where the property consists of a house or part of a house which
(a) is in the occupation of the owner for the purposes of his own residence; or
(b) 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 or part of the house shall be taken to be nil.
(3) The provisions of sub-section (2) shall not apply if
(a) the house or part of the house is actually let during the whole or any part of
the previous year; or
(b) any other benefit therefrom is derived by the owner.
(4) Where the property referred to in sub-section (2) consists of more than one house

(a) the provisions of that sub-section shall apply only in respect of one of such
houses, which the assessee may, at his option, specify in this behalf;
(b) the annual value of the house or houses, other than the house in respect of
which the assessee has exercised an option under clause (a), shall be
determined under sub-section (1) as if such house or houses had been let.]
30

[Deductions from income from house property.

24. Income chargeable under the head Income from house property shall be
computed after making the following deductions, namely:
(a) a sum equal to thirty per cent of the annual value;
(b) where the property has been acquired, constructed, repaired, renewed or
reconstructed with borrowed capital, the amount of any interest payable on
such capital:
Provided that in respect of property referred to in sub-section (2) of section
23, the amount of deduction shall not exceed thirty thousand rupees :
Provided further that where the property referred to in the first proviso is
acquired or constructed with capital borrowed on or after the 1st day of
April, 1999 and such acquisition or construction is completed 31[within three
years from the end of the financial year in which capital was borrowed], the
amount of deduction under this clause shall not exceed one lakh fifty
thousand rupees.
Explanation.Where the property has been acquired or constructed with
borrowed capital, the interest, if any, payable on such capital borrowed 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 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:]
32
[Provided also that no deduction shall be made under the second proviso
unless the assessee furnishes a certificate, from the person to whom any
interest is payable on the capital borrowed, specifying the amount of interest
payable by the assessee for the purpose of such acquisition or construction

of the property, or, conversion of the whole or any part of the capital
borrowed which remains to be repaid as a new loan.
Explanation.For the purposes of this proviso, the expression new loan
means the whole or any part of a loan taken by the assessee subsequent to
the capital borrowed, for the purpose of repayment of such capital.]
Amounts not deductible from income from house property.
25. Notwithstanding anything contained in section 24, any 33[***] 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.
34

[Special provision for cases where unrealised rent allowed as deduction is

realised subsequently.
25A. Where a deduction has been made under clause (x) of sub-section (1) of section
24 35[as it stood immediately before its substitution by the Finance Act, 2001] 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
36
[as it stood immediately before its substitution by the Finance Act, 2001]) as the
income of that previous year, whether the assessee is the owner of that property in that
year or not.]
36

[Unrealised rent received subsequently to be charged to income-tax.

25AA. Where the assessee cannot realise rent from a property let to a tenant and
subsequently 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 as the income of that previous
year in which such rent is realised whether or not the assessee is the owner of that
property in that previous year.]
37

[Special provision for arrears of rent received.

25B. Where the assessee
(a) is the owner of any property consisting of any buildings or lands
appurtenant thereto which has been let to a tenant; and
(b) has received any amount, by way of arrears of rent from such property, not
charged to income-tax for any previous year,
the amount so received, after deducting 38[a sum equal to thirty per cent of such
amount], shall be deemed to be the income chargeable under the head Income from
house property and accordingly charged to income-tax as the income of that previous
year in which such rent is received, whether the assessee is the owner of that property
in that year or not.]

Property owned by co-owners.

39
26. 40Where 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.
41
[Explanation.For the purposes of this section, in applying the provisions of subsection (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.]
Owner of house property, annual charge, etc., defined.
42
27. 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 impartible estate shall be deemed to be the individual owner
of all the properties comprised in the estate ;
43
[(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
44
section 53A of the Transfer of Property Act, 1882 (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) 45[***]
(v) 45[***]
(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.
D.Profits and gains of business or profession
Profits and gains of business or profession.
46
28. 47The following income shall be chargeable to income-tax under the head
Profits and gains of business or profession,
(i) the profits and gains48 of any business or profession48 which was carried on
by the assessee at any time during the previous year ;
(ii) any compensation48 or other payment due to48 or received by48,

(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 ;
49
[(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 50 association from
specific services50 performed for its members ;
51
[(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) ;]
52
[(iiib) cash assistance (by whatever name called) received or receivable by any
person against exports under any scheme of the Government of India ;]
53
[(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 ;]
54
[(iv) the value of any benefit or perquisite, whether convertible into money or
not, arising from business or the exercise of a profession ;]
55
[(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 ;]
56
[(va) any sum, whether received or receivable, in cash or kind, under an
agreement for
(a) not carrying out any activity in relation to any business; or
(b) not sharing any know-how, patent, copyright, trade-mark, licence,
franchise or any other business or commercial right of similar nature or
information or technique likely to assist in the manufacture or
processing of goods or provision for services:
Provided that sub-clause (a) shall not apply to
(i) any sum, whether received or receivable, in cash or kind, on account of
transfer of the right to manufacture, produce or process any article or
thing or right to carry on any business, which is chargeable under the
head Capital gains;

(ii) any sum received as compensation, from the multilateral fund of the
Montreal Protocol on Substances that Deplete the Ozone layer under the
United Nations Environment Programme, in accordance with the terms
of agreement entered into with the Government of India.
Explanation.For the purposes of this clause,
(i) agreement includes any arrangement or understanding or action in
concert,
(A) whether or not such arrangement, understanding or action is formal
or in writing; or
(B) whether or not such arrangement, understanding or action is
intended to be enforceable by legal proceedings;
(ii) service means service of any description which is made available to
potential users and includes the provision of services in connection with
business of any industrial or commercial nature such as accounting,
banking, communication, conveying of news or information,
advertising, entertainment, amusement, education, financing, insurance,
chit funds, real estate, construction, transport, storage, processing,
supply of electrical or other energy, boarding and lodging;]
57
[(vi) any sum received under a Keyman insurance policy including the sum
allocated by way of bonus on such policy.
Explanation.For the purposes of this clause, the expression Keyman
insurance policy shall have the meaning assigned to it in clause (10D) of
section 10.]
Explanation 1.58-59[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.
Income from profits and gains of business or profession, how computed.
29. 60The income referred to in section 28 shall be computed in accordance with the
provisions contained in sections 30 to 61[43D].
Rent, rates, taxes, repairs and insurance for buildings.
60
30. 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
repairs62 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.

63

[Explanation.For the removal of doubts, it is hereby declared that the amount paid
on account of the cost of repairs referred to in sub-clause (i), and the amount paid on
account of current repairs referred to in sub-clause (ii), of clause (a), shall not
include any expenditure in the nature of capital expenditure.]
Repairs and insurance of machinery, plant and furniture.
64
31. 65In 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 repairs66 thereto ;

(ii) the amount of any premium paid in respect of insurance against risk of
damage or destruction thereof.
67
[Explanation.For the removal of doubts, it is hereby declared that the amount paid
on account of current repairs shall not include any expenditure in the nature of
capital expenditure.]
Depreciation.
68
32. (1) 69[In respect of depreciation of
(i) buildings70, machinery70, plant or furniture, being tangible assets;
(ii) know-how, patents, copyrights, trade marks, licences, franchises or any
other business or commercial rights of similar nature, being intangible
assets acquired on or after the 1st day of April, 1998,
70
owned , wholly or partly, by the assessee70 and used for the purposes of the business70
or profession, the following deductions shall be allowed]
71
[(i) in the case of assets of an undertaking engaged in generation or generation
and distribution of power, such percentage on the actual cost thereof to the
assessee as may be prescribed72;]
(ii) 73[in the case of any block of assets, such percentage on the written down
value thereof as may be prescribed74] :
75
[***]
76
[Provided 77[***] 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 78[but
before the 1st day of April, 2001], unless it is used
(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 :]
79
[Provided further that where an asset referred to in clause (i) or clause
(ii) 80[or clause (iia)], as the case may be, 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 sub-section in respect of such asset shall be
restricted to fifty per cent of the amount calculated at the percentage

prescribed for an asset under clause (i) or clause (ii) 80[or clause (iia)], as
the case may be :]
81
[Provided also that where an asset being commercial vehicle is acquired
by the assessee on or after the 1st day of October, 1998 but before the 1st
day of April, 1999 and is put to use before the 1st day of April, 1999 for the
purposes of business or profession, the deduction in respect of such asset
shall be allowed on such percentage on the written down value thereof as
may be prescribed.
Explanation.For the purposes of this proviso,
(a) the expression commercial vehicle means heavy goods vehicle,
heavy passenger motor vehicle, light motor vehicle, medium goods
vehicle and medium passenger motor vehicle but does not include
maxi-cab, motor-cab, tractor and road-roller;
(b) the expressions heavy goods vehicle82, heavy passenger motor
vehicle83, light motor vehicle83, medium goods vehicle83, medium
passenger motor vehicle83, maxi-cab84, motor-cab84, tractor83 and
road roller shall have the meanings respectively as assigned to them
in section 2 of the Motor Vehicles Act, 1988 (59 of 1988):]
85
[Provided also that, in respect of the previous year relevant to the
assessment year commencing on the 1st day of April, 1991, the deduction in
relation to any block of assets under this clause shall, in the case of a
company, be restricted to seventy-five per cent of the amount calculated at
the percentage, on the written down value of such assets, prescribed under
this Act immediately before the commencement of the Taxation Laws
(Amendment) Act, 1991:]
86
[Provided also that the aggregate deduction, in respect of depreciation of
buildings, machinery, plant or furniture, being tangible assets or know-how,
patents, copyrights, trademarks, licences, franchises or any other business or
commercial rights of similar nature, being intangible assets allowable to the
predecessor and the successor in the case of succession referred to in clause
(xiii) and clause (xiv) of section 47 or section 170 or to the amalgamating
company and the amalgamated company in the case of amalgamation, or to
the demerged company and the resulting company in the case of demerger,
as the case may be, shall not exceed in any previous year the deduction
calculated at the prescribed rates as if the succession or the amalgamation or
the demerger, as the case may be, had not taken place, and such deduction
shall be apportioned between the predecessor and the successor, or the
amalgamating company and the amalgamated company, or the demerged
company and the resulting company, as the case may be, in the ratio of the
number of days for which the assets were used by them.]
87
[Explanation 1.Where the business or profession of the assessee is
carried on in a building not owned by him but in respect of which the
assessee holds a lease or other right of occupancy and any capital
expenditure is incurred by the assessee for the purposes of the business or
profession on the construction of any structure or doing of any work in or in
relation to, and by way of renovation or extension of, or improvement to,
the building, then, the provisions of this clause shall apply as if the said
structure or work is a building owned by the assessee.

Explanation 2.For the purposes of this 88[sub-section] written down

value of the block of assets shall have the same meaning as in clause *(c)
of sub-section (6) of section 43.]
89
[Explanation 3.For the purposes of this sub-section, the expressions
assets and block of assets shall mean
(a) tangible assets, being buildings, machinery, plant or furniture;
(b) intangible assets, being know-how, patents, copyrights, trade marks,
licences, franchises or any other business or commercial rights of
similar nature.
Explanation 4.For the purposes of this sub-section, the expression knowhow means any industrial information or technique likely to assist in the
manufacture or processing of goods or in the working of a mine, oil-well or
other sources of mineral deposits (including searching for discovery or
testing of deposits for the winning of access thereto).
90
[Explanation 5.For the removal of doubts, it is hereby declared that the
provisions of this sub-section shall apply whether or not the assessee has
claimed the deduction in respect of depreciation in computing his total
income;]
91
[(iia) in the case of any new machinery or plant (other than ships and aircraft),
which has been acquired and installed after the 31st day of March, 2002, by
an assessee engaged in the business of manufacture or production of any
article or thing, a further sum equal to fifteen per cent of the actual cost of
such machinery or plant shall be allowed as deduction under clause (ii) :
Provided that such further deduction of fifteen per cent shall be allowed to

(A) a new industrial undertaking during any previous year in which such
undertaking begins to manufacture or produce any article or thing on or
after the 1st day of April, 2002; or
(B) any industrial undertaking existing before the 1st day of April, 2002,
during any previous year in which it achieves the substantial expansion
by way of increase in installed capacity by not less than 91a[twenty-five]
per cent:
Provided further that no deduction shall be allowed in respect of
(a) any machinery or plant which, before its installation by the assessee,
was used either within or outside India by any other person; or
(b) any machinery or plant installed in any office premises or any
residential accommodation, including accommodation in the nature of a
guest house; or
(c) any office appliances or road transport vehicles; or
(d) any machinery or plant, the whole of the actual cost of which is allowed
as a deduction (whether by way of depreciation or otherwise) in
computing the income chargeable under the head Profits and gains of
business or profession of any one previous year:
Provided also that no deduction shall be allowed under clause (A) or, as the
case may be, clause (B), of the first proviso unless the assessee furnishes the
details of machinery or plant and increase in the installed capacity of
production in such form, as may be prescribed 92 along with the return of
income, and the report of an accountant, as defined in the Explanation

below sub-section (2) of section 288 certifying that the deduction has been
correctly claimed in accordance with the provisions of this clause.
Explanation.For the purposes of this clause,
(1) new industrial undertaking means an undertaking which is not
formed,
(a) by the splitting up, or the reconstruction, of a business already in
existence; or
(b) by the transfer to a new business of machinery or plant previously
used for any purpose;
(2) installed capacity means the capacity of production as existing on the
31st day of March, 2002;]
93
[(iii) in the case of any building, machinery, plant or furniture in respect of which
depreciation is claimed and allowed under clause (i) and which is sold,
discarded, demolished or destroyed in the previous year (other than the
previous year in which it is first brought into use), the amount by which the
moneys payable in respect of such building, machinery, plant or furniture,
together with the amount of scrap value, if any, fall short of the written
down value thereof :
Provided that such deficiency is actually written off in the books of the
assessee.
Explanation.For the purposes of this clause,
(1) moneys payable in respect of any building, machinery, plant or
furniture includes
(a) any insurance, salvage or compensation moneys payable in respect
thereof;
(b) where the building, machinery, plant or furniture is sold, the price
for which it is sold,
so, however, that where the actual cost of a motor car is, in accordance
with the proviso to clause (1) of section 43, taken to be twenty-five
thousand rupees, the moneys payable in respect of such motor car shall
be taken to be a sum which bears to the amount for which the motor car
is sold or, as the case may be, the amount of any insurance, salvage or
compensation moneys payable in respect thereof (including the amount
of scrap value, if any) the same proportion as the amount of twenty-five
thousand rupees bears to the actual cost of the motor car to the assessee
as it would have been computed before applying the said proviso;
(2) sold includes a transfer by way of exchange or a compulsory
acquisition under any law for the time being in force but does not
include a transfer, in a scheme of amalgamation, of any asset by the
amalgamating company to the amalgamated company where the
amalgamated company is an Indian company.]
(iv) 94[***]
(v) 95[***]
(vi) 96[***]
(1A) 97[***]
98
[(2) Where, in the assessment of the assessee, full effect cannot be given to any
allowance under sub-section (1) in any previous year, owing to there being no profits
or gains chargeable for that previous year99, or owing to the profits or gains chargeable

being less than the allowance, then, subject to the provisions of sub-section (2) of
section 72 and sub-section (3) of section 73, the allowance or the part of the
allowance to which effect has not been given, as the case may be, shall be added to
the amount of the allowance for depreciation for the following previous year and
deemed to be part of that allowance, or if there is no such allowance for that previous
year, be deemed to be the allowance for that previous year, and so on for the
succeeding previous years.]
1

[Investment allowance.2
3
32A. (1) In respect of a ship or an aircraft or machinery or plant specified in subsection (2), which is owned by the assessee and is wholly used for the purposes of the
business4 carried on by him, there shall, in accordance with and subject to the
provisions of this section, be allowed a deduction, in respect of the previous year in
which the ship or aircraft was acquired or the machinery or plant was installed 4 or, if
the ship, aircraft, machinery or plant is first put to use in the immediately succeeding
previous year, then, in respect of that previous year, of a sum by way of investment
allowance equal to twenty-five per cent of the actual cost of the ship, aircraft,
machinery or plant to the assessee :
5
[Provided that in respect of a ship or an aircraft or machinery or plant specified in
sub-section (8B), this sub-section shall have effect as if for the words twenty-five per
cent, the words twenty per cent had been substituted :]
Provided 5[further] that no deduction shall be allowed under this section in respect of

(a) any machinery or plant installed in any office premises or any residential
accommodation, including any accommodation in the nature of a guest
house ;
(b) any office appliances or road transport vehicles ;
(c) any ship, machinery or plant in respect of which the deduction by way of
development rebate is allowable under section 33 ; and
(d) any machinery or plant, the whole of the actual cost of which is allowed as a
deduction (whether by way of depreciation or otherwise) in computing the
income chargeable under the head Profits and gains of business or
profession of any one previous year.
6
[Explanation.For the purposes of this sub-section, actual cost means the actual
cost of the ship, aircraft, machinery or plant to the assessee as reduced by that part of
such cost which has been met out of the amount released to the assessee under subsection (6) of section 32AB.]
(2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the
following, namely :
(a) a new ship or new aircraft acquired after the 31st day of March, 1976, by an
assessee engaged in the business of operation of ships or aircraft ;
(b) any new machinery or plant installed after the 31st day of March, 1976,
(i) for the purposes of business of generation or distribution of electricity or
any other form of power ; or
7
[(ii) in a small-scale industrial undertaking8 for the purposes of business of
manufacture8 or production8 of any article or thing8 ; or

(iii) in any other industrial undertaking8 for the purposes of business of

construction, manufacture8 or production8 of any article or thing, not
being an article or thing8 specified in the list in the Eleventh Schedule :]
9
[Provided that nothing contained in clauses (a) and (b) shall apply in
relation to,
(i) a new ship or new aircraft acquired, or
(ii) any new machinery or plant installed,
after the 31st day of March, 1987 but before the 1st day of April, 1988,
unless such ship or aircraft is acquired or such machinery or plant is
installed in the circumstances specified in clause (a) of sub-section (8B) and
the assessee furnishes evidence to the satisfaction of the Assessing Officer
as specified in that clause ;]
10
[(c) any new machinery or plant installed after the 31st day of March, 1983, but
before the 11[1st day of April, 1987], for the purposes of business of repairs
to ocean-going vessels or other powered craft if the business is carried on by
an Indian company and the business so carried on is for the time being
approved12 for the purposes of this clause by the Central Government.]
Explanation.For the purposes of this sub-section and 13[sub-sections (2B) 14[, (2C)]
and (4)],
15
[(1)(a) new ship or new aircraft includes a ship or aircraft which before the
date of acquisition by the assessee was used by any other person, if it was
not at any time previous to the date of such acquisition owned by any
person resident in India ;
(b) new machinery or plant includes machinery or plant which before its
installation by the assessee was used outside India by any other person, if
the following conditions are fulfilled, namely :
(i) such machinery or plant was not, at any time previous to the date of
such installation by the assessee, used in India ;
(ii) such machinery or plant is imported into India from any country outside
India ; and
(iii) no deduction on account of depreciation in respect of such machinery or
plant has been allowed or is allowable under the provisions of the Indian
Income-tax Act, 1922 (11 of 1922), or this Act in computing the total
income of any person for any period prior to the date of the installation
of the machinery or plant by the assessee,]
(2) an industrial undertaking shall be deemed to be a small-scale industrial
undertaking, if the aggregate value of the machinery and plant (other than
tools, jigs, dies and moulds) installed, as on the last day of the previous
year, for the purposes of the business of the undertaking 16[does not exceed,

17
[(i) in a case where the previous year ends before the 1st day of August,
1980, ten lakh rupees ;
(ii) in a case where the previous year ends after the 31st day of July, 1980,
but before the 18th day of March, 1985, twenty lakh rupees; and
(iii) in a case where the previous year ends after the 17th day of March,
1985, thirty-five lakh rupees,]]
and for this purpose the value of any machinery or plant shall be,

(a) in the case of any machinery or plant owned by the assessee, the actual
cost thereof to the assessee ; and
(b) in the case of any machinery or plant hired by the assessee, the actual
cost thereof as in the case of the owner of such machinery or plant.
18
[(2A) The deduction under sub-section (1) shall not be denied in respect of any
machinery or plant installed and used mainly for the purposes of business of
construction, manufacture or production of any article or thing, not being an article or
thing specified in the list in the Eleventh Schedule, by reason only that such
machinery or plant is also used for the purposes of business of construction,
manufacture or production of any article or thing specified in the said list.]
18
[(2B) Where any new machinery or plant is installed after the 30th day of June,
1977, but before the 1st day of April, 19[1987], for the purposes of business of
manufacture or production of any article or thing and such article or thing
(a) is manufactured or produced by using any technology (including any
process) or other know-how developed in, or
(b) is an article or thing invented in,
a laboratory owned or financed by the Government, or a laboratory owned by a
public sector company or a University or by an institution recognised in this
behalf by the prescribed authority,20
the provisions of sub-section (1) shall have effect in relation to such machinery or
plant as if for the words twenty-five per cent, the words thirty-five per cent had
been substituted, if the following conditions are fulfilled, namely :
(i) the right to use such technology (including any process) or other know-how
or to manufacture or produce such article or thing has been acquired from
the owner of such laboratory or any person deriving title from such owner ;
(ii) the assessee furnishes, along with his return of income for the assessment
year for which the deduction is claimed, a certificate from the prescribed
authority21 to the effect that such article or thing is manufactured or
produced by using such technology (including any process) or other knowhow developed in such laboratory or is an article or thing invented in such
laboratory ; and
(iii) the machinery or plant is not used for the purpose of business of
manufacture or production of any article or thing specified in the list in the
Eleventh Schedule.
Explanation.For the purposes of this sub-section,
(a) laboratory financed by the Government means a laboratory owned by any
body [including a society registered under the Societies Registration Act,
1860 (21 of 1860)] and financed wholly or mainly by the Government;
(b) 22[***]
(c) University means a University established or incorporated by or under a
Central, State or Provincial Act and includes an institution declared under
section 3 of the University Grants Commission Act, 1956 (3 of 1956) to be a
University for the purposes of that Act.]
23
[(2C) Where any new machinery or plant, being machinery or plant which would
assist in control of pollution or protection of environment and which has been
notified24 in this behalf by the Central Government in the Official Gazette, is installed
after the 31st day of May, 1983 25[but before the 1st day of April, 1987], in any
industrial undertaking referred to in sub-clause (i) or sub-clause (ii) or sub-clause (iii)

of clause (b) of sub-section (2), the provisions of sub- section (1) shall have effect in
relation to such machinery or plant as if for the words twenty-five per cent, the
words thirty-five per cent had been substituted.]
(3) Where the total income of the assessee assessable for the assessment year relevant
to the previous year in which the ship or aircraft was acquired or the machinery or
plant was installed, or, as the case may be, the immediately succeeding previous year
(the total income for this purpose being computed after deduction of the allowances
under section 33 and section 33A, but without making any deduction under subsection (1) of this section or any deduction under Chapter VI-A) is nil or is less than
the full amount of the investment allowance,
(i) the sum to be allowed by way of investment allowance for that assessment
year under sub-section (1) shall be only such amount as is sufficient to
reduce the said total income to nil ; and
(ii) the amount of the investment allowance, to the extent to which it has not
been allowed as aforesaid, shall be carried forward to the following
assessment year, and the investment allowance to be allowed for the
following assessment year shall be such amount as is sufficient to reduce
the total income of the assessee assessable for that assessment year,
computed in the manner aforesaid, to nil, and the balance of the investment
allowance, if any, still outstanding shall be carried forward to the following
assessment year and so on, so, however, that no portion of the investment
allowance shall be carried forward for more than eight assessment years
immediately succeeding the assessment year relevant to the previous year in
which the ship or aircraft was acquired or the machinery or plant was
installed or, as the case may be, the immediately succeeding previous year.
Explanation.Where for any assessment year, investment allowance is to be allowed
in accordance with the provisions of this sub-section in respect of any ship or aircraft
acquired or any machinery or plant installed in more than one previous year, and the
total income of the assessee assessable for that assessment year (the total income for
this purpose being computed after deduction of the allowances under section 33 and
section 33A, but without making any deduction under sub-section (1) of this section
or any deduction under Chapter VI-A) is less than the aggregate of the amounts due to
be allowed in respect of the assets aforesaid for that assessment year, the following
procedure shall be followed, namely :
(a) the allowance under clause (ii) shall be made before any allowance under
clause (i) is made; and
(b) where an allowance has to be made under clause (ii) in respect of amounts
carried forward from more than one assessment year, the amount carried
forward from an earlier assessment year shall be allowed before any amount
carried forward from a later assessment year.
(4) The deduction under sub-section (1) shall be allowed only if the following
conditions are fulfilled, namely :
(i) the particulars prescribed in this behalf have been furnished by the assessee
in respect of the ship or aircraft or machinery or plant;
(ii) an amount equal to seventy-five per cent of the investment allowance to be
actually allowed is debited to the profit and loss account of 26[any previous
year in respect of which the deduction is to be allowed under sub-section (3)
or any earlier previous year (being a previous year not earlier than the year
in which the ship or aircraft was acquired or the machinery or plant was

installed or the ship, aircraft, machinery or plant was first put to use)] and
credited to a reserve account (to be called the Investment Allowance
Reserve Account) to be utilised
(a) for the purposes of acquiring, before the expiry of a period of ten years
next following the previous year in which the ship or aircraft was
acquired or the machinery or plant was installed, a new ship or a new
aircraft or new machinery or plant [other than machinery or plant of the
nature referred to in clauses (a), (b) and (d) of the 27[second] proviso to
sub-section (1)] for the purposes of the business of the undertaking; and
(b) until the acquisition of a new ship or a new aircraft or new machinery or
plant as aforesaid, for the purposes of the business of the undertaking
other than for distribution by way of dividends or profits or for
remittance outside India as profits or for the creation of any asset
outside India:
Provided that this clause shall have effect in respect of a ship as if for the
word seventy-five, the word fifty had been substituted.
Explanation.Where the amount debited to the profit and loss account and credited
to the Investment Allowance Reserve Account under this sub-section is not less than
the amount required to be so credited on the basis of the amount of deduction in
respect of investment allowance claimed in the return made by the assessee under
section 139, but a higher deduction in respect of the investment allowance is
admissible on the basis of the total income as proposed to be computed by the
28
[Assessing] Officer under section 143, the 29[Assessing] Officer shall, by notice in
writing in this behalf, allow the assessee an opportunity to credit within the time
specified in the notice or within such further time as the 28[Assessing] Officer may
allow, a further amount to the Investment Allowance Reserve Account out of the
profits and gains of the previous year in which such notice is served on the assessee or
of the immediately preceding previous year, if the accounts for that year have not
been made up; and, if the assessee credits any further amount to such account within
the time aforesaid, the amount so credited shall be deemed to have been credited to
the Investment Allowance Reserve Account of the previous year in which the
deduction is admissible and such amount shall not be taken into account in
determining the adequacy of the reserve required to be created by the assessee in
respect of the previous year in which such further credit is made:
Provided that such opportunity shall not be allowed by the 29[Assessing] Officer in a
case where the difference in the total income as proposed to be computed by him and
the total income as returned by the assessee arises out of the application of the proviso
to sub-section (1) of section 145 or sub-section (2) of that section or the omission by
the assessee to disclose his income fully and truly.
(5) Any allowance made under this section in respect of any ship, aircraft, machinery
or plant shall be deemed to have been wrongly made for the purposes of this Act
(a) if the ship, aircraft, machinery or plant is sold or otherwise transferred by
the assessee to any person at any time before the expiry of eight years from
the end of the previous year in which it was acquired or installed; or
(b) if at any time before the expiry of ten years from the end of the previous
year in which the ship or aircraft was acquired or the machinery or plant
was installed, the assessee does not utilise the amount credited to the
reserve account under sub-section (4) for the purposes of acquiring a new
ship or a new aircraft or new machinery or plant [other than machinery or

plant of the nature referred to in clauses (a), (b) and (d) of the 30[second]
proviso to sub-section (1)] for the purposes of the business of the
undertaking; or
(c) if at any time before the expiry of the ten years aforesaid, the assessee
utilises the amount credited to the reserve account under sub-section (4) for
distribution by way of dividends or profits or for remittance outside India as
profits or for the creation of any assets outside India or for any other
purpose which is not a purpose of the business of the undertaking,
and the provisions of sub-section (4A) of section 155 shall apply accordingly:
Provided that nothing in clause (a) shall apply
(i) where the ship, aircraft, machinery or plant is sold or otherwise transferred
by the assessee to the Government, a local authority, a corporation
established by a Central, State or Provincial Act or a 31Government
company as defined in section 617 of the Companies Act, 1956 (1 of 1956);
or
(ii) where the sale or transfer of the ship, aircraft, machinery or plant is made in
connection with the amalgamation or succession, referred to in sub-section
(6) or sub-section (7).
(6) Where, in a scheme of amalgamation, the amalgamating company sells or
otherwise transfers to the amalgamated company any ship, aircraft, machinery or
plant, in respect of which investment allowance has been allowed to the amalgamating
company under sub-section (1),
(a) the amalgamated company shall continue to fulfil the conditions mentioned
in sub-section (4) in respect of the reserve created by the amalgamating
company and in respect of the period within which such ship, aircraft,
machinery or plant shall not be sold or otherwise transferred and in default
of any of these conditions, the provisions of sub-section (4A) of section 155
shall apply to the amalgamated company as they would have applied to the
amalgamating company had it committed the default; and
(b) the balance of investment allowance, if any, still outstanding to the
amalgamating company in respect of such ship, aircraft, machinery or plant,
shall be allowed to the amalgamated company in accordance with the
provisions of sub-section (3), so, however, that the total period for which
the balance of investment allowance shall be carried forward in the
assessments of the amalgamating company and the amalgamated company
shall not exceed the period of eight years specified in sub-section (3) and
the amalgamated company shall be treated as the assessee in respect of such
ship, aircraft, machinery or plant for the purposes of this section.
(7) Where a firm is succeeded to by a company in the business carried on by it as a
result of which the firm sells or otherwise transfers to the company any ship, aircraft,
machinery or plant, the provisions of clauses (a) and (b) of sub-section (6) shall, so far
as may be, apply to the firm and the company.
Explanation.The provisions of this sub-section shall apply only where
(i) all the property of the firm relating to the business immediately before the
succession becomes the property of the company;
(ii) all the liabilities of the firm relating to the business immediately before the
succession become the liabilities of the company; and

(iii) all the shareholders of the company were partners of the firm immediately
before the succession.
(8) The Central Government, if it considers necessary or expedient so to do, may, by
notification in the Official Gazette, direct that the deduction allowable under this
section shall not be allowed in respect of any ship or aircraft acquired or any
machinery or plant installed after such date 32[***] as may be specified therein.
33
[(8A) The Central Government, if it considers necessary or expedient so to do, may,
by notification in the Official Gazette, omit any article or thing from the list of articles
or things specified in the Eleventh Schedule.]
34
[(8B) Notwithstanding anything contained in sub-section (8) or the notification of
the Government of India in the Ministry of Finance (Department of Revenue) No.
GSR 870(E), dated the 12th June, 1986, issued thereunder, the provisions of this
section shall apply in respect of,
(a) (i) a new ship or new aircraft acquired after the 31st day of March, 1987
but before the 1st day of April, 1988, if the assessee furnishes evidence
to the satisfaction of the Assessing Officer that he had, before the 12th
day of June, 1986, entered into a contract for the purchase of such ship
or aircraft with the builder or manufacturer or owner thereof, as the case
may be;
(ii) any new machinery or plant installed after the 31st day of March, 1987
but before the 1st day of April, 1988, if the assessee furnishes evidence
to the satisfaction of the Assessing Officer that before the 12th day of
June, 1986, he had purchased such machinery or plant or had entered
into a contract for the purchase of such machinery or plant with the
manufacturer or owner of, or a dealer in, such machinery or plant, or
had, where such machinery or plant has been manufactured in an
undertaking owned by the assessee, taken steps for the manufacture of
such machinery or plant:
Provided that nothing contained in sub-section (1) shall entitle the
assessee to claim deduction in respect of a ship or aircraft or machinery
or plant referred to in this clause in any previous year except the
previous year relevant to the assessment year commencing on the 1st
day of April, 1989;
(b) a new ship or new aircraft acquired or any new machinery or plant installed
after the 31st day of March, 1988, but before such date as the Central
Government, if it considers necessary or expedient so to do, may, by
notification in the Official Gazette35, specify in this behalf.
(8C) Subject to the provisions of clause (ii) of sub-section (3), where a deduction has
been allowed to an assessee under sub-section (1) in any assessment year, no
deduction shall be allowed to the assessee under section 32AB in the said assessment
year (hereinafter referred to as the initial assessment year) and a block of further
period of four years beginning with the assessment year immediately succeeding the
initial assessment year.]
(9) 36[Omitted by the Finance Act, 1990, w.r.e.f. 1-4-1976.]
37

[Investment deposit account.

32AB. (1) Subject to the other provisions of this section, where an assessee, whose
total income includes income chargeable to tax under the head Profits and gains of
business or profession, has, out of such income,
(a) deposited any amount in an account (hereafter in this section referred to as
deposit account) maintained by him with the Development Bank before the
expiry of six months from the end of the previous year or before furnishing
the return of his income, which-ever is earlier; or
(b) utilised any amount during the previous year for the purchase of any new
ship, new aircraft, new machinery or plant, without depositing any amount
in the deposit account under clause (a),
in accordance with, and for the purposes specified in, a scheme 38 (hereafter in this
section referred to as the scheme) to be framed by the Central Government, or if the
assessee is carrying on the business of growing and manufacturing tea in India, to be
approved in this behalf by the Tea Board, the assessee shall be allowed a deduction
39
[(such deduction being allowed before the loss, if any, brought forward from earlier
years is set off under section 72)] of
(i) a sum equal to the amount, or the aggregate of the amounts, so deposited
and any amount so utilised; or
(ii) a sum equal to twenty per cent of the profits of 40[***] business or
profession as computed in the accounts of the assessee audited in
accordance with sub-section (5),
whichever is less :
41
[Provided that where such assessee is a firm, or any association of persons or any
body of individuals, the deduction under this section shall not be allowed in the
computation of the income of any partner, or as the case may be, any member of such
firm, association of persons or body of individuals:]
42
[Provided further that no such deduction shall be allowed in relation to the
assessment year commencing on the 1st day of April, 1991, or any subsequent
assessment year.]
(2) For the purposes of this section,
43
[***]
44
[(ii) new ship or new aircraft includes a ship or aircraft which before the
date of acquisition by the assessee was used by any other person, if it was
not at any time previous to the date of such acquisition owned by any
person resident in India;
(iii) new machinery or plant includes machinery or plant which before its
installation by the assessee was used outside India by any other person, if
the following conditions are fulfilled, namely :
(a) such machinery or plant was not, at any time previous to the date of
such installation by the assessee, used in India;
(b) such machinery or plant is imported into India from any country outside
India; and
(c) no deduction on account of depreciation in respect of such machinery or
plant has been allowed or is allowable under this Act in computing the
total income of any person for any period prior to the date of the
installation of the machinery or plant by the assessee;
(iv) Tea Board means the Tea Board established under section 4 of the Tea
Act, 1953 (29 of 1953).]

(3) 45[The profits of business or profession of an assessee for the purposes of subsection (1) shall] be an amount arrived at after deducting an amount equal to the
depreciation computed in accordance with the provisions of sub-section (1) of section
32 from the amounts of profits computed in accordance with the requirements of
46
Parts II and III of the 47[Schedule VI] to the Companies Act, 1956 (1 of 1956), 48[as
increased by the aggregate of
(i) the amount of depreciation;
(ii) the amount of income-tax paid or payable, and provision therefor;
(iii) the amount of surtax paid or payable under the Companies (Profits) Surtax
Act, 1964 (7 of 1964);
(iv) the amounts carried to any reserves, by whatever name called;
(v) the amount or amounts set aside to provisions made for meeting liabilities,
other than ascertained liabilities;
(vi) the amount by way of provision for losses of subsidiary companies; and
(vii) the amount or amounts of dividends paid or proposed,
if any debited to the profit and loss account; and as reduced by any amount or
amounts withdrawn from reserves or provisions, if such amounts are credited to the
profit and loss account. 49[***]]
50
[***]
(4) No deduction under sub-section (1) shall be allowed in respect of any amount
utilised for the purchase of
(a) any machinery or plant to be installed in any office premises or residential
accommodation, including any accommodation in the nature of a guesthouse;
(b) any office appliances (not being computers);
(c) any road transport vehicles;
(d) any machinery or plant, the whole of the actual cost of which is allowed as a
deduction (whether by way of depreciation or otherwise) in computing the
income chargeable under the head Profits and gains of business or
profession of any one previous year;
51
[(e) any new machinery or plant to be installed in an industrial undertaking,
other than a small-scale industrial undertaking, as defined in section
80HHA, for the purposes of business of construction, manufacture or
production of any article or thing specified in the list in the Eleventh
Schedule.]
(5) The deduction under sub-section (1) shall not be admissible unless the accounts of
the business or profession of the assessee for the previous year relevant to the
assessment year for which the deduction is claimed have been audited by an
accountant as defined in the Explanation below sub-section (2) of section 288 and the
assessee furnishes, along with his return of income, the report of such audit in the
prescribed form52 duly signed and verified by such accountant :
Provided that in a case where the assessee is required by or under any other law to get
his accounts audited, it shall be sufficient compliance with the provisions of this subsection if such assessee gets the accounts of such business or profession audited under
such law and furnishes the report of the audit as required under such other law and a
further report in the form prescribed under this sub-section.

53

[(5A) Any amount standing to the credit of the assessee in the deposit account shall
not be allowed to be withdrawn before the expiry of a period of five years from the
date of deposit except for the purposes specified in the scheme 54[or] in the circumstances specified below :
(a) closure of business;
(b) death of an assessee;
(c) partition of a Hindu undivided family;
(d) dissolution of a firm;
(e) liquidation of a company.]
55
[Explanation.For the removal of doubts, it is hereby declared that nothing
contained in this sub-section shall affect the operation of the provisions of sub-section
(5AA) or sub-section (6) in relation to any withdrawals made from the deposit
account either before or after the expiry of a period of five years from the date of
deposit.]
55
[(5AA) Where any amount, standing to the credit of the assessee in the deposit
account, is withdrawn during any previous year by the assessee in the circumstance
specified in clause (a) or clause (d) of sub-section (5A), the whole of such amount
shall be deemed to be the profits and gains of business or profession of that previous
year and shall accordingly be chargeable to income-tax as the income of that previous
year, as if the business had not closed or, as the case may be, the firm had not been
dissolved.]
56
[(5B) Where any amount standing to the credit of the assessee in the deposit account
is utilised by the assessee for the purposes of any expenditure in connection with the
57
[***] business or profession in accordance with the scheme, such expenditure shall
not be allowed in computing the income chargeable under the head Profits and gains
of business or profession.]
(6) Where any amount, standing to the credit of the assessee in the deposit account,
released during any previous year by the Development Bank for being utilised by the
assessee for the purposes specified in the scheme or at the closure of the account 58[[in
circumstances other than the circumstances specified in clauses (b), (c) and (e) of subsection (5A)]], is not utilised in accordance with 59[, and within the time specified in,]
the scheme, either wholly or in part, 60[***] the whole of such amount or, as the case
may be, part thereof which is not so utilised shall be deemed to be the profits and
gains of business or profession of that previous year and shall accordingly be
chargeable to income-tax as the income of that previous year.
(7) Where any asset acquired in accordance with the scheme is sold or otherwise
transferred in any previous year by the assessee to any person at any time before the
expiry of eight years from the end of the previous year in which it was acquired, such
part of the cost of such asset as is relatable to the deductions allowed under subsection (1) shall be deemed to be the profits and gains of business or profession of the
previous year in which the asset is sold or otherwise transferred and shall accordingly
be chargeable to income-tax as the income of that previous year:
Provided that nothing in this sub-section shall apply
(i) where the asset is sold or otherwise transferred by the assessee to
Government, a local authority, a corporation established by or under a
Central, State or Provincial Act or a 61Government company as defined in
section 617 of the Companies Act, 1956 (1 of 1956); or

(ii) where the sale or transfer of the asset is made in connection with the
succession of a firm by a company in the business or profession carried on
by the firm as a result of which the firm sells or otherwise transfers to the
company any asset and the scheme continues to apply to the company in the
manner applicable to the firm.
Explanation.The provisions of clause (ii) of the proviso shall apply only where
(i) all the properties of the firm relating to the business or profession
immediately before the succession become the properties of the company;
(ii) all the liabilities of the firm relating to the business or profession
immediately before the succession become the liabilities of the company;
and
(iii) all the shareholders of the company were partners of the firm immediately
before the succession.
(8) The Central Government may, if it considers it necessary or expedient so to do, by
notification in the Official Gazette, omit any article or thing from the list of articles or
things specified in the Eleventh Schedule.
(9) The Central Government may, after making such inquiry as it may think fit, direct,
by notification in the Official Gazette, that the provisions of this section shall not
apply to any class of assessees, with effect from such date as it may specify in the
notification.
62
[(10) Where a deduction has been allowed to an assessee under this section in any
assessment year, no deduction shall be allowed to the assessee under sub-section (1)
of section 32A in the said assessment year (hereinafter referred to as the initial
assessment year) and a block of further period of four years beginning with the
assessment year immediately succeeding the initial assessment year].
Explanation.In this section,
(a) computers does not include calculating machines and calculating devices;
(b) Development Bank means
(i) in the case of an assessee carrying on business of growing and
manufacturing tea in India, the National Bank for Agriculture and Rural
Development established under section 3 of the National Bank for
Agriculture and Rural Development Act, 1981 (61 of 1981);
(ii) in the case of other assessees, the Industrial Development Bank of India
established under the Industrial Development Bank of India Act, 1964
(18 of 1964) and includes such bank or institution as may be specified in
the scheme in this behalf.]
Development rebate.
33. 63[(1)(a) In respect of a new ship64 or new machinery or plant (other than office
appliances or road transport vehicles) which is owned by the assessee and is wholly
used for the purposes of the business carried on by him, there shall, in accordance
with and subject to the provisions of this section and of section 34, be allowed a
deduction, in respect of the previous year in which the ship was acquired or the
machinery or plant was installed or, if the ship, machinery or plant is first put to use in
the immediately succeeding previous year, then, in respect of that previous year, a
sum by way of development rebate as specified in clause (b).
(b) The sum referred to in clause (a) shall be
(A) in the case of a ship, forty per cent of the actual cost thereof to the assessee;

(B) in the case of machinery or plant,

(i) where the machinery or plant is installed for the purposes of business of
construction, manufacture or production of any one or more of the
articles or things specified in the list in the Fifth Schedule,
(a) thirty-five per cent of the actual cost of the machinery or plant to the
assessee, where it is installed before the 1st day of April, 1970, and
(b) twenty-five per cent of such cost, where it is installed after the 31st
day of March, 1970;
(ii) where the machinery or plant is installed after the 31st day of March,
1967, by an assessee being an Indian company in premises used by it as
a hotel and such hotel is for the time being approved in this behalf by
the Central Government,
(a) thirty-five per cent of the actual cost of the machinery or plant to the
assessee, where it is installed before the 1st day of April, 1970, and
(b) twenty-five per cent of such cost, where it is installed after the 31st
day of March, 1970;
(iii) where the machinery or plant is installed after the 31st day of March,
1967, being an asset representing expenditure of a capital nature on
scientific research related to the business carried on by the assessee,
(a) thirty-five per cent of the actual cost of the machinery or plant to the
assessee, where it is installed before the 1st day of April, 1970, and
(b) twenty-five per cent of such cost, where it is installed after the 31st
day of March, 1970;
(iv) in any other case,
(a) twenty per cent of the actual cost of the machinery or plant to the
assessee, where it is installed before the 1st day of April, 1970, and
(b) fifteen per cent of such cost, where it is installed after the 31st day of
March, 1970.]
65 66
[ (1A)(a) An assessee who, after the 31st day of March, 1964, acquires any ship
which before the date of acquisition by him was used by any other person shall,
subject to the provisions of section 34, also be allowed as a deduction a sum by way
of development rebate at such rate or rates as may be prescribed, provided that the
following conditions are fulfilled, namely :
(i) such ship was not previous to the date of such acquisition owned at any time
by any person resident in India;
(ii) such ship is wholly used for the purposes of the business carried on by the
assessee; and
(iii) such other conditions as may be prescribed.
(b) An assessee who installs any machinery or plant (other than office appliances or
road transport vehicles) which before such installation by the assessee was used
outside India by any other person shall, subject to the provisions of section 34, also be
allowed as a deduction a sum by way of development rebate at such rate or rates as
may be prescribed, provided that the following conditions are fulfilled, namely :
(i) such machinery or plant was not used in India at any time previous to the
date of such installation by the assessee;
(ii) it is imported in India by the assessee from any country outside India;

(iii) no deduction on account of depreciation or development rebate in respect of

such machinery or plant has been allowed or is allowable under the
provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act in
computing the total income of any person for any period prior to the date of
the installation of the machinery or plant by the assessee;
(iv) such machinery or plant is wholly used for the purposes of the business
carried on by the assessee; and
(v) such other conditions as may be prescribed.
(c) The development rebate under this sub-section shall be allowed as a deduction in
respect of the previous year in which the ship was acquired or the machinery or plant
was installed or, if the ship, machinery or plant is first put to use in the immediately
succeeding previous year, then, in respect of that previous year.]
(2) In the case of a ship acquired or machinery or plant installed after the 31st day of
December, 1957, where the total income of the assessee assessable for the assessment
year relevant to the previous year in which the ship was acquired or the machinery or
plant installed or the immediately succeeding previous year, as the case may be (the
total income for this purpose being computed without making any allowance under
sub-section (1) 67[or sub-section (1A)] 68[of this section or sub-section (1) of section
33A] 69[or any deduction under Chapter VI-A 70[***]]) is nil or is less than the full
amount of the development rebate calculated at the rate applicable thereto under
71
[sub-section (1) or sub-section (1A), as the case may be],
(i) the sum to be allowed by way of development rebate for that assessment
year under sub-section (1) 72[or sub-section (1A)] shall be only such amount
as is sufficient to reduce the said total income to nil ; and
(ii) the amount of the development rebate, to the extent to which it has not been
allowed as aforesaid, shall be carried forward to the following assessment
year, and the development rebate to be allowed for the following assessment
year shall be such amount as is sufficient to reduce the total income of the
assessee assessable for that assessment year, computed in the manner
aforesaid, to nil, and the balance of the development rebate, if any, still
outstanding shall be carried forward to the following assessment year and so
on, so however, that no portion of the development rebate shall be carried
forward for more than eight assessment years immediately succeeding the
assessment year relevant to the previous year in which the ship was
acquired or the machinery or plant installed or the immediately succeeding
previous year, as the case may be.
Explanation.Where for any assessment year development rebate is to be allowed in
accordance with the provisions of sub-section (2) in respect of ships acquired or
machinery or plant installed in more than one previous year, and the total income of
the assessee assessable for that assessment year (the total income for this purpose
being computed without making any allowance under sub-section (1) 72[or sub-section
(1A)] 73[of this section or sub-section (1) of section 33A] 74[or any deduction under
Chapter VI-A 75[***]]) is less than the aggregate of the amounts due to be allowed in
respect of the assets aforesaid for that assessment year, the following procedure shall
be followed, namely :
(i) the allowance under clause (ii) of sub-section (2) shall be made before any
allowance under clause (i) of that sub-section is made; and
(ii) where an allowance has to be made under clause (ii) of sub-section (2) in
respect of amounts carried forward from more than one assessment year, the

amount carried forward from an earlier assessment year shall be allowed

before any amount carried forward from a later assessment year.
76
[(3) Where, in a scheme of amalgamation, the amalgamating company sells or
otherwise transfers to the amalgamated company any ship, machinery or plant in
respect of which development rebate has been allowed to the amalgamating company
under sub-section (1) or sub-section (1A),
(a) the amalgamated company shall continue to fulfil the conditions mentioned
in sub-section (3) of section 34 in respect of the reserve created by the
amalgamating company and in respect of the period within which such ship,
machinery or plant shall not be sold or otherwise transferred and in default
of any of these conditions, the provisions of sub-section (5) of section 155
shall apply to the amalgamated company as they would have applied to the
amalgamating company had it committed the default; and
(b) the balance of development rebate, if any, still outstanding to the
amalgamating company in respect of such ship, machinery or plant shall be
allowed to the amalgamated company in accordance with the provisions of
sub-section (2), so, however, that the total period for which the balance of
development rebate shall be carried forward in the assessments of the
amalgamating company and the amalgamated company shall not exceed the
period of eight years specified in sub-section (2) and the amalgamated
company shall be treated as the assessee in respect of such ship, machinery
or plant for the purposes of this section and section 34.]
(4) Where a firm is succeeded to by a company in the business carried on by it as a
result of which the firm sells or otherwise transfers to the company any ship,
machinery or plant, the provisions of clauses (a) and (b) of sub-section (3) shall, so far
as may be, apply to the firm and the company.
Explanation.The provisions of this clause shall apply only where
(i) all the property of the firm relating to the business immediately before the
succession becomes the property of the company;
(ii) all the liabilities of the firm relating to the business immediately before the
succession become the liabilities of the company; and
(iii) all the shareholders of the company were partners of the firm immediately
before the succession.
77
[(5) The Central Government, if it considers it necessary or expedient so to do, may,
by notification78 in the Official Gazette, direct that the deduction allowable under this
section shall not be allowed in respect of a ship acquired or machinery or plant
installed after such date, not being earlier than three years from the date of such
notification, as may be specified therein.]
79
[(6) Notwithstanding anything contained in the foregoing provisions of this section,
no deduction by way of development rebate shall be allowed in respect of any
machinery or plant installed after the 31st day of March, 1965, in any office premises
or any residential accommodation, including any accommodation in the nature of a
guest-house:]
80
[Provided that the provisions of this sub-section shall not apply in the case of an
assessee being an Indian company, in respect of any machinery or plant installed by it
in premises used by it as a hotel, where the hotel is for the time being approved in this
behalf by the Central Government.]

81

[Development allowance.
33A. (1) In respect of planting of tea bushes on any land in India owned by an
assessee who carries on business of growing and manufacturing tea in India, a sum by
way of development allowance equivalent to
(i) where tea bushes have been planted on any land not planted at any time
with tea bushes or on any land which had been previously abandoned,
83
[fifty] per cent of the actual cost of planting; and
(ii) where tea bushes are planted in replacement of tea bushes that have died or
have become permanently useless on any land already planted, 84[thirty] per
cent of the actual cost of planting,
shall, subject to the provisions of this section, be allowed as a deduction 85[in the
manner specified hereunder, namely :
(a) the amount of the development allowance shall, in the first instance, be
computed with reference to that portion of the actual cost of planting which
is incurred during the previous year in which the land is prepared for
planting or replanting, as the case may be, and in the previous year next
following, and the amount so computed shall be allowed as a deduction in
respect of such previous year next following; and
(b) thereafter, the development allowance shall again be computed with
reference to the actual cost of planting, and if the sum so computed exceeds
the amount allowed as a deduction under clause (a), the amount of the
excess shall be allowed as a deduction in respect of the third succeeding
previous year next following the previous year in which the land has been
prepared for planting or replanting, as the case may be :]
86
[Provided that no deduction under clause (i) shall be allowed unless the planting has
commenced after the 31st day of March, 1965, and been completed before the 1st day
of April, 1990 :
Provided further that no deduction shall be allowed under clause (ii) unless the
planting has commenced after the 31st day of March, 1965, and been completed
before the 1st day of April, 1970.]
(2) Where the total income of the assessee assessable for the assessment year relevant
to 87[the previous year in respect of which the deduction is required to be allowed
under sub-section (1)] 88[(the total income for this purpose being computed after
deduction of the allowance under sub-section (1) or sub-section (1A) or clause (ii) of
sub-section (2) of section 33, but without making any deduction under sub-section (1)
of this section or any deduction under Chapter VI-A 89[***])] is nil or is less than the
full amount of the development allowance calculated at the rates 90[and in the manner]
specified in sub-section (1)
(i) the sum to be allowed by way of development allowance for that assessment
year under sub-section (1) shall be only such amount as is sufficient to
reduce the said total income to nil ; and
(ii) the amount of the development allowance, to the extent to which it has not
been allowed as aforesaid, shall be carried forward to the following
assessment year, and the development allowance to be allowed for the
following assessment year shall be such amount as is sufficient to reduce
the total income of the assessee assessable for that assessment year,
computed in the manner aforesaid, to nil, and the balance of the
development allowance, if any, still outstanding shall be carried forward to
82

the following assessment year and so on, so, however, that no portion of the
development allowance shall be carried forward for more than eight
assessment years immediately succeeding the assessment year in which the
deduction was first allowable.
Explanation.Where for any assessment year development allowance is to be
allowed in accordance with the provisions of sub-section (2) in respect of more than
one previous year, and the total income of the assessee assessable for that assessment
year 91[(the total income for this purpose being computed after deduction of the
allowance under sub-section (1) or sub-section (1A) or clause (ii) of sub-section (2) of
section 33, but without making any deduction under sub-section (1) of this section or
any deduction under Chapter VI-A 92[***])] is less than the amount of the
development allowance due to be made in respect of that assessment year, the
following procedure shall be followed, namely :
(i) the allowance under clause (ii) of sub-section (2) of this section shall be
made before any allowance under clause (i) of that sub-section is made; and
(ii) where an allowance has to be made under clause (ii) of sub-section (2) of
this section in respect of amounts carried forward from more than one
assessment year, the amount carried forward from an earlier assessment
year shall be allowed before any amount carried forward from a later
assessment year.
(3) The deduction under sub-section (1) shall be allowed only if the following
conditions are fulfilled, namely :
(i) the particulars prescribed93 in this behalf have been furnished by the
assessee;
(ii) an amount equal to seventy-five per cent of the development allowance to
be actually allowed is debited to the profit and loss account of the relevant
previous year and credited to a reserve account to be utilised by the assessee
during a period of eight years next following for the purposes of the
business of the undertaking, other than
(a) for distribution by way of dividends or profits; or
(b) for remittance outside India as profits or for the creation of any asset
outside India; and
(iii) such other conditions as may be prescribed.
(4) If any such land is sold or otherwise transferred by the assessee to any person at
any time before the expiry of eight years from the end of the previous year in which
the deduction under sub-section (1) was allowed, any allowance under this section
shall be deemed to have been wrongly made for the purposes of this Act, and the
provisions of sub-section (5A) of section 155 shall apply accordingly :
Provided that this sub-section shall not apply
(i) where the land is sold or otherwise transferred by the assessee to the
Government, a local authority, a corporation established by a Central, State
or Provincial Act, or a Government company as defined in section 617 of
the Companies Act, 1956 (1 of 1956)94; or
(ii) where the sale or transfer of the land is made in connection with the
amalgamation or succession referred to in sub-section (5) or sub-section (6).
95
[(5) Where, in a scheme of amalgamation, the amalgamating company sells or
otherwise transfers to the amalgamated company any land in respect of which

development allowance has been allowed to the amalgamating company under subsection (1),
(a) the amalgamated company shall continue to fulfil the conditions mentioned
in sub-section (3) in respect of the reserve created by the amalgamating
company and in respect of the period within which such land shall not be
sold or otherwise transferred and in default of any of these conditions, the
provisions of sub-section (5A) of section 155 shall apply to the
amalgamated company as they would have applied to the amalgamating
company had it committed the default; and
(b) the balance of development allowance, if any, still outstanding to the
amalgamating company in respect of such land shall be allowed to the
amalgamated company in accordance with the provisions of sub-section (2),
so, however, that the total period for which the balance of development
allowance shall be carried forward in the assessments of the amalgamating
company and the amalgamated company shall not exceed the period of eight
years specified in sub-section (2) and the amalgamated company shall be
treated as the assessee in respect of such land for the purposes of this
section.]
(6) Where a firm is succeeded to by a company in the business carried on by it as a
result of which the firm sells or otherwise transfers to the company any land on which
development allowance has been allowed, the provisions of clauses (a) and (b) of subsection (5) shall, so far as may be, apply to the firm and the company.
Explanation.The provisions of this sub-section shall apply if the conditions laid
down in the Explanation to sub-section (4) of section 33 are fulfilled.
(7) For the purposes of this section, actual cost of planting means the aggregate of

(i) the cost of preparing the land;

(ii) the cost of seeds, cutting and nurseries;
(iii) the cost of planting and replanting; and
(iv) the cost of upkeep thereof for the previous year in which the land has been
prepared and the three successive previous years next following such
previous year,
reduced by that portion of the cost, if any, as has been met directly or indirectly by
any other person or authority:
96
[Provided that where such cost exceeds
(i) forty thousand rupees per hectare in respect of land situate in a hilly area
comprised in the district of Darjeeling; or
(ii) thirty-five thousand rupees per hectare in respect of land situate in a hilly
area comprised in an area other than the district of Darjeeling; or
(iii) thirty thousand rupees per hectare in any other area,
then, the excess shall be ignored.
Explanation.For the purposes of this proviso, district of Darjeeling means the
district of Darjeeling as on the 28th day of February, 1981, being the date of
introduction of the Finance Bill, 1981, in the House of the People.]
(8) The Board may, having regard to the elevation and topography, by general or
special order, declare any areas to be 97hilly areas for the purposes of this section and
such order shall not be questioned before any court of law or any other authority.

98

[Explanation.For the purposes of this section, an assessee having a leasehold or

other right of occupancy in any land shall be deemed to own such land and where the
assessee transfers such right, he shall be deemed to have sold or otherwise transferred
such land.]
99

[Tea development account 1[,coffee development account and rubber development

account].
33AB. (1) Where an assessee carrying on business of growing and manufacturing tea
1
[or coffee or rubber] in India has, before the expiry of six months from the end of the
previous year or before 1[the due date of] furnishing the return of his income,
2
[whichever is earlier,
(a) deposited with the National Bank any amount or amounts in an account
(hereafter in this section referred to as the special account) maintained by
the assessee with that Bank in accordance with, and for the purposes
specified in, a scheme (hereafter in this section referred to as the scheme)
approved in this behalf by the Tea Board 1[or the Coffee Board or the
Rubber Board] ; or
(b) 3[deposited any amount in an account (hereafter in this section referred to
as the Deposit Account) opened by the assessee in accordance with, and for
the purposes specified in, a scheme framed by the Tea Board or the Coffee
Board or the Rubber Board, as the case may be (hereafter in this section
referred to as the deposit scheme), with the previous approval of the Central
Government,]
the assessee shall, subject to the provisions of this section,] be allowed a deduction
(such deduction being allowed before the loss, if any, brought forward from earlier
years is set off under section 72) of
(a) a sum equal to the amount or the aggregate of the amounts so deposited ; or
(b) a sum equal to 4[forty] per cent of the profits of such business (computed
under the head Profits and gains of business or profession before making
any deduction under this section),
whichever is less :
Provided that where such assessee is a firm, or any association of persons or any
body of individuals, the deduction under this section shall not be allowed in the
computation of the income of any partner, or as the case may be, any member of such
firm, association of persons or body of individuals :
Provided further that where any deduction, in respect of any amount deposited in the
special account 5[, or in the 6[***] Deposit Account], has been allowed under this subsection in any previous year, no deduction shall be allowed in respect of such amount
in any other previous year.
(2) The deduction under sub-section (1) shall not be admissible unless the accounts of
such business of the assessee for the previous year relevant to the assessment year for
which the deduction is claimed have been audited by an accountant as defined in the
Explanation below sub-section (2) of section 288 and the assessee furnishes, along
with his return of income, the report of such audit in the prescribed form 7 duly signed
and verified by such accountant :
Provided that in a case where the assessee is required by or under any other law to get
his accounts audited, it shall be sufficient compliance with the provisions of this subsection if such assessee gets the accounts of such business audited under such law and

furnishes the report of the audit as required under such other law and a further report
in the form prescribed under this sub-section.
(3) Any amount standing to the credit of the assessee in 8[the special account or the
9
[***] Deposit Account shall not be allowed to be withdrawn except for the purposes
specified in the scheme or, as the case may be, in the deposit scheme] or in the
circumstances specified below :
(a) closure of business ;
(b) death of an assessee ;
(c) partition of a Hindu undivided family ;
(d) dissolution of a firm ;
(e) liquidation of a company.
10
[(4) Notwithstanding anything contained in sub-section (3), where any amount
standing to the credit of the assessee in the special account or in the Deposit Account
is released during any previous year by the National Bank or withdrawn by the
assessee from the Deposit Account, and such amount is utilised for the purchase of
(a) any machinery or plant to be installed in any office premises or residential
accommodation, including any accommodation in the nature of a guesthouse;
(b) any office appliances (not being computers);
(c) any machinery or plant, the whole of the actual cost of which is allowed as
a deduction (whether by way of depreciation or otherwise) in computing the
income chargeable under the head Profits and gains of business or
profession of any one previous year;
(d) any new machinery or plant to be installed in an industrial undertaking for
the purposes of business of construction, manufacture or production of any
article or thing specified in the list in the Eleventh Schedule,
the whole of such amount so utilised shall be deemed to be the profits and gains of
business of that previous year and shall accordingly be chargeable to income-tax as
the income of that previous year.]
(5) Where any amount, standing to the credit of the assessee in the special account
11
[or in the 12[***] Deposit Account], is withdrawn during any previous year by the
assessee in the circumstance specified in clause (a) or clause (d) of sub-section (3),
the whole of such amount shall be deemed to be the profits and gains of business or
profession of that previous year and shall accordingly be chargeable to income-tax as
the income of that previous year, as if the business had not closed or, as the case may
be, the firm had not been dissolved.
(6) Where any amount standing to the credit of the assessee in the special account
11
[or in the 12[***] Deposit Account] is utilised by the assessee for the purposes of any
expenditure in connection with such business in accordance with the scheme 11[or the
deposit scheme], such expenditure shall not be allowed in computing the income
chargeable under the head Profits and gains of business or profession.
(7) Where any amount, standing to the credit of the assessee in the special account
11
[or in the 12[***] Deposit Account], which is released during any previous year by
the National Bank 13[or which is withdrawn by the assessee from the 12[***] Deposit
Account] for being utilised by the assessee for the purposes of such business in
accordance with the scheme 13[or the deposit scheme] is not so utilised, either wholly

or in part, within that previous year, the whole of such amount or, as the case may be,
part thereof which is not so utilised shall be deemed to be profits and gains of
business and accordingly chargeable to income-tax as the income of that previous
year :
Provided that this sub-section shall not apply in a case where such amount is released
during any previous year at the closure of the account in circumstances specified in
clauses (b), (c) and (e) of sub-section (3).
(8) Where any asset acquired in accordance with the scheme 13[or the deposit scheme]
is sold or otherwise transferred in any previous year by the assessee to any person at
any time before the expiry of eight years from the end of the previous year in which it
was acquired, such part of the cost of such asset as is relatable to the deduction
allowed under sub-section (1) shall be deemed to be the profits and gains of business
or profession of the previous year in which the asset is sold or otherwise transferred
and shall accordingly be chargeable to income-tax as the income of that previous
year :
Provided that nothing in this sub-section shall apply
(i) where the asset is sold or otherwise transferred by the assessee to
Government, a local authority, a corporation established by or under a
Central, State or Provincial Act or a Government company14 as defined in
section 617 of the Companies Act, 1956 (1 of 1956) ; or
(ii) where the sale or transfer of the asset is made in connection with the
succession of a firm by a company in the business or profession carried on
by the firm as a result of which the firm sells or otherwise transfers to the
company any asset and the scheme 15[or the deposit scheme] continues to
apply to the company in the manner applicable to the firm.
Explanation.The provisions of clause (ii) of the proviso shall apply only where
(i) all the properties of the firm relating to the business or profession
immediately before the succession become the properties of the company ;
(ii) all the liabilities of the firm relating to the business or profession
immediately before the succession become the liabilities of the company ;
and
(iii) all the shareholders of the company were partners of the firm immediately
before the succession.
(9) The Central Government, if it considers necessary or expedient so to do, may, by
notification in the Official Gazette, direct that the deduction allowable under this
section shall not be allowed after such date as may be specified therein.
Explanation.In this section,
16
[(a) Coffee Board means the Coffee Board constituted under section 4 of the
Coffee Act, 1942 (7 of 1942);
(aa) National Bank means the National Bank for Agriculture and Rural
Development established under section 3 of the National Bank for
Agriculture and Rural Development Act, 1981 (61 of 1981);
(ab) Rubber Board means the Rubber Board constituted under sub-section (1)
of section 4 of the Rubber Act, 1947 (24 of 1947);]
b (b) Tea Board means the Tea Board established under section 4 of the
Tea Act, 1953 (29 of 1953).]

17

[Site Restoration Fund.18

33ABA. (1) Where an assessee is carrying on business consisting of the prospecting
for, or extraction or production of, petroleum or natural gas or both in India and in
relation to which the Central Government has entered into an agreement with such
assessee for such business, has before the end of the previous year
(a) deposited with the State Bank of India any amount or amounts in an account
(hereafter in this section referred to as the special account) maintained by
the assessee with that Bank in accordance with, and for the purposes
specified in, a scheme (hereafter in this section referred to as the scheme)
approved in this behalf by the Government of India in the Ministry of
Petroleum and Natural Gas; or
(b) deposited any amount in an account (hereafter in this section referred to as
the Site Restoration Account) opened by the assessee in accordance with,
and for the purposes specified in, a scheme framed by the Ministry referred
to in clause (a) (hereafter in this section referred to as the deposit scheme),
the assessee shall, subject to the provisions of this section, be allowed a deduction
(such deduction being allowed before the loss, if any, brought forward from earlier
years is set off under section 72) of
(i) a sum equal to the amount or the aggregate of the amounts so deposited; or
(ii) a sum equal to twenty per cent of the profits of such business (computed
under the head Profits and gains of business or profession before making
any deduction under this section),
whichever is less :
Provided that where such assessee is a firm, or any association of persons or any
body of individuals, the deduction under this section shall not be allowed in the
computation of the income of any partner or, as the case may be, any member of such
firm, association of persons or body of individuals :
Provided further that where any deduction, in respect of any amount deposited in the
special account, or in the Site Restoration Account, has been allowed under this subsection in any previous year, no deduction shall be allowed in respect of such amount
in any other previous year :
Provided also that any amount credited in the special account or the Site Restoration
Account by way of interest shall be deemed to be a deposit.
(2) The deduction under sub-section (1) shall not be admissible unless the accounts of
such business of the assessee for the previous year relevant to the assessment year for
which the deduction is claimed have been audited by an accountant as defined in the
Explanation below sub-section (2) of section 288 and the assessee furnishes, along
with his return of income, the report of such audit in the prescribed form 19 duly signed
and verified by such accountant :
Provided that in a case where the assessee is required by or under any other law to get
his accounts audited, it shall be sufficient compliance with the provisions of this subsection if such assessee gets the accounts of such business audited under such law and
furnishes the report of the audit as required under such other law and a further report
in the form prescribed under this sub-section.
(3) Any amount standing to the credit of the assessee in the special account or the Site
Restoration Account shall not be allowed to be withdrawn except for the purposes
specified in the scheme or, as the case may be, in the deposit scheme.

(4) Notwithstanding anything contained in sub-section (3), no deduction under subsection (1) shall be allowed in respect of any amount utilised for the purchase of
(a) any machinery or plant to be installed in any office premises or residential
accommodation, including any accommodation in the nature of a guesthouse;
(b) any office appliances (not being computers);
(c) any machinery or plant, the whole of the actual cost of which is allowed as a
deduction (whether by way of depreciation or otherwise) in computing the
income chargeable under the head Profits and gains of business or
profession of any one previous year;
(d) any new machinery or plant to be installed in an industrial undertaking for
the purposes of business of construction, manufacture or production of any
article or thing specified in the list in the Eleventh Schedule.
(5) Where any amount standing to the credit of the assessee in the special account or
in the Site Restoration Account is withdrawn on closure of the account during any
previous year by the assessee, the amount so withdrawn from the account, as reduced
by the amount, if any, payable to the Central Government by way of profit or
production share as provided in the agreement referred to in section 42, shall be
deemed to be the profits and gains of business or profession of that previous year and
shall accordingly be chargeable to income-tax as the income of that previous year.
Explanation.Where any amount is withdrawn on closure of the account in a
previous year in which the business carried on by the assessee is no longer in
existence, the provisions of this sub-section shall apply as if the business is in
existence in that previous year.
(6) Where any amount standing to the credit of the assessee in the special account or
in the Site Restoration Account is utilised by the assessee for the purposes of any
expenditure in connection with such business in accordance with the scheme or the
deposit scheme, such expenditure shall not be allowed in computing the income
chargeable under the head Profits and gains of business or profession.
(7) Where any amount, standing to the credit of the assessee in the special account or
in the Site Restoration Account, which is released during any previous year by the
State Bank of India or which is withdrawn by the assessee from the Site Restoration
Account for being utilised by the assessee for the purposes of such business in
accordance with the scheme or the deposit scheme is not so utilised, either wholly or
in part, within that previous year, the whole of such amount or, as the case may be,
part thereof which is not so utilised shall be deemed to be profits and gains of
business and accordingly chargeable to income-tax as the income of that previous
year.
20
[***]
(8) Where any asset acquired in accordance with the scheme or the deposit scheme is
sold or otherwise transferred in any previous year by the assessee to any person at any
time before the expiry of eight years from the end of the previous year in which it was
acquired, such part of the cost of such asset as is relatable to the deduction allowed
under sub-section (1) shall be deemed to be the profits and gains of business or
profession of the previous year in which the asset is sold or otherwise transferred and
shall accordingly be chargeable to income-tax as the income of that previous year :
Provided that nothing in this sub-section shall apply

(i) where the asset is sold or otherwise transferred by the assessee to

Government, a local authority, a corporation established by or under a
Central, State or Provincial Act or a Government company 21 as defined in
section 617 of the Companies Act, 1956 (1 of 1956); or
(ii) where the sale or transfer of the asset is made in connection with the
succession of a firm by a company in the business or profession carried on
by the firm as a result of which the firm sells or otherwise transfers to the
company any asset and the scheme or the deposit scheme continues to apply
to the company in the manner applicable to the firm.
Explanation.The provisions of clause (ii) of the proviso shall apply only where
(i) all the properties of the firm relating to the business or profession
immediately before the succession become the properties of the company;
(ii) all the liabilities of the firm relating to the business or profession
immediately before the succession become the liabilities of the company;
and
(iii) all the shareholders of the company were partners of the firm immediately
before the succession.
(9) The Central Government may, if it considers necessary or expedient so to do, by
notification in the Official Gazette, direct that the deduction allowable under this
section shall not be allowed after such date as may be specified therein.
Explanation.For the purposes of this section,
(a) State Bank of India means the State Bank of India constituted under the
State Bank of India Act, 1955 (23 of 1955);
(b) the expression amount standing to the credit of the assessee in the special
account or the Site Restoration Account includes interest accrued to such
accounts.]
22

[Reserves for shipping business.

33AC. (1) 23[In the case of an assessee, being a Government company or a public
company formed and registered in India with the main object of carrying on the
business of operation of ships, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount not exceeding fifty per cent
of profits derived from the business of operation of ships (computed under the head
Profits and gains of business or profession and before making any deduction under
this section), as is debited to the profit and loss account of the previous year in
respect of which the deduction is to be allowed and credited to a reserve account, to
be utilised in the manner laid down in sub-section (2) :]
24
[Provided that where the aggregate of the amounts carried to such reserve account
from time to time exceeds twice the aggregate of the amounts of the paid-up share
capital, the general reserves and amount credited to the share premium account of the
assessee, no allowance under this sub-section shall be made in respect of such
excess :]
25
[Provided further that for five assessment years commencing on or after the 1st
day of April, 2001 and ending before the 1st day of April, 2006, the provisions of this
sub-section shall have effect as if for the words an amount not exceeding fifty per
cent of profits, the words an amount not exceeding the profits had been
substituted.]

The following third proviso shall be inserted after the second proviso to subsection (1) of section 33AC by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Provided also that no deduction shall be allowed under this section for any
assessment year commencing on or after the 1st day of April, 2005.
(2) The amount credited to the reserve account under sub-section (1) shall be utilised
by the assessee before the expiry of a period of eight years next following the
previous year in which the amount was credited
(a) for acquiring a new ship for the purposes of the business of the assessee ;
and
(b) until the acquisition of a new ship, for the purposes of the business of the
assessee other than for distribution by way of dividends or profits or for
remittance outside India as profits or for the creation of any asset outside
India.
(3) Where any amount credited to the reserve account under sub-section (1),
(a) has been utilised for any purpose other than that referred to in clause (a) or
clause (b) of sub-section (2), the amount so utilised ; or
(b) has not been utilised for the purpose specified in clause (a) of sub-section
(2), the amount not so utilised ; or
(c) has been utilised for the purpose of acquiring a new ship as specified in
clause (a) of sub-section (2), but such ship is sold or otherwise transferred
26
[, other than in any scheme of demerger] by the asses-see to any person at
any time before the expiry of 27[three] years from the end of the previous
year in which it was acquired, the amount so utilised in acquiring the ship,
shall be deemed to be the profits,
(i) in a case referred to in clause (a), in the year in which the amount was so
utilised ; or
(ii) in a case referred to in clause (b), in the year immediately following the
period of eight years specified in sub-section (2) ; or
(iii) in a case referred to in clause (c), in the year in which the sale or transfer
took place,
and shall be charged to tax accordingly.
28
[(4) Where the ship is sold or otherwise transferred (other than in any scheme of
demerger) after the expiry of the period specified in clause (c) of sub-section (3) and
the sale proceeds are not utilised for the purpose of acquiring a new ship within a
period of one year from the end of the previous year in which such sale or transfer
took place, such sale proceeds shall be deemed to be the profits of the assessment
year immediately following the previous year in which the ship is sold or transferred.]
Explanation.For the purposes of this section,
(a) 29public company shall have the meaning assigned to it in section 3 of the
Companies Act, 1956 (1 of 1956) ;
30
[(aa) 31Government company shall have the meaning assigned to it in section
617 of the Companies Act, 1956 (1 of 1956) ;]
(b) new ship shall have the same meaning as in clause (ii) of sub-section (2)
of section 32AB.]
32

[Rehabilitation allowance.

33B. Where the business of any industrial undertaking carried on in India is

discontinued in any previous year by reason of extensive damage to, or destruction of,
any building, machinery, plant or furniture owned by the assessee and used for the
purposes of such business as a direct result of
(i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature
; or
(ii) riot or civil disturbance ; or
(iii) accidental fire or explosion ; or
(iv) action by an enemy or action taken in combating an enemy (whether with or
without a declaration of war),
and, thereafter, at any time before the expiry of three years from the end of such
previous year, the business is re-established, reconstructed or revived by the assessee,
he shall, in respect of the previous year in which the business is so re-established,
reconstructed or revived, be allowed a deduction of a sum by way of rehabilitation
allowance equivalent to sixty per cent of the amount of the deduction allowable to
him under clause (iii) of sub-section (1) of section 32 in respect of the building,
machinery, plant or furniture so damaged or destroyed :
33
[Provided that no deduction under this section shall be allowed in relation to the
assessment year commencing on the 1st day of April, 1985, or any subsequent
assessment year.]
Explanation.In this section, industrial undertaking means any undertaking which
is mainly engaged in the business of generation or distribution of electricity or any
other form of power or in the construction of ships or in the manufacture or
processing of goods or in mining.]
Conditions for depreciation allowance and development rebate.
34. (1) 34[***]
(2) 35[***]
(3)(a) The deduction referred to in section 33 shall not be allowed unless an amount
equal to seventy-five per cent of the development rebate to be actually allowed is
debited to the profit and loss account of 36[any previous year in respect of which
the deduction is to be allowed under sub-section (2) of that section or any earlier
previous year (being a previous year not earlier than the year in which the ship was
acquired or the machinery or plant was installed or the ship, machinery or plant was
first put to use)] and credited to a reserve account to be utilised by the assessee during
a period of eight years next following for the purposes of the business of the
undertaking, other than
(i) for distribution by way of dividends or profits ; or
(ii) for remittance outside India as profits or for the creation of any asset outside
India :
Provided that this clause shall not apply where the assessee is a company, being a
licensee within the meaning of the Electricity (Supply) Act, 1948 (54 of 1948) 37, or
where the ship has been acquired or the machinery or plant has been installed before
the 1st day of January, 1958 :
38
[Provided further that where a ship has been acquired after the 28th day of
February, 1966, this clause shall have effect in respect of such ship as if for the words
seventy-five, the word fifty had been substituted.]

Explanation.39[Omitted by the Finance Act, 1990, w.r.e.f. 1-4-1962. Earlier, it was

inserted by the Finance Act, 1966, w.r.e.f. 1-4-1962.]
(b) If any ship, machinery or plant is sold or otherwise transferred by the assessee to
any person at any time before the expiry of eight years from the end of the previous
year in which it was acquired or installed, any allowance made under section 33 or
under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922),
in respect of that ship, machinery or plant shall be deemed to have been wrongly
made for the purposes of this Act, and the provisions of sub-section (5) of section 155
shall apply accordingly :
Provided that this clause shall not apply
(i) where the ship has been acquired or the machinery or plant has been
installed before the 1st day of January, 1958 ; or
(ii) where the ship, machinery or plant is sold or otherwise transferred by the
assessee to the Government, a local authority, a corporation established by a
Central, State or Provincial Act or a 40Government company as defined in
section 617 of the Companies Act, 1956 (1 of 1956) ; or
(iii) where the sale or transfer of the ship, machinery or plant is made in
connection with the amalgamation or succession, referred to in sub-section
(3) or sub-section (4) of section 33.
41

[Restriction on unabsorbed depreciation and unabsorbed investment allowance

for limited period in case of certain domestic companies.
34A. (1) In computing the profits and gains of the business of a domestic company
in relation to the previous year relevant to the assessment year commencing on the 1st
day of April, 1992, where effect is to be given to the unabsorbed depreciation
allowance or unabsorbed investment allowance or both in relation to any previous
year relevant to the assessment year commencing on or before the 1st day of April,
1991, the deduction shall be restricted to two-third of such allowance or allowances
and the balance,
(a) where it relates to depreciation allowance, be added to the depreciation
allowance for the previous year relevant to the assessment year
commencing on the 1st day of April, 1993 and be deemed to be part of that
allowance or if there is no such allowance for that previous year, be deemed
to be the allowance for that previous year and so on for the succeeding
previous years ;
(b) where it relates to investment allowance, be carried forward to the
assessment year commencing on the 1st day of April, 1993 and the balance
of the investment allowance, if any, still outstanding shall be carried
forward to the following assessment year and where the period of eight
years has expired before the portion of such balance is adjusted, the said
period shall be extended beyond eight years till such time the portion of the
said balance is absorbed in the profits and gains of the business of the
domestic company.
(2) For the assessment year commencing on the 1st day of April, 1992, the provisions
of sub-section (2) of section 32 and sub-section (3) of section 32A shall apply to the
extent such provisions are not inconsistent with the provisions of sub-section (1) of
this section.

(3) Nothing contained in sub-section (1) shall apply where the amount of unabsorbed
depreciation allowance or of the unabsorbed investment allowance, as the case may
be, or the aggregate amount of such allowances in the case of a domestic company is
less than one lakh rupees.
(4) Nothing contained in sections 234B and 234C shall apply to any shortfall in the
payment of any tax due on the assessed tax or, as the case may be, returned income
where such shortfall is on account of restricting the amount of depreciation allowance
or investment allowance under this section and the assessee has paid the amount of
shortfall before furnishing the return of income under sub-section (1) of section 139.]
42

[Expenditure on scientific research.

43
35. (1) In respect of expenditure on scientific research, the following deductions
shall be allowed
(i) any expenditure (not being in the nature of capital expenditure) laid out or
expended on scientific research related to the business.
44
[Explanation.Where any such expenditure has been laid out or expended
before the commencement of the business (not being expenditure laid out or
expended before the 1st day of April, 1973) on payment of any salary [as
defined in Explanation 245 below sub-section (5) of section 40A] to an
employee engaged in such scientific research or on the purchase of
materials used in such scientific research, the aggregate of the expenditure
so laid out or expended within the three years immediately preceding the
commencement of the business shall, to the extent it is certified by the
prescribed authority46 to have been laid out or expended on such scientific
research, be deemed to have been laid out or expended in the previous year
in which the business is commenced ;]
47
(ii) 48[an amount equal to one and one-fourth times of any sum paid] to a
scientific research association which has as its object the undertaking of
scientific research or to a university, college or other institution to be used
for scientific research :
Provided that such association, university, college or institution is for the
time being approved49 for the purposes of this clause by the 50[Central
Government] 51[by notification in the Official Gazette] ;
52 53
[ (iii) 54[an amount equal to one and one-fourth times of any sum paid] to a
university, college or other institution to be used for research in social
science or statistical research :
Provided that such university, college or institution is for the time being
approved55 for the purposes of this clause by the 56[Central Government] by
notification in the Official Gazette ;]
(iv) in respect of any expenditure of a capital nature on scientific research
related to the business carried on by the assessee, such deduction as may be
admissible under the provisions of sub-section (2) :
57
[Provided that the scientific research association, university, college or other
institution referred to in clause (ii) or clause (iii) shall make an application in the
prescribed form and manner to the 58[Central Government] for the purpose of grant of
approval, or continuance thereof, under clause (ii) or, as the case may be, clause (iii) :

Provided further that the 58[Central Government] may, before granting approval
under clause (ii) or clause (iii), call for such documents (including audited annual
accounts) or information from the scientific research association, university, college
or other institution as it thinks necessary in order to satisfy itself about the
genuineness of the activities of the scientific research association, university, college
or other institution and that authority may also make such inquiries as it may deem
necessary in this behalf :
Provided also that any notification issued by the 58[Central Government] under
clause (ii) or clause (iii) 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.]
(2) For the purposes of clause (iv) of sub-section (1),
59
[(i) in a case where such capital expenditure is incurred before the 1st day of
April, 1967, one-fifth of the capital expenditure incurred in any previous
year shall be deducted for that previous year ; and the balance of the
expenditure shall be deducted in equal instalments for each of the four
immediately succeeding previous years ;
(ia) in a case where such capital expenditure is incurred after the 31st day of
March, 1967, the whole of such capital expenditure incurred in any previous
year60 shall be deducted for that previous year :]
61
[Provided that no deduction shall be admissible under this clause in
respect of any expenditure incurred on the acquisition of any land, whether
the land is acquired as such or as part of any property, after the 29th day of
February, 1984.]
62
[Explanation 1].Where any capital expenditure has been incurred before
the commencement of the business, the aggregate of the expenditure so
incurred within the three years immediately preceding the commencement
of the business shall be deemed to have been incurred in the previous year
in which the business is commenced.
63
[Explanation 2.For the purposes of this clause,
(a) land includes any interest in land ; and
(b) the acquisition of any land shall be deemed to have been made by the
assessee on the date on which the instrument of transfer of such land to
him has been registered under the Registration Act, 1908 (16 of 1908),
or where he has taken or retained the possession of such land or any part
thereof in part performance of a contract of the nature referred to in
section 53A64 of the Transfer of Property Act, 1882 (4 of 1882), the date
on which he has so taken or retained possession of such land or part ;]
(ii) notwithstanding anything contained in clause (i), where an asset
representing expenditure of a capital nature 65[incurred before the 1st day of
April, 1967,] ceases to be used in a previous year for scientific research
related to the business and the value of the asset at the time of the cessation,
together with the aggregate of deductions already allowed under clause (i)
falls short of the said expenditure, then
(a) there shall be allowed a deduction for that previous year of an amount
equal to such deficiency, and

(b) no deduction shall be allowed under that clause for that previous year or
for any subsequent previous year ;
(iii) if the asset mentioned in clause (ii) is sold, without having been used for
other purposes, in the year of cessation, the sale price shall be taken to be
the value of the asset at the time of the cessation ; and if the asset is sold,
without having been used for other purposes, in a previous year subsequent
to the year of cessation, and the sale price falls short of the value of the asset
taken into account at the time of cessation, an amount equal to the
deficiency shall be allowed as a deduction for the previous year in which the
sale took place ;
(iv) where a deduction is allowed for any previous year under this section in
respect of expenditure represented wholly or partly by an asset, no
deduction shall be allowed under 66[clause (ii) of sub-section (1)] of section
32 for the same 67[or any other] previous year in respect of that asset ;
(v) where the asset 68[mentioned in clause (ii)] is used in the business after it
ceases to be used for scientific research related to that business, depreciation
shall be admissible under 69[clause (ii) of sub-section (1)] of section 32.
70
[(2A) 71Where 72[, before the 1st day of March, 1984,] the assessee pays any sum
73
[(being any sum paid with a specific direction that the sum shall not be used for the
acquisition of any land or building or construction of any building)] to a scientific
research association or university or college or other institution referred to in clause
(ii) of sub-section (1) 74[or to a public sector company] to be used for scientific
research undertaken under a programme approved in this behalf by the prescribed
authority75 having regard to the social, economic and industrial needs of India, then,
(a) there shall be allowed a deduction of a sum equal to one and one-third times
the sum so paid ; and
(b) no deduction in respect of such sum shall be allowed under clause (ii) of
sub-section (1) for the same or any other assessment year.]
74
[Explanation.For the purposes of this sub-section, public sector company shall
have the same meaning as in clause (b) of the Explanation below sub-section (2B) of
section 32A.]
76
[(2AA) 77Where the assessee pays any sum to a National Laboratory 78[or a
79
[University or an Indian Institute of Technology or a specified person] with a
specific direction that the said sum shall be used for scientific research undertaken
under a programme approved in this behalf by the prescribed authority80, then
(a) there shall be allowed a deduction of a sum equal to one and one-fourth
times the sum so paid ; and
(b) no deduction in respect of such sum shall be allowed under any other
provision of this Act :
81
[Provided that the prescribed authority shall, before granting approval, satisfy itself
about the feasibility of carrying out the scientific research and shall submit its report
to the Director General in such form as may be prescribed.82]
83
[Explanation.For the purposes of this section,
(a) National Laboratory means a scientific laboratory functioning at the
national level under the aegis of the Indian Council of Agricultural
Research, the Indian Council of Medical Research, the Council of Scientific
and Industrial Research, the Defence Research and
Development
Organisation, the Department of Electronics, the Department of Bio-

Technology or the Department of Atomic Energy and which is approved as

a National Laboratory by the prescribed authority in such manner as may be
prescribed ;
(b) University shall have the same meaning as in Explanation to clause (ix) of
section 47 ;
(c) Indian Institute of Technology shall have the same meaning as that of
Institute in clause (g) of section 384 of the Institutes of Technology Act,
1961 (59 of 1961)];
85
[(d) specified person means such person as is approved by the prescribed
authority.]
86
[(2AB)(1) Where a company engaged in the business of 87[bio-technology or in the
business of] manufacture or production of any drugs, pharmaceuticals, electronic
equipments, computers, telecommunication equipments, chemicals or any other article
or thing notified88 by the Board incurs any expenditure on scientific research (not
being expenditure in the nature of cost of any land or building) on in-house research
and development facility as approved by the prescribed authority89, then, there shall be
allowed a deduction of 90[a sum equal to one and one-half times of the expenditure]
so incurred.
91
[Explanation.For the purposes of this clause, expenditure on scientific research,
in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical
drug trial, obtaining approval from any regulatory authority under any Central, State
or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39
of 1970).]
(2) No deduction shall be allowed in respect of the expenditure mentioned in clause
(1) under any other provision of this Act.
(3) No company shall be entitled for deduction under clause (1) unless it enters into an
agreement with the prescribed authority for co-operation in such research and
development facility and for audit of the accounts maintained for that facility.
(4) The prescribed authority shall submit its report in relation to the approval of the
said facility to the Director General in such form and within such time as may be
prescribed.]
92
[(5) No deduction shall be allowed in respect of the expenditure referred to in clause
(1) which is incurred after the 31st day of March, 93[2005].]
94
[(2B)(a) Where 95[, before the 1st day of March, 1984,] an assessee has incurred any
expenditure (not being in the nature of capital expenditure incurred on the acquisition
of any land or building or construction of any building) on scientific research
undertaken under a programme approved in this behalf by the prescribed authority
having regard to the social, economic and industrial needs of India, he shall, subject to
the provisions of this sub-section, be allowed a deduction of a sum equal to one and
one-fourth times the amount of the expenditure certified by the prescribed authority to
have been so incurred during the previous year.
(b) Where a deduction has been allowed under clause (a) for any previous year in
respect of any expenditure, no deduction in respect of such expenditure shall be
allowed under clause (i) of sub-section (1) or clause (ia) of sub-section (2) for the
same or any other previous year.
(c) Where a deduction is allowed for any previous year under this sub-section in
respect of expenditure represented wholly or partly by an asset, no deduction shall be

allowed in respect of that asset under 96[clause (ii) of sub-section (1)] of section 32 for
the same or any subsequent previous year.
(d) Any deduction made under this sub-section in respect of any expenditure on
scientific research in excess of the expenditure actually incurred shall be deemed to
have been wrongly made for the purposes of this Act if the assessee fails to furnish
within one year of the period allowed by the prescribed authority for completion of
the programme, a certificate of its completion obtained from that authority, and the
provisions of sub-section (5B) of section 155 shall apply accordingly.]
97
[(3) If any question arises under this section as to whether, and if so, to what extent,
any activity constitutes or constituted, or any asset is or was being used for, scientific
research, the Board shall refer the question to
(a) the Central Government, when such question relates to any activity under
clauses (ii) and (iii) of sub-section (1), and its decision shall be final;
(b) the prescribed authority98, when such question relates to any activity other
than the activity specified in clause (a), whose decision shall be final.]
(4) The provisions of sub-section (2) of section 32 shall apply in relation to
deductions allowable under clause (iv) of sub-section (1) as they apply in relation to
deductions allowable in respect of depreciation.
99
[(5) Where, in a scheme of amalgamation, the amalgamating company sells or
otherwise transfers to the amalgamated company (being an Indian company) any asset
representing expenditure of a capital nature on scientific research,
(i) the amalgamating company shall not be allowed the deduction under clause
(ii) or clause (iii) of sub-section (2); and
(ii) the provisions of this section shall, as far as may be, apply to the
amalgamated company as they would have applied to the amalga-mating
company if the latter had not so sold or otherwise transferred the asset.]]
1

[Expenditure on acquisition of patent rights or copyrights.

35A. (1) In respect of any expenditure of a capital nature incurred after the 28th day
of February, 1966 2[but before the 1st day of April, 1998], on the acquisition of patent
rights or copyrights (hereafter, in this section, referred to as rights) used for the
purposes of the business, there shall, subject to and in accordance with the provisions
of this section, be allowed for each of the relevant previous years, a deduction equal to
the appropriate fraction of the amount of such expenditure.
Explanation.For the purposes of this section,
(i) relevant previous years means the fourteen previous years beginning with
the previous year in which such expenditure is incurred or, where such
expenditure is incurred before the commencement of the business, the
fourteen previous years beginning with the previous year in which the
business commenced :
Provided that where the rights commenced, that is to say, became effective,
in any year prior to the previous year in which expenditure on the
acquisition thereof was incurred by the assessee, this clause shall have
effect with the substitution for the reference to fourteen years of a reference
to fourteen years less the number of complete years which, when the rights
are acquired by the assessee, have elapsed since the commencement thereof,
and if fourteen years have elapsed as aforesaid, of a reference to one year;

(ii) appropriate fraction means the fraction the numerator of which is one and
the denominator of which is the number of the relevant previous years.
(2) Where the rights come to an end without being subsequently revived or where the
whole or any part of the rights is sold and the proceeds of the sale (so far as they
consist of capital sums) are not less than the cost of acquisition thereof remaining
unallowed, no deduction under sub-section (1) shall be allowed in respect of the
previous year in which the rights come to an end or, as the case may be, the whole or
any part of the rights is sold or in respect of any subsequent previous year.
(3) Where the rights either come to an end without being subsequently revived or are
sold in their entirety and the proceeds of the sale (so far as they consist of capital
sums) are less than the cost of acquisition thereof remaining unallowed, a deduction
equal to such cost remaining unallowed, or, as the case may be, such cost remaining
unallowed as reduced by the proceeds of the sale, shall be allowed in respect of the
previous year in which the rights come to an end, or, as the case may be, are sold.
(4) Where the whole or any part of the rights is sold and the proceeds of the sale (so
far as they consist of capital sums) exceed the amount of the cost of acquisition
thereof remaining unallowed, so much of the excess as does not exceed the difference
between the cost of acquisition of the rights and the amount of such cost remaining
unallowed shall be chargeable to income-tax as income of the business of the previous
year in which the whole or any part of the rights is sold.
Explanation.Where the whole or any part of the rights is sold in a previous year in
which the business is no longer in existence, the provisions of this sub-section shall
apply as if the business is in existence in that previous year.
(5) Where a part of the rights is sold and sub-section (4) does not apply, the amount of
the deduction to be allowed under sub-section (1) shall be arrived at by
(a) subtracting the proceeds of the sale (so far as they consist of capital sums)
from the amount of the cost of acquisition of the rights remaining
unallowed; and
(b) dividing the remainder by the number of relevant previous years which have
not expired at the beginning of the previous year during which the rights are
sold.]
3
[(6) Where, in a scheme of amalgamation, the amalgamating company sells or
otherwise transfers the rights to the amalgamated company (being an Indian
company),
(i) the provisions of sub-sections (3) and (4) shall not apply in the case of the
amalgamating company; and
(ii) the provisions of this section shall, as far as may be, apply to the
amalgamated company as they would have applied to the amalgamating
company if the latter had not so sold or otherwise transferred the rights.]
4
[(7) Where in a scheme of demerger, the demerged company sells or otherwise
transfers the rights to the resulting company (being an Indian company),
(i) the provisions of sub-sections (3) and (4) shall not apply in the case of the
demerged company; and
(ii) the provisions of this section shall, as far as may be, apply to the resulting
company as they would have applied to the demerged company, if the latter
had not sold or otherwise transferred the rights.]

[Expenditure on know-how.
35AB. (1) Subject to the provisions of sub-section (2), where the assessee has paid
in any previous year 6[relevant to the assessment year commencing on or before the
1st day of April, 1998] any lump sum consideration for acquiring any know-how for
use for the purposes of his business, one-sixth of the amount so paid shall be deducted
in computing the profits and gains of the business for that previous year, and the
balance amount shall be deducted in equal instalments for each of the five
immediately succeeding previous years.
(2) Where the know-how referred to in sub-section (1) is developed in a laboratory,
university or institution referred to in sub-section (2B) of section 32A, one-third of the
said lump sum consideration paid in the previous year by the assessee shall be
deducted in computing the profits and gains of the business for that year, and the
balance amount shall be deducted in equal instalments for each of the two
immediately succeeding previous years.
7
[(3) Where there is a transfer of an undertaking under a scheme of amalgamation or
demerger and the amalgamating or the demerged company is entitled to a deduction
under this section, then, the amalgamated company or the resulting company, as the
case may be, shall be entitled to claim deduction under this section in respect of such
undertaking to the same extent and in respect of the residual period as it would have
been allowable to the amalgamating company or the demerged company, as the case
may be, had such amalgamation or demerger not taken place.]
Explanation.For the purposes of this section, know-how means any industrial
information or technique likely to assist in the manufacture or processing of goods or
in the working of a mine, oil well or other sources of mineral deposits (including the
searching for, discovery or testing of deposits or the winning of access thereto).]
8

[Expenditure for obtaining licence to operate telecommunication services.

35ABB. (1) In respect of any expenditure, being in the nature of capital expenditure,
incurred for acquiring any right to operate telecommunication services 9[either before
the commencement of the business to operate
telecommunication services or
thereafter at any time during any previous year] and for which payment has actually
been made to obtain a licence, there shall, subject to and in accordance with the
provisions of this section, be allowed for each of the relevant previous years, a
deduction equal to the appropriate fraction of the amount of such expenditure.
Explanation.For the purposes of this section,
10
[(i) relevant previous years means,
(A) in a case where the licence fee is actually paid before the
commencement of the business to operate telecommunication services,
the previous years beginning with the previous year in which such
business commenced;
(B) in any other case, the previous years beginning with the previous year in
which the licence fee is actually paid,
and the subsequent previous year or years during which the licence, for
which the fee is paid, shall be in force;]
(ii) appropriate fraction means the fraction the numerator of which is one and
the denominator of which is the total number of the relevant previous years;
(iii) payment has actually been made means the actual payment of expenditure
irrespective of the previous year in which the liability for the expenditure

was incurred according to the method of accounting regularly employed by

the assessee.
(2) Where the licence is transferred and the proceeds of the transfer (so far as they
consist of capital sums) are less than the expenditure incurred remaining unallowed, a
deduction equal to such expenditure remaining unallowed, as reduced by the proceeds
of the transfer, shall be allowed in respect of the previous year in which the licence is
transferred.
(3) Where the whole or any part of the licence is transferred and the proceeds of the
transfer (so far as they consist of capital sums) exceed the amount of the expenditure
incurred remaining unallowed, so much of the excess as does not exceed the
difference between the expenditure incurred to obtain the licence and the amount of
such expenditure remaining unallowed shall be chargeable to income-tax as profits
and gains of the business in the previous year in which the licence has been
transferred.
Explanation.Where the licence is transferred in a previous year in which the
business is no longer in existence, the provisions of this sub-section shall apply as if
the business is in existence in that previous year.
(4) Where the whole or any part of the licence is transferred and the proceeds of the
transfer (so far as they consist of capital sums) are not less than the amount of
expenditure incurred remaining unallowed, no deduction for such expenditure shall be
allowed under sub-section (1) in respect of the previous year in which the licence is
transferred or in respect of any subsequent previous year or years.
(5) Where a part of the licence is transferred in a previous year and sub-section (3)
does not apply, the deduction to be allowed under sub-section (1) for expenditure
incurred remaining unallowed shall be arrived at by
(a) subtracting the proceeds of transfer (so far as they consist of capital sums)
from the expenditure remaining unallowed; and
(b) dividing the remainder by the number of relevant previous years which have
not expired at the beginning of the previous year during which the licence
is transferred.
(6) Where, in a scheme of amalgamation, the amalgamating company sells or
otherwise transfers the licence to the amalgamated company (being an Indian
company),
(i) the provisions of sub-sections (2), (3) and (4) shall not apply in the case of
the amalgamating company; and
(ii) the provisions of this section shall, as far as may be, apply to the
amalgamated company as they would have applied to the amalga-mating
company if the latter had not transferred the licence.]
11
[(7) Where, in a scheme of demerger, the demerged company sells or otherwise
transfers the licence to the resulting company (being an Indian company),
(i) the provisions of sub-sections (2), (3) and (4) shall not apply in the case of
the demerged company; and
(ii) the provisions of this section shall, as far as may be, apply to the resulting
company as they would have applied to the demerged company if the latter
had not transferred the licence.]
12
[(8) Where a deduction for any previous year under sub-section (1) is claimed and
allowed in respect of any expenditure referred to in that sub-section, no deduction

shall be allowed under sub-section (1) of section 32 for the same previous year or any
subsequent previous year.]
13

[Expenditure on eligible projects or schemes.14

35AC. (1) Where an assessee incurs any expenditure by way of payment of any sum
to a public sector company or a local authority or to an association or institution
approved15 by the National Committee16 for carrying out any eligible project or
scheme, the assessee shall, subject to the provisions of this section, be allowed a
deduction of the amount of such expenditure incurred during the previous year :
Provided that a company may, for claiming the deduction under this sub-section,
incur expenditure either by way of payment of any sum as aforesaid or directly on the
eligible project or scheme.
(2) The deduction under sub-section (1) shall not be allowed unless the assessee
furnishes along with his return of income a certificate
17
(a) where the payment is to a public sector company or a local authority or an
association or institution referred to in sub-section (1), from such public
sector company or local authority or, as the case may be, association or
institution;
18
(b) in any other case, from an accountant, as defined in the Explanation below
sub-section (2) of section 288,
in such form, manner and containing such particulars (including particulars relating to
the progress in the work relating to the eligible project or scheme during the previous
year) as may be prescribed.
(3) Where a deduction under this section is claimed and allowed for any assessment
year in respect of any expenditure referred to in sub-section (1), deduction shall not be
allowed in respect of such expenditure under any other provision of this Act for the
same or any other assessment year.
19
[(4) Where an association or institution is approved by the National Committee
under sub-section (1), and subsequently
(i) that Committee is satisfied that the project or the scheme is not being
carried on in accordance with all or any of the conditions subject to which
approval was granted; or
(ii) such association or institution, to which approval has been granted, has not
furnished to the National Committee, after the end of each financial year, a
report in such form and setting forth such particulars and within such time
as may be prescribed,
the National Committee may, at any time, after giving a reasonable opportunity of
showing cause against the proposed withdrawal to the concerned association or
institution, withdraw the approval:
Provided that a copy of the order withdrawing the approval shall be forwarded by the
National Committee to the Assessing Officer having jurisdiction over the concerned
association or institution.
(5) Where any project or scheme has been notified as an eligible project or scheme
under clause (b) of the Explanation, and subsequently
(i) the National Committee is satisfied that the project or the scheme is not
being carried on in accordance with all or any of the conditions subject to
which such project or scheme was notified; or

(ii) a report in respect of such eligible project or scheme has not been furnished
after the end of each financial year, in such form and setting forth such
particulars and within such time as may be prescribed,
such notification may be withdrawn in the same manner in which it was issued:
Provided that a reasonable opportunity of showing cause against the proposed
withdrawal shall be given by the National Committee to the concerned association,
institution, public sector company or local authority, as the case may be:
Provided further that a copy of the notification by which the notification of the
eligible project or scheme is withdrawn shall be forwarded to the Assessing Officer
having jurisdiction over the concerned association, institution, public sector company
or local authority, as the case may be, carrying on such eligible project or scheme.]
20
[(6) Notwithstanding anything contained in any other provision of this Act, where
(i) the approval of the National Committee, granted to an association or
institution, is withdrawn under sub-section (4) or the notification in respect
of eligible project or scheme is withdrawn in the case of a public sector
company or local authority or an association or institution under sub-section
(5); or
(ii) a company has claimed deduction under the proviso to sub-section (1) in
respect of any expenditure incurred directly on the eligible project or
scheme and the approval for such project or scheme is withdrawn by the
National Committee under sub-section (5),
the total amount of the payment received by the public sector company or the local
authority or the association or the institution, as the case may be, in respect of which
such company or authority or association or institution has furnished a certificate
referred to in clause (a) of sub-section (2) or the deduction claimed by a company
under the proviso to sub-section (1) shall be deemed to be the income of such
company or authority or association or institution, as the case may be, for the previous
year in which such approval or notification is withdrawn and tax shall be charged on
such income at the maximum marginal rate in force for that year.]
Explanation.For the purposes of this section,
(a) National Committee means the Committee constituted by the Central
Government, from amongst persons of eminence in public life, in
accordance with the rules made under this Act;
(b) eligible project or scheme means such project or scheme for promoting
the social and economic welfare of, or the uplift of, the public as the Central
Government may, by notification in the Official Gazette, specify21 in this
behalf on the recommendations of the National Committee.]

25

[Expenditure by way of payment to associations and institutions for carrying

out rural development programmes.
26
35CCA. 27[(1) Where an assessee incurs any expenditure by way of payment of
any sum

(a) to an association or institution, which has as its object the undertaking of

any programme of rural development, to be used for carrying out any
programme of rural development approved by the prescribed authority28; or
(b) to an association or institution, which has as its object the training of
persons for implementing programmes of rural development; 29[or]
29
[(c) to a rural development fund set up and notified 30 by the Central Government
in this 31[behalf; or]
32
[(d) to the National Urban Poverty Eradication Fund set up and notified by the
Central Government in this behalf,]
the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction
of the amount of such expenditure incurred during the previous year.]
33
[(2) The deduction under clause (a) of sub-section (1) shall not be allowed in respect
of expenditure by way of payment of any sum to any association or institution
referred to in the said clause unless the assessee furnishes a certificate from such
association or institution to the effect that
(a) the programme of rural development had been approved by the prescribed
authority before the 1st day of March, 1983; and
(b) where such payment is made after the 28th day of February, 1983, such
programme involves work by way of construction of any building or other
structure (whether for use as a dispensary, school, training or welfare centre,
workshop or for any other purpose) or the laying of any road or the
construction or boring of a well or tube-well or the installation of any plant
or machinery, and such work has commenced before the 1st day of March,
1983.]
34
[(2A) The deduction under clause (b) of sub-section (1) shall not be allowed in
respect of expenditure by way of payment of any sum to any association or institution
unless the assessee furnishes a certificate from such association or institution to the
effect that
(a) the prescribed authority had approved the association or institution before
the 1st day of March, 1983; and
(b) the training of persons for implementing any programme of rural
development had been started by the association or institution before the 1st
day of March, 1983.]
34
[(2B) No certificate of the nature referred to in sub-section (2) or sub-section (2A)
shall be issued by any association or institution unless such association or institution
has obtained from the prescribed authority authorisation in writing to issue certificates
of such nature.]
Explanation.For the purposes of this section, programme of rural development
shall have the meaning assigned to it in the Explanation to sub-section (1) of section
35CC.
(3) Where a deduction under this section is claimed and allowed for any assessment
year in respect of any expenditure referred to in sub-section (1), deduction shall not be
allowed in respect of such expenditure under section 35C or section 35CC or section
80G or any other provision of this Act for the same or any other assessment year.]
35

[Expenditure by way of payment to associations and institutions for carrying

out programmes of conservation of natural resources.

35CCB. 36[(1) Where an assessee incurs any expenditure 37[on or before the 31st day
of March, 2002] by way of payment of any sum
(a) to an association or institution, which has as its object the undertaking of
any programme of conservation of natural resources or of afforestation, to
be used for carrying out any programme of conservation of natural
resources or afforestation approved38 by the prescribed authority39; or
(b) to such fund for afforestation as may be notified by the Central
Government,
the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction
of the amount of such expenditure incurred during the previous year.]
(2) The deduction under 40[clause (a) of] sub-section (1) shall not be allowed with
respect to expenditure by way of payment of any sum to any association or institution,
unless such association or institution is for the time being approved in this behalf by
the prescribed authority41 :
Provided that the prescribed authority shall not grant such approval for more than
three years at a time.
(3) Where a deduction under this section is claimed and allowed for any assessment
year in respect of any expenditure referred to in sub-section (1), deduction shall not be
allowed in respect of such expenditure under any other provision of this Act for the
same or any other assessment year.]
42

[Amortisation of certain preliminary expenses.

35D. (1) Where an assessee, being an Indian company or a person (other than a
company) who is resident in India, incurs, after the 31st day of March, 1970, any
expenditure specified in sub-section (2),
(i) before the commencement of his business, or
(ii) after the commencement of his business, in connection with the extension of
his industrial undertaking or in connection with his setting up a new
industrial unit,
the assessee shall, in accordance with and subject to the provisions of this section, be
allowed a deduction of an amount equal to one-tenth of such expenditure for each of
the ten successive previous years beginning with the previous year in which the
business commences or, as the case may be, the previous year in which the extension
of the industrial undertaking is completed or the new industrial unit commences
production or operation :
44
[Provided that where an assessee incurs after the 31st day of March, 1998, any
expenditure specified in sub-section (2), the provisions of this sub-section shall have
effect as if for the words an amount equal to one-tenth of such expenditure for each
of the ten successive previous years, the words an amount equal to one-fifth of such
expenditure for each of the five successive previous years had been substituted.]
(2) The expenditure referred to in sub-section (1) shall be the expenditure specified in
any one or more of the following clauses, namely :
(a) expenditure in connection with
(i) preparation of feasibility report;
(ii) preparation of project report;
43

(iii) conducting market survey or any other survey necessary for the business
of the assessee;
(iv) engineering services relating to the business of the assessee :
Provided that the work in connection with the preparation of the feasibility
report or the project report or the conducting of market survey or of any
other survey or the engineering services referred to in this clause is carried
out by the assessee himself or by a concern which is for the time being
approved45 in this behalf by the Board;
(b) legal charges for drafting any agreement between the assessee and any other
person for any purpose relating to the setting up or conduct of the business
of the assessee;
(c) where the assessee is a company, also expenditure
(i) by way of legal charges for drafting the Memorandum and Articles of
Association of the company;
(ii) on printing of the Memorandum and Articles of Association;
(iii) by way of fees for registering the company under the provisions of the
Companies Act, 1956 (1 of 1956);
(iv) in connection with the issue, for public subscription, of shares in or
debentures of the company, being underwriting commission, brokerage
and charges for drafting, typing, printing and advertisement of the
prospectus;
(d) such other items of expenditure (not being expenditure eligible for any
allowance or deduction under any other provision of this Act) as may be
prescribed.
(3) Where the aggregate amount of the expenditure referred to in sub-section (2)
exceeds an amount calculated at two and one-half per cent
(a) of the cost of the project, or
(b) where the assessee is an Indian company, at the option of the company, of
the capital employed in the business of the company,
the excess shall be ignored for the purpose of computing the deduction allowable
under sub-section (1) :
46
[Provided that where the aggregate amount of expenditure referred to in sub-section
(2) is incurred after the 31st day of March, 1998, the provisions of this sub-section
shall have effect as if for the words two and one-half per cent, the words five per
cent had been substituted.]
Explanation.In this sub-section
(a) cost of the project means
(i) in a case referred to in clause (i) of sub-section (1), the actual cost of the
fixed assets, being land, buildings, leaseholds, plant, machinery,
furniture, fittings and railway sidings (including expenditure on
development of land and buildings), which are shown in the books of
the assessee as on the last day of the previous year in which the business
of the assessee commences;
(ii) in a case referred to in clause (ii) of sub-section (1), the actual cost of
the fixed assets, being land, buildings, leaseholds, plant, machinery,

furniture, fittings and railway sidings (including expenditure on

development of land and buildings), which are shown in the books of
the assessee as on the last day of the previous year in which the
extension of the industrial undertaking is completed or, as the case may
be, the new industrial unit commences production or operation, in so far
as such fixed assets have been acquired or developed in connection with
the extension of the industrial undertaking or the setting up of the new
industrial unit of the assessee;
(b) capital employed in the business of the company means
(i) in a case referred to in clause (i) of sub-section (1), the aggregate of the
issued share capital, debentures and long-term borrowings as on the last
day of the previous year in which the business of the company
commences;
(ii) in a case referred to in clause (ii) of sub-section (1), the aggregate of the
issued share capital, debentures and long-term borrowings as on the last
day of the previous year in which the extension of the industrial
undertaking is completed, or, as the case may be, the new industrial unit
commences production or operation, in so far as such capital, debentures
and long-term borrowings have been issued or obtained in connection
with the extension of the industrial undertaking or the setting up of the
new industrial unit of the company;
(c) long-term borrowings means
(i) any moneys borrowed by the company from the Government or the
Industrial Finance Corporation of India or the Industrial Credit and
Investment Corporation of India or any other financial institution
47
[which is eligible for deduction under clause (viii) of sub-section (1) of
section 36] or any banking institution (not being a financial institution
referred to above), or
(ii) any moneys borrowed or debt incurred by it in a foreign country in
respect of the purchase outside India of capital plant and machinery,
where the terms under which such moneys are borrowed or the debt is
incurred provide for the repayment thereof during a period of not less
than seven years.
(4) Where the assessee is a person other than a company or a co-operative society, no
deduction shall be admissible under sub-section (1) unless the accounts of the
assessee for the year or years in which the expenditure specified in sub-section (2) is
incurred have been audited by an accountant as defined in the Explanation below subsection (2) of section 288, and the assessee furnishes, along with his return of income
for the first year in which the deduction under this section is claimed, the report of
such audit in the prescribed form48 duly signed and verified by such accountant and
setting forth such particulars as may be prescribed.
(5) Where the undertaking of an Indian company which is entitled to the deduction
under sub-section (1) is transferred, before the expiry of the period of ten years
specified in sub-section (1), to another Indian company in a scheme of amalgamation,

(i) no deduction shall be admissible under sub-section (1) in the case of the
amalgamating company for the previous year in which the amalgamation
takes place; and

(ii) the provisions of this section shall, as far as may be, apply to the
amalgamated company as they would have applied to the amalga-mating
company if the amalgamation had not taken place.
49
[(5A) Where the undertaking of an Indian company which is entitled to the
deduction under sub-section (1) is transferred, before the expiry of the period
specified in sub-section (1), to another company in a scheme of demerger,
(i) no deduction shall be admissible under sub-section (1) in the case of the
demerged company for the previous year in which the demerger takes place;
and
(ii) the provisions of this section shall, as far as may be, apply to the resulting
company, as they would have applied to the demerged company, if the
demerger had not taken place.]
(6) Where a deduction under this section is claimed and allowed for any assessment
year in respect of any expenditure specified in sub-section (2), the expenditure in
respect of which deduction is so allowed shall not qualify for deduction under any
other provision of this Act for the same or any other assessment year.]
50

[Amortisation of expenditure in case of amalgamation or demerger.

35DD. (1) Where an assessee, being an Indian company, incurs any expenditure, on
or after the 1st day of April, 1999, wholly and exclusively for the purposes of
amalgamation or demerger of an undertaking, the assessee shall be allowed a
deduction of an amount equal to one-fifth of such expenditure for each of the five
successive previous years beginning with the previous year in which the
amalgamation or demerger takes place.
(2) No deduction shall be allowed in respect of the expenditure mentioned in subsection (1) under any other provision of this Act.]
51

[Amortisation of expenditure incurred under voluntary retirement scheme.

35DDA.(1) Where an assessee incurs any expenditure in any previous year by way
of payment of any sum to an employee at the time of his voluntary retirement, in
accordance with any scheme or schemes of voluntary retirement, one-fifth of the
amount so paid shall be deducted in computing the profits and gains of the business
for that previous year, and the balance shall be deducted in equal instalments for each
of the four immediately succeeding previous years.
52
[(2) Where the assessee, being an Indian company, is entitled to the deduction under
sub-section (1) and the undertaking of such Indian company entitled to the deduction
under sub-section (1) is transferred, before the expiry of the period specified in that
sub-section, to another Indian company in a scheme of amalgamation, the provisions
of this section shall, as far as may be, apply to the amalgamated company as they
would have applied to the amalgamating company if the amalgamation had not taken
place.
(3) Where the undertaking of an Indian company entitled to the deduction under subsection (1) is transferred, before the expiry of the period specified in that sub-section,
to another company in a scheme of demerger, the provisions of this section shall, as
far as may be, apply to the resulting company, as they would have applied to the
demerged company, if the demerger had not taken place.
(4) Where there has been reorganisation of business, whereby a firm is succeeded by a
company fulfilling the conditions laid down in clause (xiii) of section 47 or a

proprietary concern is succeeded by a company fulfilling the conditions laid down in

clause (xiv) of section 47, the provisions of this section shall, as far as may be, apply
to the successor company, as they would have applied to the firm or the proprietary
concern, if reorganisation of business had not taken place.
(5) No deduction shall be allowed in respect of the expenditure mentioned in subsection (1) in the case of the amalgamating company referred to in sub-section (2), in
the case of demerged company referred to in sub-section (3) and in the case of a firm
or proprietary concern referred to in sub-section (4) of this section, for the previous
year in which amalgamation, demerger or succession, as the case may be, takes place.
(6) No deduction shall be allowed in respect of the expenditure mentioned in subsection (1) under any other provision of this Act.]]
53

[Deduction for expenditure on prospecting, etc., for certain minerals.

35E. (1) Where an assessee, being an Indian company or a person (other than a
company) who is resident in India, is engaged in any operations relating to
prospecting for, or extraction or production of, any mineral and incurs, after the 31st
day of March, 1970, any expenditure specified in sub-section (2), the assessee shall,
in accordance with and subject to the provisions of this section, be allowed for each
one of the relevant previous years a deduction of an amount equal to one-tenth of the
amount of such expenditure.
(2) The expenditure referred to in sub-section (1) is that incurred by the assessee after
the date specified in that sub-section at any time during the year of commercial
production and any one or more of the four years immediately preceding that year,
wholly and exclusively on any operations relating to prospecting for any mineral or
group of associated minerals specified in Part A or Part B, respectively, of the Seventh
Schedule or on the development of a mine or other natural deposit of any such mineral
or group of associated minerals :
Provided that there shall be excluded from such expenditure any portion thereof
which is met directly or indirectly by any other person or authority and any sale,
salvage, compensation or insurance moneys realised by the assessee in respect of any
property or rights brought into existence as a result of the expenditure.
(3) Any expenditure
(i) on the acquisition of the site of the source of any mineral or group of
associated minerals referred to in sub-section (2) or of any rights in or over
such site;
(ii) on the acquisition of the deposits of such mineral or group of associated
minerals or of any rights in or over such deposits; or
(iii) of a capital nature in respect of any building, machinery, plant or furniture
for which allowance by way of depreciation is admissible under section 32,
shall not be deemed to be expenditure incurred by the assessee for any of the purposes
specified in sub-section (2).
(4) The deduction to be allowed under sub-section (1) for any relevant previous year
shall be
(a) an amount equal to one-tenth of the expenditure specified in sub-section (2)
(such one-tenth being hereafter in this sub-section referred to as the
instalment); or
(b) such amount as is sufficient to reduce to nil the income (as computed before
making the deduction under this section) of that previous year arising from

the commercial exploitation [whether or not such commercial exploitation is

as a result of the operations or development referred to in sub-section (2)] of
any mine or other natural deposit of the mineral or any one or more of the
minerals in a group of associated minerals as aforesaid in respect of which
the expenditure was incurred,
whichever amount is less :
Provided that the amount of the instalment relating to any relevant previous year, to
the extent to which it remains unallowed, shall be carried forward and added to the
instalment relating to the previous year next following and deemed to be part of that
instalment, and so on, for succeeding previous years, so, however, that no part of any
instalment shall be carried forward beyond the tenth previous year as reckoned from
the year of commercial production.
(5) For the purposes of this section,
(a) operation relating to prospecting means any operation undertaken for the
purposes of exploring, locating or proving deposits of any mineral, and
includes any such operation which proves to be infructuous or abortive;
(b) year of commercial production means the previous year in which as a
result of any operation relating to prospecting, commercial production of
any mineral or any one or more of the minerals in a group of associated
minerals specified in Part A or Part B, respectively, of the Seventh Schedule,
commences;
(c) relevant previous years means the ten previous years beginning with the
year of commercial production.
(6) Where the assessee is a person other than a company or a co-operative society, no
deduction shall be admissible under sub-section (1) unless the accounts of the
assessee for the year or years in which the expenditure specified in sub-section (2) is
incurred have been audited by an accountant as defined in the Explanation below subsection (2) of section 288, and the assessee furnishes, along with his return of income
for the first year in which the deduction under this section is claimed, the report of
such audit in the prescribed form54 duly signed and verified by such accountant and
setting forth such particulars as may be prescribed.
(7) Where the undertaking of an Indian company which is entitled to the deduction
under sub-section (1) is transferred, before the expiry of the period of ten years
specified in sub-section (1), to another Indian company in a scheme of amalgamation

(i) no deduction shall be admissible under sub-section (1) in the case of the
amalgamating company for the previous year in which the amalgamation
takes place; and
(ii) the provisions of this section shall, as far as may be, apply to the
amalgamated company as they would have applied to the amalgamating
company if the amalgamation had not taken place.
55
[(7A) Where the undertaking of an Indian company which is entitled to the
deduction under sub-section (1) is transferred, before the expiry of the period of ten
years specified in sub-section (1), to another Indian company in a scheme of
demerger,
(i) no deduction shall be admissible under sub-section (1) in the case of the
demerged company for the previous year in which the demerger takes place;
and

(ii) the provisions of this section shall, as far as may be, apply to the resulting
company as they would have applied to the demerged company, if the
demerger had not taken place.]
(8) Where a deduction under this section is claimed and allowed for any assessment
year in respect of any expenditure specified in sub-section (2), the expenditure in
respect of which deduction is so allowed shall not qualify for deduction under any
other provision of this Act for the same or any other assessment year.]
Other deductions.
56
36. (1) The deductions provided for in the following clauses shall be allowed in
respect of the matters dealt with therein, in computing the income referred to in
section 28
57
(i) the amount of any premium paid in respect of insurance against risk of
damage58 or destruction58 of stocks or stores58 used for the purposes of the
business or profession;
59
[(ia) the amount of any premium paid by a federal milk co-operative society to
effect or to keep in force an insurance on the life of the cattle owned by a
member of a co-operative society, being a primary society engaged in
supplying milk raised by its members to such federal milk co-operative
society;]
60
[(ib) the amount of any premium paid by cheque by the assessee as an employer
to effect or to keep in force an insurance on the health of his employees
under a scheme framed in this behalf by the General Insurance Corporation
of India formed under section 9 of the General Insurance Business
(Nationalisation) Act, 1972 (57 of 1972) and approved by the Central
Government;]
61
(ii) any sum paid to an employee as bonus or commission 62 for services
rendered, where such sum would not have been payable to him as profits or
dividend if it had not been paid as bonus or commission;
63
[* * *]
64
[* * *]
65
(iia) [Omitted by the Finance Act, 1999, w.e.f. 1-4-2000.]
66
(iii) the amount of the interest67 paid in respect of capital67 borrowed for the
purposes of the business67 or profession :
68
[Provided that any amount of the interest paid, in respect of capital
borrowed for acquisition of an asset for extension of existing business or
profession (whether capitalised in the books of account or not); for any
period beginning from the date on which the capital was borrowed for
acquisition of the asset till the date on which such asset was first put to use,
shall not be allowed as deduction.]
Explanation.Recurring subscriptions paid periodically by shareholders, or
subscribers in Mutual Benefit Societies which fulfil such conditions as may
be prescribed, shall be deemed to be capital borrowed within the meaning of
this clause;
66
(iv) 69any sum paid70 by the assessee as an employer by way of contribution
towards a recognised provident fund or an approved superannuation fund,
subject to such limits as may be prescribed for the purpose of recognising

72

(v)

74

[(va)

75

(vi)

76

(vii)

82

[(viia)

the provident fund or approving the superannuation fund, as the case may
be; and subject to such 71conditions as the Board may think fit to specify in
cases where the contributions are not in the nature of annual contributions
of fixed amounts or annual contributions fixed on some definite basis by
reference to the income chargeable under the head Salaries or to the
contributions or to the number of members of the fund;
73
any sum paid by the assessee as an employer by way of contribution
towards an approved gratuity fund created by him for the exclusive benefit
of his employees under an irrevocable trust;
any sum received by the assessee from any of his employees to which the
provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is
credited by the assessee to the employees account in the relevant fund or
funds on or before the due date.
Explanation.For the purposes of this clause, due date means the date by
which the assessee is required as an employer to credit an employees
contribution to the employees account in the relevant fund under any Act,
rule, order or notification issued thereunder or under any standing order,
award, contract of service or otherwise;]
in respect of animals which have been used for the purposes of the business
or profession otherwise than as stock-in-trade and have died or become
permanently useless for such purposes, the difference between the actual
cost to the assessee of the animals and the amount, if any, realised in respect
of the carcasses or animals;
subject to the provisions of sub-section (2), the amount of 77[any 78bad debt
or part thereof78 which is written off as irrecoverable in the accounts of the
assessee for the previous year]:
79
[Provided that in the case of 80[an assessee] to which clause (viia) applies,
the amount of the deduction relating to any such debt or part thereof shall be
limited to the amount by which such debt or part thereof exceeds the credit
balance in the provision for bad and doubtful debts account made under that
clause.]
81
[Explanation.For the purposes of this clause, any bad debt or part
thereof written off as irrecoverable in the accounts of the assessee shall not
include any provision for bad and doubtful debts made in the accounts of
the assessee;]
83 84
[ in respect of any provision for bad and doubtful debts made by
(a) a scheduled bank [not being 85[* * *] a bank incorporated by or under
the laws of a country outside India] or a non-scheduled bank, an amount
86
[not exceeding seven and one-half per cent] of the total income
(computed before making any deduction under this clause and Chapter
VIA) and an amount not exceeding 87[ten] per cent of the aggregate
average advances made by the rural branches of such bank computed in
the prescribed manner :
88
[Provided that a scheduled bank or a non-scheduled bank referred to
in this sub-clause shall, at its option, be allowed in any of the relevant
assessment years, deduction in respect of any provision made by it for
any assets classified by the Reserve Bank of India as doubtful assets or
loss assets in accordance with the guidelines issued by it in this behalf,

for an amount not exceeding five per cent of the amount of such assets
shown in the books of account of the bank on the last day of the
previous year:]
89
[Provided further that for the relevant assessment years commencing
on or after the 1st day of April, 2003 and ending before the 1st day of
April, 2005, the provisions of the first proviso shall have effect as if for
the words five per cent, the words ten per cent had been
substituted:]
90
[Provided also that a scheduled bank or a non-scheduled bank
referred to in this sub-clause shall, at its option, be allowed a further
deduction in excess of the limits specified in the foregoing provisions,
for an amount not exceeding the income derived from redemption of
securities in accordance with a scheme framed by the Central
Government:
Provided also that no deduction shall be allowed under the third
proviso unless such income has been disclosed in the return of income
under the head Profits and gains of business or profession.]
91
[Explanation.For the purposes of this sub-clause, relevant
assessment years means the five consecutive assessment years
commencing on or after the 1st day of April, 2000 and ending before the
1st day of April, 2005;]
(b) a bank, being a bank incorporated by or under the laws of a country
outside India, an amount not exceeding five per cent of the total income
(computed before making any deduction under this clause and Chapter
VIA);]
92
[(c) a public financial institution or a State financial corporation or a State
industrial investment corporation, an amount not exceeding five per cent
of the total income (computed before making any deduction under this
clause and Chapter VI-A) :]
93
[Provided that a public financial institution or a State financial
corporation or a State industrial investment corporation referred to in
this sub-clause shall, at its option, be allowed in any of the two
consecutive assessment years commencing on or after the 1st day of
April, 2003 and ending before the 1st day of April, 2005, deduction in
respect of any provision made by it for any assets classified by the
Reserve Bank of India as doubtful assets or loss assets in accordance
with the guidelines issued by it in this behalf, of an amount not
exceeding ten per cent of the amount of such assets shown in the books
of account of such institution or corporation, as the case may be, on the
last day of the previous year.]
Explanation.For the purposes of this clause,
94
[(i) non-scheduled bank means a 95banking company as defined in clause
(c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949),
which is not a scheduled bank;]
96
[(ia)] rural branch means a branch of a scheduled bank 97[or a nonscheduled bank] situated in a place which has a population of not more
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;
98
[(ii) 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, 1970 (5 of
1970), or under section 3 of the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1980 (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), but does not include a co-operative bank;]
99
[(iii) public financial institution shall have the meaning assigned to it in
section 4A 1 of the Companies Act, 1956 (1 of 1956);
(iv) State financial corporation means a financial corporation established
under section 3 or section 3A or an institution notified under section 46
of the State Financial Corporations Act, 1951 (63 of 1951);
(v) State industrial investment corporation means a Government
company2 within the meaning of section 617 of the Companies Act,
1956 (1 of 1956), engaged in the business of providing long-term
finance for industrial projects and 3[eligible for deduction under clause
(viii) of this sub-section];]
4
(viii) [in respect of any special reserve created 5[and maintained] by a financial
corporation6 which is engaged in providing long-term finance for
7
[industrial or agricultural development or development of infrastructure
facility in India or 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, an
amount not exceeding forty per cent of the profits derived from such
business of providing long-term finance (computed under the head Profits
and gains of business or profession 8[before making any deduction under
this clause]) carried to such reserve account:]
9
[***]
Provided 10[***] that where the aggregate of the amounts carried to such
reserve account from time to time exceeds 11[twice the amount of] the paidup share capital 12[and of the general reserves] of the corporation 13[or, as
the case may be, the company], no allowance under this clause shall be
made in respect of such excess.
14
[Explanation.In this clause,
(a) financial corporation shall include a public company and a
Government company;
(b) 15public company shall have the meaning assigned to it in section 3 of
the Companies Act, 1956 (1 of 1956);
(c) 16Government company shall have the meaning assigned to it in
section 617 of the Companies Act, 1956 (1 of 1956);]
17
[(d) infrastructure facility shall have the meaning assigned to it in clause
(23G) of section 10;]

18

[(e) long-term finance means any loan or advance where the terms under
which moneys are loaned or advanced provide for repayment along with
interest thereof during a period of not less than five years;]
19
(viiia) [* * *]
20
[(ix) any expenditure bona fide incurred by a company for the purpose of
promoting family planning amongst its employees :
Provided that where such expenditure or any part thereof is of a capital
nature, one-fifth of such expenditure shall be deducted for the previous year
in which it was incurred; and the balance thereof shall be deducted in equal
instalments for each of the four immediately succeeding previous years :
Provided further that the provisions of sub-section (2) of section 32 and of
sub-section (2) of section 72 shall apply in relation to deductions allowable
under this clause as they apply in relation to deductions allowable in respect
of depreciation :
Provided further that the provisions of clauses (ii), (iii), (iv) and (v) of subsection (2) 21[and sub-section (5)] of section 35, of sub-section (3) of section
41 and of Explanation 1 to clause (1) of section 43 shall, so far as may be,
apply in relation to an asset representing expenditure of a capital nature for
the purposes of promoting family planning as they apply in relation to an
asset representing expenditure of a capital nature on scientific research;]
22
[(x) any sum paid by a public financial institution by way of contribution
towards 23[any Exchange Risk Administration Fund set up by public financial institutions, either jointly or separately].
Explanation.For the purposes of this clause, public financial
institutions shall have the meaning assigned to it in 24section 4A of the
Companies Act, 1956 (1 of 1956);]
25
[(xi) any expenditure incurred by the assessee, on or after the 1st day of April,
1999 but before the 1st day of April, 2000, wholly and exclusively in
respect of a non-Y2K compliant computer system, owned by the assessee
and used for the purposes of his business or profession, so as to make such
computer system Y2K compliant computer system :
Provided that no such deduction shall be allowed in respect of such
expenditure under any other provisions of this Act :
Provided further that no such deduction shall be admissible unless the
assessee furnishes in the prescribed form26, along with the return of income,
the report of an accountant, as defined in the Explanation below sub-section
(2) of section 288, certifying that the deduction has been correctly claimed
in accordance with the provisions of this clause.
Explanation.For the purposes of this clause,
(a) computer system means a device or collection of devices including
input and output support devices and excluding calculators which are
not programmable and capable of being used in conjunction with
external files, or more of which contain computer programmes,
electronic instructions, input data and output data, that performs
functions including, but not limited to, logic, arithmetic, data storage
and retrieval, communication and control;

(b) Y2K compliant computer system means a computer system capable of

correctly processing, providing or receiving data relating to date within
and between the twentieth and twenty-first century;]
27
[(xii) any expenditure (not being in the nature of capital expenditure) incurred by
a corporation or a body corporate, by whatever name called, constituted or
established by a Central, State or Provincial Act for the objects and purposes
authorised by the Act under which such corporation or body corporate was
constituted or established.]
28
(2) In making any deduction for a bad debt or part thereof, the following provisions
shall apply
29
[(i) no such deduction shall be allowed unless such debt or part thereof has been
taken into account in computing the income of the assessee of the previous
year in which the amount of such debt or part thereof is written off or of an
earlier previous year, or represents money lent in the ordinary course of the
business of banking or money-lending which is carried on by the assessee;]
(ii) if the amount ultimately recovered on any such debt or part of debt is less
than the difference between the debt or part and the amount so deducted, the
deficiency shall be deductible in the previous year in which the ultimate
recovery is made;
(iii) any such debt or part of debt may be deducted if it has already been written
off as irrecoverable in the accounts of an earlier previous year 30[(being a
previous year relevant to the assessment year commencing on the 1st day of
April, 1988, or any earlier assessment year)], but the 31[Assessing] Officer
had not allowed it to be deducted on the ground that it had not been
established to have become a bad debt in that year;
(iv) where any such debt or part of debt is written off as irrecoverable in the
accounts of the previous year 32[(being a previous year relevant to the
assessment year commencing on the 1st day of April, 1988, or any earlier
assessment year)] and the 33[Assessing] Officer is satisfied that such debt or
part became a bad debt in any earlier previous year not falling beyond a
period of four previous years immediately preceding the previous year in
which such debt or part is written off, the provisions of sub-section (6) of
section 155 shall apply;
34
[(v) where such debt or part of debt relates to advances made by an assessee to
which clause (viia) of sub-section (1) applies, no such deduction shall be
allowed unless the assessee has debited the amount of such debt or part of
debt in that previous year to the provision for bad and doubtful debts
account made under that clause.]
General.
35
37. 36(1) 37Any expenditure38 (not being expenditure of the nature described in
sections 30 to 36 39[***] and not being in the nature of capital expenditure 38 or
personal expenses of the assessee), laid out or expended wholly and exclusively40 for
the purposes of the business40 or profession shall be allowed in computing the income
chargeable under the head Profits and gains of business or profession.
41
[Explanation.For the removal of doubts, it is hereby declared that any expenditure
incurred by an assessee for any purpose which is an offence or which is prohibited by
law shall not be deemed to have been incurred for the purpose of business or

profession and no deduction or allowance shall be made in respect of such

expenditure.]
(2) 42[* * *]
43 44
[ (2B) Notwithstanding anything contained in sub-section (1), no allowance shall be
made in respect of expenditure incurred by an assessee on advertisement in any
souvenir, brochure, tract, pamphlet or the like published by a political party.]
(3) 45[* * *]
(3A) 46[* * *]
(3B) 47[* * *]
(3C) 48[* * *]
(3D) 49[* * *]
(4) 50[* * *]
(5) 51[* * *]
Building, etc., partly used for business, etc., or not exclusively so used.
52
38. (1) Where a part of any premises is used as dwelling house by the assessee,
(a) the deduction under sub-clause (i) of clause (a) of section 30, in the case of
rent, shall be such amount as the 53[Assessing] Officer may determine
having regard to the proportionate annual value of the part used for the
purpose of the business or profession, and in the case of any sum paid for
repairs, such sum as is proportionate to the part of the premises used for
the purpose of the business or profession;
(b) the deduction under clause (b) of section 30 shall be such sum as the
54
[Assessing] Officer may determine having regard to the part so used.
(2) Where any building, machinery, plant or furniture is not exclusively used for the
purposes of the business or profession, the deductions under sub-clause (ii) of clause
(a) and clause (c) of section 30, clauses (i) and (ii) of section 31 and 55[clause (ii) of
sub-section (1)] of section 32 shall be restricted to a fair proportionate part thereof
which the 56[Assessing] Officer may determine, having regard to the user of such
building, machinery, plant or furniture for the purposes of the business or profession.

Amounts not deductible.

40. Notwithstanding anything to the contrary in sections 30 to 58[38], the
following amounts shall not be deducted in computing the income chargeable under
the head Profits and gains of business or profession,
59(a) in the case of any assessee
60[(i) any interest (not being interest on a loan issued for public subscription
before the 1st day of April, 1938), royalty, fees for technical services or
other sum chargeable under this Act, which is payable,
(A) outside India; or
(B) in India to a non-resident, not being a company or to a foreign
company,
on which tax is deductible at source under Chapter XVII-B and such tax
has not been deducted or, after deduction, has not been paid during the

previous year, or in the subsequent year before the expiry of the time
prescribed under sub-section (1) of section 200 :
Provided that where in respect of any such sum, tax has been deducted
in any subsequent year or, has been deducted in the previous year but
paid in any subsequent year after the expiry of the time prescribed
under sub-section (1) of section 200, such sum shall be allowed as a
deduction in computing the income of the previous year in which such
tax has been paid.
Explanation.For the purposes of this sub-clause,
(A) royalty shall have the same meaning as in Explanation 2 to
clause (vi) of sub-section (1) of section 9;
(B) fees for technical services shall have the same meaning as in
Explanation 2 to clause (vii) of sub-section (1) of section 9;
(ia) any interest, commission or brokerage, fees for professional services or
fees for technical services payable to a resident, or amounts payable to
a contractor or sub-contractor, being resident, for carrying out any
work (including supply of labour for carrying out any work), on which
tax is deductible at source under Chapter XVII-B and such tax has not
been deducted or, after deduction, has not been paid during the previous
year, or in the subsequent year before the expiry of the time prescribed
under sub-section (1) of section 200 :
Provided that where in respect of any such sum, tax has been deducted
in any subsequent year or, has been deducted in the previous year but
paid in any subsequent year after the expiry of the time prescribed
under sub-section (1) of section 200, such sum shall be allowed as a
deduction in computing the income of the previous year in which such
tax has been paid.
Explanation.For the purposes of this sub-clause,
(i) commission or brokerage shall have the same meaning as in
clause (i) of the Explanation to section 194H;
(ii) fees for technical services shall have the same meaning as in
Explanation 2 to clause (vii) of sub-section (1) of section 9;
(iii) professional services shall have the same meaning as in clause
(a) of the Explanation to section 194J;
(iv) work shall have the same meaning as in Explanation III to section
194C;
(ib) any sum paid on account of securities transaction tax under Chapter VII
of the Finance (No. 2) Act, 2004;]
61-62
(ii) any sum paid on account of any rate or tax levied 63 on the profits or
gains of any business or profession63 or assessed at a proportion of, or
otherwise on the basis of, any such profits or gains;
64 65
[ (iia)any sum paid on account of wealth-tax.
Explanation.For the purposes of this sub-clause, wealth-tax means
wealth-tax chargeable under the Wealth-tax Act, 1957 (27 of 1957), or
any tax of a similar character chargeable under any law in force in any
country outside India or any tax chargeable under such law with
reference to the value of the assets of, or the capital employed in, a
business or profession carried on by the assessee, whether or not the

debts of the business or profession are allowed as a deduction in

computing the amount with reference to which such tax is charged, but
does not include any tax chargeable with reference to the value of any
particular asset of the business or profession;]
66
[(iii) any payment which is chargeable under the head Salaries, if it is
payable
(A) outside India; or
(B) to a non-resident,
and if the tax has not been paid thereon nor deducted therefrom under
Chapter XVII-B;]
(iv) any payment to a provident or other fund established for the benefit of
employees of the assessee, unless the assessee has made effective
arrangements to secure that tax shall be deducted at source from any
payments made from the fund which are chargeable to tax under the
head Salaries;
67
[(v) any tax actually paid by an employer referred to in clause (10CC) of
section 10;]
68
[(b) in the case of any firm assessable as such,
(i) any payment of salary, bonus, commission or remuneration, by whatever
name called (hereinafter referred to as remuneration) to any partner
who is not a working partner; or
(ii) any payment of remuneration to any partner who is a working partner,
or of interest to any partner, which, in either case, is not authorised by,
or is not in accordance with, the terms of the partnership deed; or
(iii) any payment of remuneration to any partner who is a working partner,
or of interest to any partner, which, in either case, is authorised by, and
is in accordance with, the terms of the partnership deed, but which
relates to any period (falling prior to the date of such partnership deed)
for which such payment was not authorised by, or is not in accordance
with, any earlier partnership deed, so, however, that the period of
authorisation for such payment by any earlier partnership deed does not
cover any period prior to the date of such earlier partnership deed; or
(iv) any payment of interest to any partner which is authorised by, and is in
accordance with, the terms of the partnership deed and relates to any
period falling after the date of such partnership deed in so far as such
amount exceeds the amount calculated at the rate of 69[twelve] per cent
simple interest per annum; or
70
(v) any payment of remuneration to any partner who is a working partner,
which is authorised by, and is in accordance with, the terms of the
partnership deed and relates to any period falling after the date of such
partnership deed in so far as the amount of such payment to all the
partners during the previous year exceeds the aggregate amount
computed as hereunder :
(1) in case of a firm carrying on a profession referred to in section
44AA or which is notified for the purpose of that section
(a) on the first Rs. 1,00,000
Rs. 50,000 or at the rate of 90 per cent
of the book-profit or in
of the book-profit, whichever is more;

(b)
(c)
(2)
(a)

(b)
(c)

case of a loss
on the next Rs. 1,00,000
at the rate of 60 per cent;
of the book-profit
on the balance of the
at the rate of 40 per cent;
book-profit
in the case of any other firm
on the first Rs. 75,000
Rs. 50,000 or at the rate of 90 per cent
of the book-profit, or in
of the book- profit, whichever is more;
case of a loss
on the next Rs. 75,000
at the rate of 60 per cent;
of the book-profit
on the balance of the
at the rate of 40 per cent:
book-profit

Provided that in relation to any payment under this clause to the partner
during the previous year relevant to the assessment year commencing on the
1st day of April, 1993, the terms of the partnership deed may, at any time
during the said previous year, provide for such payment.
Explanation 1.Where an individual is a partner in a firm on behalf, or for
the benefit, of any other person (such partner and the other person being
hereinafter referred to as partner in a representative capacity and person
so represented, respectively),
(i) interest paid by the firm to such individual otherwise than as partner in a
representative capacity, shall not be taken into account for the purposes
of this clause;
(ii) interest paid by the firm to such individual as partner in a representative
capacity and interest paid by the firm to the person so represented shall
be taken into account for the purposes of this clause.
Explanation 2.Where an individual is a partner in a firm otherwise than as
partner in a representative capacity, interest paid by the firm to such
individual shall not be taken into account for the purposes of this clause, if
such interest is received by him on behalf, or for the benefit, of any other
person.
Explanation 3.For the purposes of this clause, book-profit means the
net profit, as shown in the profit and loss account for the relevant previous
year, computed in the manner laid down in Chapter IV-D as increased by
the aggregate amount of the remuneration paid or payable to all the partners
of the firm if such amount has been deducted while computing the net
profit.
Explanation 4.For the purposes of this clause, working partner means
an individual who is actively engaged in conducting the affairs of the
business or profession of the firm of which he is a partner;]
71
[(ba) in the case of an association of persons or body of individuals [other than a
company or a co-operative society or a society 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], any payment of
interest, salary, bonus, commission or remuneration, by whatever name

called, made by such association or body to a member of such association or

body.
Explanation 1.Where interest is paid by an association or body to any
member thereof who has also paid interest to the association or body, the
amount of interest to be disallowed under this clause shall be limited to the
amount by which the payment of interest by the association or body to the
member exceeds the payment of interest by the member to the association
or body.
Explanation 2.Where an individual is a member of an association or body
on behalf, or for the benefit, of any other person (such member and the
other person being hereinafter referred to as member in a representative
capacity and person so represented, respectively),
(i) interest paid by the association or body to such individual or by such
individual to the association or body otherwise than as member in a
representative capacity, shall not be taken into account for the purposes
of this clause;
(ii) interest paid by the association or body to such individual or by such
individual to the association or body as member in a representative
capacity and interest paid by the association or body to the person so
represented or by the person so represented to the association or body,
shall be taken into account for the purposes of this clause.
Explanation 3.Where an individual is a member of an association or body
otherwise than as member in a representative capacity, interest paid by the
association or body to such individual shall not be taken into account for the
purposes of this clause, if such interest is received by him on behalf, or for
the benefit, of any other person.]
(c) [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
Earlier, it was amended by the Finance Act, 1963, w.e.f. 1-4-1963, Finance
Act, 1964, w.e.f. 1-4-1964, Finance Act, 1965, w.e.f. 1-4-1965, Finance Act,
1968, w.e.f. 1-4-1969, Finance (No. 2) Act, 1971, w.e.f. 1-4-1972, Finance
Act, 1984, w.e.f. 1-4-1985 and Direct Tax Laws (Amendment) Act, 1987,
w.e.f. 1-4-1988.]
(d) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]
72

[Expenses or payments not deductible in certain circumstances.

40A. (1) The provisions of this section shall have effect notwithstanding anything to
the contrary contained in any other provision of this Act relating to the computation of
income under the head Profits and gains of business or profession.
74
(2)(a) Where the assessee incurs any expenditure in respect of which payment has
been or is to be made to any person 75 referred to in clause (b) of this sub-section, and
the 76[Assessing] Officer is of opinion that such expenditure is excessive or
unreasonable having regard to the fair market value of the goods, services or facilities
for which the payment is made or the legitimate needs of the business or profession of
the assessee or the benefit derived by or accruing to him therefrom, so much of the
expenditure as is so considered by him to be excessive or unreasonable shall not be
allowed as a deduction.
77
[* * *]
(b) The persons referred to in clause (a) are the following, namely :
73

(i)

where the assessee is an

any relative of the assessee;
individual
(ii) where the assessee is a
any director of the company, partner of the
company, firm, association of
firm, or member of the association or
persons or Hindu undivided
family, or any relative of such director,
family
partner or member;
(iii) any individual who has a substantial interest in the business or profession of
the assessee, or any relative of such individual;
(iv) a company, firm, association of persons or Hindu undivided family having a
substantial interest in the business or profession of the assessee or any
director, partner or member of such company, firm, association or family, or
any relative of such director, partner or member;
(v) a company, firm, association of persons or Hindu undivided family of
which a director, partner or member, as the case may be, has a substantial
interest in the business or profession of the assessee; or any director,
partner or member of such company, firm, association or family or any
relative of such director, partner or member;
(vi) any person who carries on a business or profession,
(A) where the assessee being an individual, or any relative of such assessee,
has a substantial interest in the business or profession of that person; or
(B) where the assessee being a company, firm, association of persons or
Hindu undivided family, or any director of such company, partner of
such firm or member of the association or family, or any relative of such
director, partner or member, has a substantial interest in the business or
profession of that person.
Explanation.For the purposes of this sub-section, a person shall be deemed to have
a substantial interest in a business or profession, if,
(a) in a case where the business or profession is carried on by a company, such
person is, at any time during the previous year, 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; and
(b) in any other case, such person is, at any time during the previous year,
beneficially entitled to not less than twenty per cent of the profits of such
business or profession.
78
(3) Where the assessee incurs any expenditure79 in respect of which payment is
made, after such date (not being later than the 31st day of March, 1969) as may be
specified in this behalf by the Central Government by notification in the Official
Gazette80, in a sum exceeding 81[82[twenty] thousand] rupees otherwise than by a
crossed cheque drawn on a bank or by a crossed bank draft, 83[twenty per cent of such
expenditure shall not be allowed as a deduction] :
Provided that where an allowance has been made in the assessment for any year not
being an assessment year commencing prior to the 1st day of April, 1969, in respect of
any liability incurred by the assessee for any expenditure and subsequently during any
previous year the assessee makes any payment in respect thereof in a sum exceeding
84 85
[ [twenty] thousand] rupees otherwise than by a crossed cheque drawn on a bank or
by a crossed bank draft, the allowance originally made shall be deemed to have been
wrongly made and the 86[Assessing] Officer may recompute the total income of the

assessee for the previous year in which such liability was incurred and make the
necessary amendment, and the provisions of section 154 shall, so far as may be, apply
thereto, the period of four years specified in sub-section (7) of that section being
reckoned from the end of the assessment year next following the previous year in
which the payment was so made :
Provided further that no disallowance under this sub-section shall be made where
any payment in a sum exceeding 87[88[twenty] thousand] rupees is made otherwise
than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases
and under such circumstances as may be prescribed 89, having regard to the nature and
extent of banking facilities available, considerations of business expediency and other
relevant factors.]
90
[(4) Notwithstanding anything contained in any other law for the time being in force
or in any contract, where any payment in respect of any expenditure has to be made
by a crossed cheque drawn on a bank or by a crossed bank draft in order that such
expenditure may not be disallowed as a deduction under sub-section (3), then the
payment may be made by such cheque or draft; and where the payment is so made or
tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea
based on the ground that the payment was not made or tendered in cash or in any
other manner.]
(5) 91[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
Original sub-section (5) was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-41972.]
(6) 92[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
Original sub-section (6) was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-41972.]
93 94
[ (7) (a) Subject to the provisions of clause (b), no deduction shall be allowed in
respect of any provision 95(whether called as such or by any other name) made by the
assessee for the payment of gratuity to his employees on their retirement or on
termination of their employment for any reason.
(b) Nothing in clause (a) shall apply in relation to any provision made by the assessee
for the purpose of payment of a sum by way of any contribution towards an approved
gratuity fund, or for the purpose of payment of any gratuity, that has become payable
during the previous year96.
Explanation.For the removal of doubts, it is hereby declared that where any
provision made by the assessee for the payment of gratuity to his employees on their
retirement or termination of their employment for any reason has been allowed as a
deduction in computing the income of the assessee for any assessment year, any sum
paid out of such provision by way of contribution towards an approved gratuity fund
or by way of gratuity to any employee shall not be allowed as a deduction in
computing the income of the assessee of the previous year in which the sum is so
paid.]
(8) 97[* * *]
98
[(9) No deduction shall be allowed in respect of any sum paid by the assessee as an
employer towards the setting up or formation of, or as contribution to, any fund, trust,
company, association of persons, body of individuals, society registered under the
Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose,
except where such sum is so paid, for the purposes and to the extent provided by or
under clause (iv) or clause (v) of sub-section (1) of section 36, or as required by or
under any other law for the time being in force.

(10) Notwithstanding anything contained in sub-section (9), where the 99[Assessing]

Officer is satisfied that the fund, trust, company, association of persons, body of
individuals, society or other institution referred to in that sub-section has, before the
1st day of March, 1984, bona fide laid out or expended any expenditure (not being in
the nature of capital expenditure) wholly and exclusively for the welfare of the
employees of the assessee referred to in sub-section (9) out of the sum referred to in
that sub-section, the amount of such expenditure shall, in case no deduction has been
allowed to the assessee in respect of such sum and subject to the other provisions of
this Act, be deducted in computing the income referred to in section 28 of the assessee
of the previous year in which such expenditure is so laid out or expended, as if such
expenditure had been laid out or expended by the assessee.]
1
[(11) Where the assessee has, before the 1st day of March, 1984, paid any sum to any
fund, trust, company, association of persons, body of individuals, society or other
institution referred to in sub-section (9), then, notwithstanding anything contained in
any other law or in any instrument, he shall be entitled
(i) to claim that so much of the amount paid by him as has not been laid out or
expended by such fund, trust, company, association of persons, body of
individuals, society or other institution (such amount being hereinafter
referred to as the unutilised amount) be repaid to him, and where any claim
is so made, the unutilised amount shall be repaid, as soon as may be, to him;
(ii) to claim that any asset, being land, building, machinery, plant or furniture
acquired or constructed by the fund, trust, company, association of persons,
body of individuals, society or other institution out of the sum paid by the
assessee, be transferred to him, and where any claim is so made, such asset
shall be transferred, as soon as may be, to him.]
2
(12) [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
Profits chargeable to tax.
41. 3[4(1) Where an allowance or deduction has been made in the assessment for any
year in respect of loss, expenditure or trading liability incurred by the assessee
(hereinafter referred to as the first-mentioned person) and subsequently during any
previous year,
(a) the first-mentioned person has obtained5-6, whether in cash or in any other
manner whatsoever, any amount in respect of such 5-6loss or expenditure or
some benefit in respect of such trading liability by way of remission or
cessation thereof, the amount obtained by such person or the value of
benefit accruing to him shall be deemed to be profits and gains of business
or profession and accordingly chargeable to income-tax as the income of
that previous year, whether the business or profession in respect of which
the allowance or deduction has been made is in existence in that year or not;
or
(b) the successor in business has obtained5-6, whether in cash or in any other
manner whatsoever, any amount in respect of which loss or expenditure was
incurred by the first-mentioned person or some benefit in respect of the
trading liability referred to in clause (a) by way of remission or cessation
thereof, the amount obtained by the successor in business or the value of
benefit accruing to the successor in business shall be deemed to be profits
and gains of the business or profession, and accordingly chargeable to
income-tax as the income of that previous year.

[Explanation 1.For the purposes of this sub-section, the expression loss or

expenditure or some benefit in respect of any such trading liability by way of
remission or cessation thereof shall include the remission or cessation of any liability
by a unilateral act by the first mentioned person under clause (a) or the successor in
business under clause (b) of that sub-section by way of writing off such liability in his
accounts.]
8
[Explanation 2].For the purposes of this sub-section, successor in business
means,
(i) where there has been an amalgamation of a company with another company,
the amalgamated company;
(ii) where the first-mentioned person is succeeded by any other person in that
business or profession, the other person;
(iii) where a firm carrying on a business or profession is succeeded by another
firm, the other firm;]
9
[(iv) where there has been a demerger, the resulting company.]
10
[(2) Where any building, machinery, plant or furniture,
(a) which is owned by the assessee;
(b) in respect of which depreciation is claimed under clause (i) of sub-section
(1) of section 32; and
(c) which was or has been used for the purposes of business,
is sold11, discarded, demolished or destroyed11 and the moneys payable11 in respect of
such building, machinery, plant or furniture, as the case may be, together with the
amount of scrap value, if any, exceeds the written down value, so much of the excess
as does not exceed the difference between the actual cost and the written down value
shall be chargeable to income-tax as income of the business of the previous year in
which the moneys payable for the building, machinery, plant or furniture became
due11.
Explanation.Where the moneys payable in respect of the building, machinery, plant
or furniture referred to in this sub-section become due in a previous year in which the
business for the purpose of which the building, machinery, plant or furniture was
being used is no longer in existence, the provision of this sub-section shall apply as if
the business is in existence in that previous year.]
(2A) 12[***]
(3) Where an asset representing expenditure of a capital nature on scientific research
within the meaning of clause (iv) of sub-section (1), 13[or clause (c) of sub-section
(2B),] of section 35, read with clause (4) of section 43, is sold, without having been
used for other purposes, and the proceeds of the sale together with the total amount of
the deductions made under clause (i) 14[or, as the case may be, the amount of the
deduction under clause (ia)] of sub-section (2), 15[or clause (c) of sub-section (2B),] of
section 35 exceed the amount of the capital expenditure, the excess or the amount of
the deductions so made, whichever is the less, shall be chargeable to income-tax as
income of the business or profession of the previous year in which the sale took place.
Explanation.Where the moneys payable in respect of any asset referred to in this
sub-section become due in a previous year in which the business is no longer in
existence, the provisions of this sub-section shall apply as if the business is in
existence in that previous year.
16
(4) Where a deduction has been allowed in respect of a bad debt or part of debt
under the provisions of clause (vii) of sub-section (1) of section 36, then, if the

amount subsequently recovered on any such debt or part is greater than the difference
between the debt or part of debt and the amount so allowed, the excess shall be
deemed to be profits and gains of business or profession, and accordingly chargeable
to income-tax as the income of the previous year in which it is recovered, whether the
business or profession in respect of which the deduction has been allowed is in
existence in that year or not.
17
[Explanation.For the purposes of sub-section (3),
(1) moneys payable in respect of any building, machinery, plant or furniture
includes
(a) any insurance, salvage or compensation moneys payable in respect
thereof;
(b) where the building, machinery, plant or furniture is sold, the price for
which it is sold,
so, however, that where the actual cost of a motor car is, in accordance with
the proviso to clause (1) of section 43, taken to be twenty-five thousand
rupees, the moneys payable in respect of such motor car shall be taken to be
a sum which bears to the amount for which the motor car is sold or, as the
case may be, the amount of any insurance, salvage or compensation moneys
payable in respect thereof (including the amount of scrap value, if any) the
same proportion as the amount of twenty-five thousand rupees bears to the
actual cost of the motor car to the assessee as it would have been computed
before applying the said proviso;
(2) sold includes a transfer by way of exchange or a compulsory acquisition
under any law for the time being in force but does not include a transfer, in
a scheme of amalgamation, of any asset by the amalgamating company to
the amalgamated company where the amalgamated company is an Indian
company.]
18
[(4A) Where a deduction has been allowed in respect of any special reserve created
and maintained under clause (viii) of sub-section (1) of section 36, any amount
subsequently withdrawn from such special reserve shall be deemed to be the profits
and gains of business or profession and accordingly be chargeable to income-tax as
the income of the previous year in which such amount is withdrawn.
Explanation.Where any amount is withdrawn from the special reserve in a previous
year in which the business is no longer in existence, the provisions of this sub-section
shall apply as if the business is in existence in that previous year.]
(5) Where the business or profession referred to in this section is no longer in
existence and there is income chargeable to tax under sub-section (1), 19[***] subsection (3) 20[, sub-section (4) or sub-section (4A)] in respect of that business or
profession, any loss, not being a loss sustained in speculation business 21[***], which
arose in that business or profession during the previous year in which it ceased to exist
and which could not be set off against any other income of that previous year shall, so
far as may be, be set off against the income chargeable to tax under the sub-sections
aforesaid.
22
[(6) References in sub-section (3) 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 purposes of that
sub-section, as if such amendment or omission had not been made.]

Special provision for deductions in the case of business for prospecting, etc., for
mineral oil.
42. 23[(1)] For the purpose of computing the profits or gains of any business
consisting of the prospecting for or extraction or production of mineral oils in relation
to which the Central Government has entered into an agreement with any person for
the association or participation 24[of the Central Government or any person authorised
by it in such business] (which agreement has been laid on the Table of each House of
Parliament), there shall be made in lieu of, or in addition to, the allowances admissible
under this Act, such allowances as are specified in the agreement in relation
(a) to expenditure by way of infructuous or abortive exploration expenses in
respect of any area surrendered prior to the beginning of commercial
production by the assessee ;
(b) after the beginning of commercial production, to expenditure incurred by
the assessee, whether before or after such commercial production, in respect
of drilling or exploration activities or services or in respect of physical
assets used in that connection, except assets on which allowance for
depreciation is admissible under section 32 : 25[***]
26
[Provided that in relation to any agreement entered into after the 31st day
of March, 1981, this clause shall have effect subject to the modification that
the words and figures except assets on which allowance for depreciation is
admissible under section 32 had been omitted; and]
(c) to the depletion of mineral oil in the mining area in respect of the
assessment year relevant to the previous year in which commercial
production is begun and for such succeeding year or years as may be
specified in the agreement;
and such allowances shall be computed and made in the manner specified in the
agreement, the other provisions of this Act being deemed for this purpose to have
been modified to the extent necessary to give effect to the terms of the agreement.
27
[(2) Where the business of the assessee consisting of the prospecting for or
extraction or production of petroleum and natural gas is transferred wholly or partly or
any interest in such business is transferred in accordance with the agreement referred
to in sub-section (1), subject to the provisions of the said agreement and where the
proceeds of the transfer (so far as they consist of capital sums)
(a) are less than the expenditure incurred remaining unallowed, a deduction
equal to such expenditure remaining unallowed, as reduced by the proceeds
of transfer, shall be allowed in respect of the previous year in which such
business or interest, as the case may be, is transferred;
(b) exceed the amount of the expenditure incurred remaining unallowed, so
much of the excess as does not exceed the difference between the
expenditure incurred in connection with the business or to obtain interest
therein and the amount of such expenditure remaining unallowed, shall be
chargeable to income-tax as profits and gains of the business in the previous
year in which the business or interest therein, whether wholly or partly, had
been transferred :
Provided that in a case where the provisions of this clause do not apply, the
deduction to be allowed for expenditure incurred remaining unallowed shall
be arrived at by substracting the proceeds of transfer (so far as they consist
of capital sums) from the expenditure remaining unallowed.

Explanation.Where the business or interest in such business is transferred

in a previous year in which such business carried on by the assessee is no
longer in existence, the provisions of this clause shall apply as if the
business is in existence in that previous year;
(c) are not less than the amount of the expenditure incurred remaining
unallowed, no deduction for such expenditure shall be allowed in respect of
the previous year in which the business or interest in such business is
transferred or in respect of any subsequent year or years:
28
[Provided that where in a scheme of amalgamation or demerger, the amalgamating
or the demerged company sells or otherwise transfers the business to the amalgamated
or the resulting company (being an Indian company), the provisions of this subsection
(i) shall not apply in the case of the amalgamating or the demerged company;
and
(ii) shall, as far as may be, apply to the amalgamated or the resulting company
as they would have applied to the amalgamating or the demerged company
if the latter had not transferred the business or interest in the business.]]
29
[Explanation.For the purposes of this section, mineral oil includes petroleum
and natural gas.]
Definitions of certain terms relevant to income from profits and gains of business
or profession.
43. In sections 28 to 41 and in this section, unless the context otherwise requires30
31
(1) actual cost means the actual cost30 of the assets to the assessee, reduced by
that portion of the cost thereof, if any, as has been met 30 directly or
indirectly by any other person or authority:
32
[Provided that where the actual cost of an asset, being a motor car which
is acquired by the assessee after the 31st day of March, 1967, 33[but before
the 1st day of March, 1975,] and is used otherwise than in a business of
running it on hire for tourists, exceeds twenty-five thousand rupees, the
excess of the actual cost over such amount shall be ignored, and the actual
cost thereof shall be taken to be twenty-five thousand rupees.]
Explanation 1.Where an asset is used in the business after it ceases to be
used for scientific research related to that business and a deduction has to be
made under 34[clause (ii) of sub-section (1)] of section 32 in respect of that
asset, the actual cost of the asset to the assessee shall be the actual cost to
the assessee as reduced by the amount of any deduction allowed under
clause (iv) of sub-section (1) of section 35 or under any corresponding
provision of the Indian Income-tax Act, 1922 (11 of 1922).
35
[Explanation 2.Where an asset is acquired by the assessee by way of
gift or inheritance, the actual cost of the asset to the assessee shall be the
actual cost to the previous owner, as reduced by
(a) the amount of depreciation actually allowed under this Act and the
corresponding provisions of the Indian Income-tax Act, 1922 (11 of
1922), in respect of any previous year relevant to the assessment year
commencing before the 1st day of April, 1988; and
(b) the amount of depreciation that would have been allowable to the
assessee for any assessment year commencing on or after the 1st day of

April, 1988, as if the asset was the only asset in the relevant block of
assets.]
Explanation 3.Where, before the date of acquisition by the assessee, the
assets were at any time used by any other person for the purposes of his
business or profession and the 36[Assessing] Officer is satisfied that the
main purpose of the transfer of such assets, directly or indirectly to the
assessee, was the reduction of a liability to income-tax (by claiming
depreciation with reference to an enhanced cost), the actual cost to the
assessee shall be such an amount as the 36[Assessing] Officer may, with the
previous approval of the 37[Joint Commissioner], determine having regard
to all the circumstances of the case.
38
[Explanation 4.Where any asset which had once belonged to the
assessee and had been used by him for the purposes of his business or
profession and thereafter ceased to be his property by reason of transfer or
otherwise, is re-acquired by him, the actual cost to the assessee shall be
(i) the actual cost to him when he first acquired the asset as reduced by
(a) the amount of depreciation actually allowed to him under this Act or
under the corresponding provisions of the Indian Income-tax Act,
1922 (11 of 1922), in respect of any previous year relevant to the
assessment year commencing before the 1st day of April, 1988; and
(b) the amount of depreciation that would have been allowable to the
assessee for any assessment year commencing on or after the 1st day
of April, 1988, as if the asset was the only asset in the relevant block
of assets; or
(ii) the actual price for which the asset is re-acquired by him,
whichever is less.]
39
[Explanation 4A.Where before the date of acquisition by the assessee
(hereinafter referred to as the first mentioned person), the assets were at any
time used by any other person (hereinafter referred to as the second
mentioned person) for the purposes of his business or profession and
depreciation allowance has been claimed in respect of such assets in the
case of the second mentioned person and such person acquires on lease, hire
or otherwise assets from the first mentioned person, then, notwithstanding
anything contained in Explanation 3, the actual cost of the transferred
assets, in the case of first mentioned person, shall be the same as the written
down value of the said assets at the time of transfer thereof by the second
mentioned person.]
Explanation 5.Where a building previously the property of the assessee is
brought into use for the purpose of the business or profession after the 28th
day of February, 1946, the actual cost to the assessee shall be the actual cost
of the building to the assessee, as reduced by an amount equal to the
depreciation calculated at the rate in force on that date that would have been
allowable had the building been used for the aforesaid purposes since the
date of its acquisition by the assessee.
40
[Explanation 6.When any capital asset is transferred by a holding
company to its subsidiary company or by a subsidiary company to its
holding company, then, if the conditions of clause (iv) or, as the case may
be, of clause (v) of section 47 are satisfied, the actual cost of the transferred
capital asset to the transferee-company shall be taken to be the same as it

would have been if the transferor-company had continued to hold the capital
asset for the purposes of its business.]
41
[Explanation 7.Where, in a scheme of amalgamation, any capital asset
is transferred by the amalgamating company to the amalgamated company
and the amalgamated company is an Indian company, the actual cost of the
transferred capital asset to the amalgamated company shall be taken to be
the same as it would have been if the amalgamating company had continued
to hold the capital asset for the purposes of its own business.]
42
[Explanation 7A.Where, in a demerger, any capital asset is transferred
by the demerged company to the resulting company and the resulting
company is an Indian company, the actual cost of the transferred capital
asset to the resulting company shall be taken to be the same as it would have
been if the demerged company had continued to hold the capital asset for
the purpose of its own business :
Provided that such actual cost shall not exceed the written down value of
such capital asset in the hands of the demerged company.]
43
[Explanation 8.For the removal of doubts, it is hereby declared that
where any amount is paid or is payable as interest in connection with the
acquisition of an asset, so much of such amount as is relatable to any period
after such asset is first put to use shall not be included, and shall be deemed
never to have been included, in the actual cost of such asset.]
44
[Explanation 9.For the removal of doubts, it is hereby declared that
where an asset is or has been acquired on or after the 1st day of March,
1994 by an assessee, the actual cost of asset shall be reduced by the amount
of duty of excise or the additional duty leviable under section 3 of the
Customs Tariff Act, 1975 (51 of 1975) in respect of which a claim of credit
has been made and allowed under the Central Excise Rules, 1944.]
45
[Explanation 10.Where a portion of the cost of an asset acquired by the
assessee has been met directly or indirectly by the Central Government or a
State Government or any authority established under any law or by any
other person, in the form of a subsidy or grant or reimbursement (by
whatever name called), then, so much of the cost as is relatable to such
subsidy or grant or reimbursement shall not be included in the actual cost of
the asset to the assessee :
Provided that where such subsidy or grant or reimbursement is of such
nature that it cannot be directly relatable to the asset acquired, so much of
the amount which bears to the total subsidy or reimbursement or grant the
same proportion as such asset bears to all the assets in respect of or with
reference to which the subsidy or grant or reimbursement is so received,
shall not be included in the actual cost of the asset to the assessee.]
46
[Explanation 11.Where an asset which was acquired outside India by an
assessee, being a non-resident, is brought by him to India and used for the
purposes of his business or profession, the actual cost of the asset to the
assessee shall be the actual cost to the assessee, as reduced by an amount
equal to the amount of depreciation calculated at the rate in force that would
have been allowable had the asset been used in India for the said purposes
since the date of its acquisition by the assessee.]
47
[Explanation 12.Where any capital asset is acquired by the assessee
under a scheme for corporatisation of a recognised stock exchange in India,

(2)

49

(3)

(4)

54

(5)

57

(6)

approved by the Securities and Exchange Board of India established under

section 3 of the Securities and Exchange Board of India Act, 1992 (15 of
1992), the actual cost of the asset shall be deemed to be the amount which
would have been regarded as actual cost had there been no such
corporatisation;]
paid means actually paid48 or incurred according to the method of
accounting upon the basis of which the profits or gains are computed under
the head Profits and gains of business or profession;
plant50 includes ships, vehicles, books50, scientific apparatus and surgical
equipment used for the purposes of the business or profession 51[but does
not include tea bushes or livestock] 52[or buildings or furniture and fittings];
53
[(i) scientific research means any activities for the extension of
knowledge in the fields of natural or applied science including agriculture,
animal husbandry or fisheries;]
(ii) references to expenditure incurred on scientific research include all
expenditure incurred for the prosecution, or the provision of facilities for the
prosecution, of scientific research, but do not include any expenditure
incurred in the acquisition of rights in, or arising out of, scientific research;
(iii) references to scientific research related to a business or class of
business include
(a) any scientific research which may lead to or facilitate an extension of
that business or, as the case may be, all businesses of that class;
(b) any scientific research of a medical nature which has a special relation
to the welfare of workers employed in that business or, as the case may
be, all businesses of that class;
55
speculative transaction56 means a transaction in which a contract56 for
the purchase or sale of any commodity, including stocks and shares, is
periodically or ultimately settled otherwise than by the actual delivery56 or
transfer of the commodity or scrips:
Provided that for the purposes of this clause
(a) a contract in respect of raw materials or merchandise entered into by a
person in the course of his manufacturing or merchanting business to
guard against loss through future price fluctuations in respect of his
contracts for actual delivery of goods manufactured by him or
merchandise sold by him; or
(b) a contract in respect of stocks and shares entered into by a dealer or
investor therein to guard against loss in his holdings of stocks and shares
through price fluctuations; or
(c) a contract entered into by a member of a forward market or a stock
exchange in the course of any transaction in the nature of jobbing or
arbitrage to guard against loss which may arise in the ordinary course of
his business as such member;
shall not be deemed to be a speculative transaction;
written down value means
(a) in the case of assets acquired in the previous year, the actual cost to the
assessee;
(b) in the case of assets acquired before the previous year, the actual cost to
the assessee less all depreciation actually allowed58 to him under this

Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act
repealed by that Act, or under any executive orders issued when the
Indian Income-tax Act, 1886 (2 of 1886), was in force:
59
[Provided that in determining the written down value in respect of
buildings, machinery or plant for the purposes of clause (ii) of subsection (1) of section 32, depreciation actually allowed shall not
include depreciation allowed under sub-clauses (a), (b) and (c) of clause
(vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922
(11 of 1922), where such depreciation was not deductible in determining
the written down value for the purposes of the said clause (vi);]
60
[(c) in the case of any block of assets,
(i) in respect of any previous year relevant to the assessment year
commencing on the 1st day of April, 1988, the aggregate of the
written down values of all the assets falling within that block of
assets at the beginning of the previous year and adjusted,
(A) by the increase by the actual cost of any asset falling within that
block, acquired during the previous year;
(B) by the reduction of the moneys payable in respect of any asset
falling within that block, which is sold or discarded or
demolished or destroyed during that previous year together
with the amount of the scrap value, if any, so, however, that the
amount of such reduction does not exceed the written down
value as so increased; and
61
[(C) in the case of a slump sale, decrease by the actual cost of the
asset falling within that block as reduced
(a) by the amount of depreciation actually allowed to him
under this Act or under the corresponding provisions of
the Indian Income-tax Act, 1922 (11 of 1922) in respect of
any previous year relevant to the assessment year
commencing before the 1st day of April, 1988; and
(b) by the amount of depreciation that would have been
allowable to the assessee for any assessment year
commencing on or after the 1st day of April, 1988 as if the
asset was the only asset in the relevant block of assets,
so, however, that the amount of such decrease does not exceed
the written down value;]
(ii) in respect of any previous year relevant to the assessment year
commencing on or after the 1st day of April, 1989, the written down
value of that block of assets in the immediately preceding previous
year as reduced by the depreciation actually allowed in respect of
that block of assets in relation to the said preceding previous year
and as further adjusted by the increase or the reduction referred to in
item (i).]
Explanation 1.When in a case of succession in business or profession, an
assessment is made on the successor under sub-section (2) of section 170
the written down value of 62[any asset or any block of assets] shall be the
amount which would have been taken as its written down value if the
assessment had been made directly on the person succeeded to.

63

[Explanation 2.Where in any previous year, any block of assets is

transferred,
(a) by a holding company to its subsidiary company or by a subsidiary
company to its holding company and the conditions of clause (iv) or, as
the case may be, of clause (v) of section 47 are satisfied; or
(b) by the amalgamating company to the amalgamated company in a
scheme of amalgamation, and the amalgamated company is an Indian
company,
then, notwithstanding anything contained in clause (1), the actual cost of the
block of assets in the case of the transferee-company or the amalgamated
company, as the case may be, shall be the written down value of the block
of assets as in the case of the transferor-company or the amalgamating
company for the immediately preceding previous year as reduced by the
amount of depreciation actually allowed in relation to the said preceding
previous year.]
64
[Explanation 2A.Where in any previous year, any asset forming part of a
block of assets is transferred by a demerged company to the resulting
company, then, notwithstanding anything contained in clause (1), the
written down value of the block of assets of the demerged company for the
immediately preceding previous year shall be reduced by the 65[written
down value of the assets] transferred to the resulting company pursuant to
the demerger.
Explanation 2B.Where in a previous year, any asset forming part of a
block of assets is transferred by a demerged company to the resulting
company, then, notwithstanding anything contained in clause (1), the
written down value of the block of assets in the case of the resulting
company shall be the 66[written down value of the transferred assets 67[***]
of the demerged company immediately before the demerger.
68
[***]]
Explanation 3.Any allowance in respect of any depreciation carried
forward under sub-section (2) of section 32 shall be deemed to be
depreciation actually allowed.
69
[Explanation 4.For the purposes of this clause, the expressions moneys
payable and sold shall have the same meanings as in the Explanation
below sub-section (4) of section 41.]
70
[Explanation 5.Where in a previous year, any asset forming part of a
block of assets is transferred by a recognised stock exchange in India to a
company under a scheme for corporatisation approved by the Securities and
Exchange Board of India established under section 3 of the Securities and
Exchange Board of India Act, 1992 (15 of 1992), the written down value of
the block of assets in the case of such company shall be the written down
value of the transferred assets immediately before such transfer.]
71

[Special provisions consequential to changes in rate of exchange of currency.

43A. Notwithstanding anything contained in any other provision of this Act, where
an assessee has acquired any asset in any previous year from a country outside India
for the purposes of his business or profession and, in consequence of a change in the
rate of exchange during any previous year after the acquisition of such asset, there is
an increase or reduction in the liability of the assessee as expressed in Indian currency

(as compared to the liability existing at the time of acquisition of the asset) at the time
of making payment
(a) towards the whole or a part of the cost of the asset; or
(b) towards repayment of the whole or a part of the moneys borrowed by him
from any person, directly or indirectly, in any foreign currency specifically
for the purpose of acquiring the asset along with interest, if any,
the amount by which the liability as aforesaid is so increased or reduced during such
previous year and which is taken into account at the time of making the payment,
irrespective of the method of accounting adopted by the assessee, shall be added to,
or, as the case may be, deducted from
(i) the actual cost of the asset as defined in clause (1) of section 43; or
(ii) the amount of expenditure of a capital nature referred to in clause (iv) of
sub-section (1) of section 35; or
(iii) the amount of expenditure of a capital nature referred to in section 35A; or
(iv) the amount of expenditure of a capital nature referred to in clause (ix) of
sub-section (1) of section 36; or
(v) the cost of acquisition of a capital asset (not being a capital asset referred to
in section 50) for the purposes of section 48,
and the amount arrived at after such addition or deduction shall be taken to be the
actual cost of the asset or the amount of expenditure of a capital nature or, as the case
may be, the cost of acquisition of the capital asset as aforesaid:
Provided that where an addition to or deduction from the actual cost or expenditure
or cost of acquisition has been made under this section, as it stood immediately before
its substitution by the Finance Act, 2002, on account of an increase or reduction in the
liability as aforesaid, the amount to be added to, or, as the case may be, deducted
under this section from, the actual cost or expenditure or cost of acquisition at the
time of making the payment shall be so adjusted that the total amount added to, or, as
the case may be, deducted from, the actual cost or expenditure or cost of acquisition,
is equal to the increase or reduction in the aforesaid liability taken into account at the
time of making payment.
Explanation 1.In this section, unless the context otherwise requires,
(a) rate of exchange means the rate of exchange determined or recognised by
the Central Government for the conversion of Indian currency into foreign
currency or foreign currency into Indian currency;
(b) 72foreign currency and Indian currency have the meanings respectively
assigned to them in section 2 of the Foreign Exchange Management Act,
1999 (42 of 1999).
Explanation 2.Where the whole or any part of the liability aforesaid is met, not by
the assessee, but, directly or indirectly, by any other person or authority, the liability
so met shall not be taken into account for the purposes of this section.
Explanation 3.Where the assessee has entered into a contract with an authorised
dealer73 as defined in section 2 of the Foreign Exchange Management Act, 1999 (42 of
1999), for providing him with a specified sum in a foreign currency on or after a
stipulated future date at the rate of exchange specified in the contract to enable him to
meet the whole or any part of the liability aforesaid, the amount, if any, to be added to,
or deducted from, the actual cost of the asset or the amount of expenditure of a capital
nature or, as the case may be, the cost of acquisition of the capital asset under this
section shall, in respect of so much of the sum specified in the contract as is available

for discharging the liability aforesaid, be computed with reference to the rate of
exchange specified therein.]
74

[Certain deductions to be only on actual payment.

43B. 76Notwithstanding anything contained in any other provision of this Act, a
deduction otherwise allowable under this Act in respect of
77
[(a) any sum payable by the assessee by way of tax, duty, cess or fee, by
whatever name called, under any law for the time being in force, or]
(b) any sum payable by the assessee as an employer by way of contribution to
any provident fund or superannuation fund or gratuity fund or any other
fund for the welfare of employees, 78[or]
79
[(c) any sum referred to in clause (ii) of sub-section (1) of section 36,] 80[or]
80
[(d) any sum payable by the assessee as interest on any loan or borrowing from
any public financial institution 81[or a State financial corporation or a State
industrial investment corporation], in accordance with the terms and
conditions of the agreement governing such loan or borrowing 82[, or]
82
[(e) any sum payable by the assessee as interest on any 83[loan or advances]
from a scheduled bank in accordance with the terms and conditions of the
agreement governing such loan 84[or advances],] 85[or]
86
[(f) any sum payable by the assessee as an employer in lieu of any leave at the
credit of his employee,]
shall be allowed (irrespective of the previous year in which the liability to pay such
sum was incurred by the assessee according to the method of accounting regularly
employed by him) only in computing the income referred to in section 28 of that
previous year in which such sum is actually paid by him :
87
[Provided that nothing contained in this section shall apply in relation to any sum
88
[***] which is actually paid by the assessee on or before the due date applicable in
his case for furnishing the return of income under sub-section (1) of section 139 in
respect of the previous year in which the liability to pay such sum was incurred as
aforesaid and the evidence of such payment is furnished by the assessee along with
such return.
89
[***]]
Explanation 90[1].For the removal of doubts, it is hereby declared that where a
deduction in respect of any sum referred to in clause (a) or clause (b) of this section is
allowed in computing the income referred to in section 28 of the previous year (being
a previous year relevant to the assessment year commencing on the 1st day of April,
1983, or any earlier assessment year) in which the liability to pay such sum was
incurred by the assessee, the assessee shall not be entitled to any deduction under this
section in respect of such sum in computing the income of the previous year in which
the sum is actually paid by him.]
91
[Explanation 2.For the purposes of clause (a), as in force at all material times,
any sum payable means a sum for which the assessee incurred liability in the
previous year even though such sum might not have been payable within that year
under the relevant law.]
92 93
[ [Explanation 3].For the removal of doubts it is hereby declared that where a
deduction in respect of any sum referred to in clause (c) 94[or clause (d)] of this
75

section is allowed in computing the income referred to in section 28 of the previous

year (being a previous year relevant to the assessment year commencing on the 1st
day of April, 1988, or any earlier assessment year) in which the liability to pay such
sum was incurred by the assessee, the assessee shall not be entitled to any deduction
under this section in respect of such sum in computing the income of the previous
year in which the sum is actually paid by him.]
95
[Explanation 3A.For the removal of doubts, it is hereby declared that where a
deduction in respect of any sum referred to in clause (e) of this section is allowed in
computing the income referred to in section 28 of the previous year (being a previous
year relevant to the assessment year commencing on the 1st day of April, 1996, or any
earlier assessment year) in which the liability to pay such sum was incurred by the
assessee, the assessee shall not be entitled to any deduction under this section in
respect of such sum in computing the income of the previous year in which the sum is
actually paid by him.]
96
[Explanation 3B.For the removal of doubts, it is hereby declared that where a
deduction in respect of any sum referred to in clause (f) of this section is allowed in
computing the income, referred to in section 28, of the previous year (being a
previous year relevant to the assessment year commencing on the 1st day of April,
2001, or any earlier assessment year) in which the liability to pay such sum was
incurred by the assessee, the assessee shall not be entitled to any deduction under this
section in respect of such sum in computing the income of the previous year in which
the sum is actually paid by him.]
97
[Explanation 4.For the purposes of this section,
(a) public financial institutions shall have the meaning assigned to it in
section 4A98 of the Companies Act, 1956 (1 of 1956);
99
[(aa) scheduled bank shall have the meaning assigned to it in the Explanation
to clause (iii) of sub-section (5) of section 11;]
(b) State financial corporation means a financial corporation established
under section 3 or section 3A or an institution notified under section 46 of
the State Financial Corporations Act, 1951 (63 of 1951);
(c) State industrial investment corporation means a Government company1
within the meaning of section 617 of the Companies Act, 1956 (1 of 1956),
engaged in the business of providing long-term finance for industrial
projects and 2[eligible for deduction under clause (viii) of sub-section (1) of
section 36].]
3

[Special provision for computation of cost of acquisition of certain assets.

43C. (1) Where an asset [not being an asset referred to in sub-section (2) of section
45] which becomes the property of an amalgamated company under a scheme of
amalgamation, is sold after the 29th day of February, 1988, by the amalgamated
company as stock-in-trade of the business carried on by it, the cost of acquisition of
the said asset to the amalgamated company in computing the profits and gains from
the sale of such asset shall be the cost of acquisition of the said asset to the
amalgamating company, as increased by the cost, if any, of any improvement made
thereto, and the expenditure, if any, incurred, wholly and exclusively in connection
with such transfer by the amalgamating company.

(2) Where an asset [not being an asset referred to in sub-section (2) of section 45]
which becomes the property of the assessee on the total or partial partition of a Hindu
undivided family or under a gift or will or an irrevocable trust, is sold after the 29th
day of February, 1988, by the assessee as stock-in-trade of the business carried on by
him, the cost of acquisition of the said asset to the assessee in computing the profits
and gains from the sale of such asset shall be the cost of acquisition of the said asset
to the transferor or the donor, as the case may be, as increased by the cost, if any, of
any improvement made thereto, and the expenditure, if any, incurred, wholly and
exclusively in connection with such transfer (by way of effecting the partition,
acceptance of the gift, obtaining probate in respect of the will or the creation of the
trust), including the payment of gift-tax, if any, incurred by the transferor or the donor,
as the case may be.]

[Special provision in case of income of public financial institutions, public

companies, etc.
43D. Notwithstanding anything to the contrary contained in any other provision of
this Act,
(a) in the case of a public financial institution or a scheduled bank or a State
financial corporation or a State industrial investment corporation, the
income by way of interest in relation to such categories of bad or doubtful
debts as may be prescribed5 having regard to the guidelines issued by the
Reserve Bank of India in relation to such debts;
(b) in the case of a public company, the income by way of interest in relation to
such categories of bad or doubtful debts as may be prescribed 6 having
regard to the guidelines issued by the National Housing Bank in relation to
such debts,
shall be chargeable to tax in the previous year in which it is credited by the public
financial institution or the scheduled bank or the State financial corporation or the
State industrial investment corporation or the public company to its profit and loss
account for that year or, as the case may be, in which it is actually received by that
institution or bank or corporation or company, whichever is earlier.
Explanation.For the purposes of this section,
(a) National Housing Bank means the National Housing Bank established
under section 3 of the National Housing Bank Act, 1987 (53 of 1987);
(b) public company means a company,
(i) which is a public company within the meaning of section 3 7 of the
Companies Act, 1956 (1 of 1956);
(ii) whose main object is carrying on the business of providing longterm finance for construction or purchase of houses in India for
residential purposes; and
(iii) which is registered in accordance with the Housing Finance
Companies (NHB) Directions, 1989 given under section 30 and
section 31 of the National Housing Bank Act, 1987 (53 of 1987);
(c) public financial institution shall have the meaning assigned to it in section
4A8 of the Companies Act, 1956 (1 of 1956);

(d) scheduled bank shall have the meaning assigned to it in clause (ii) of the
Explanation to clause (viia) of sub-section (1) of section 36;
(e) State financial corporation means a financial corporation established
under section 3 or section 3A or an institution notified under section 46 of
the State Financial Corporations Act, 1951 (63 of 1951);
(f) State industrial investment corporation means a Government company
within the meaning of section 617 9 of the Companies Act, 1956 (1 of 1956),
engaged in the business of providing long-term finance for industrial
projects.]
Insurance business.
10
44. Notwithstanding anything to the contrary contained in the provisions of this
Act relating to the computation of income chargeable under the head Interest on
securities, Income from house property, Capital gains or Income from other
sources, or in section 199 or in sections 28 to 11[43B], the profits and gains of any
business of insurance, including any such business carried on by a mutual insurance
company or by a co-operative society, shall be computed in accordance with the rules
contained in the First Schedule.
12

[Special provision for deduction in the case of trade, professional or similar

association.
13
44A. (1) Notwithstanding anything to the contrary contained in this Act, where the
amount received during a previous year by any trade, professional or 14similar
association 15[(other than an association or institution referred to in clause (23A) of
section 10)] from its members, whether by way of subscription or otherwise (not
being remuneration received for rendering any specific services to such members)
falls short of the expenditure incurred by such association during that previous year
(not being expenditure deductible in computing the income under any other provision
of this Act and not being in the nature of capital expenditure) solely for the purposes
of protection or advancement of the common interests of its members, the amount so
fallen short (hereinafter referred to as deficiency) shall, subject to the provisions of
this section, be allowed as a deduction in computing the income of the association
assessable for the relevant assessment year under the head Profits and gains of
business or profession and if there is no income assessable under that head or the
deficiency allowable exceeds such income, the whole or the balance of the deficiency,
as the case may be, shall be allowed as a deduction in computing the income of the
association assessable for the relevant assessment year under any other head.
(2) In computing the income of the association for the relevant assessment year under
sub-section (1), effect shall first be given to any other provision of this Act under
which any allowance or loss in respect of any earlier assessment year is carried
forward and set off against the income for the relevant assessment year.
(3) The amount of deficiency to be allowed as a deduction under this section shall in
no case exceed one-half of the total income of the association as computed before
making any allowance under this section.
(4) This section applies only to that trade, professional or similar association the
income of which or any part thereof is not distributed to its members except as grants
to any association or institution affiliated to it.]

16

[Maintenance of accounts by certain persons carrying on profession or

business.
17
44AA. (1) Every person carrying on legal, medical, engineering or architectural
profession or the profession of accountancy or technical consultancy or interior
decoration or any other profession as is notified18 by the Board in the Official Gazette
shall keep and maintain such books of account and other documents as may enable the
19
[Assessing] Officer to compute his total income in accordance with the provisions of
this Act.
(2) Every person carrying on business or profession [not being a profession referred to
in sub-section (1)] shall,
(i) if his income from business or profession exceeds 20[one lakh twenty]
thousand rupees or his total sales, turnover or gross receipts, as the case may
be, in business or profession exceed or exceeds 21[ten lakh] rupees in any
one of the three years immediately preceding the previous year; or
(ii) where the business or profession is newly set up in any previous year, if his
income from business or profession is likely to exceed 22[one lakh twenty]
thousand rupees or his total sales, turnover or gross receipts, as the case may
be, in business or profession are or is likely to exceed 23[ten lakh] rupees,
24
[during such previous year; or
(iii) where the profits and gains from the business are deemed to be the profits
and gains of the assessee under section 44AD or section 44AE or section
44AF 25[or section 44BB or section 44BBB], as the case may be, and the
assessee has claimed his income to be lower than the profits or gains so
deemed to be the profits and gains of his business, as the case may be,
during such previous year,]
keep and maintain such books of account and other documents as may enable the
26
[Assessing] Officer to compute his total income in accordance with the provisions of
this Act.
(3) The Board may, having regard to the nature of the business or profession carried
on by any class of persons, prescribe 27, by rules, the books of account and other
documents (including inventories, wherever necessary) to be kept and maintained
under sub-section (1) or sub-section (2), the particulars to be contained therein and the
form and the manner in which and the place at which they shall be kept and
maintained.
(4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by
rules, the period for which the books of account and other documents to be kept and
maintained under sub-section (1) or sub-section (2) shall be retained.]
28

[Audit of accounts of certain persons carrying on business or profession.

44AB. 30Every person,
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the
case may be, in business exceed or exceeds forty lakh rupees in any
previous year 31[***]; or
(b) carrying on profession shall, if his gross receipts in profession exceed ten
lakh rupees in any 32[previous year; or
(c) carrying on the business shall, if the profits and gains from the business are
deemed to be the profits and gains of such person under section 44AD or

29

section 44AE or section 44AF 33[or section 44BB or section 44BBB], as the
case may be, and he has claimed his income to be lower than the profits or
gains so deemed to be the profits and gains of his business, as the case may
be, in any previous year,] 34[***]
get his accounts of such previous year 35[***] audited by an accountant before the
specified date and 36[furnish by] that date 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 :
37
[Provided that this section shall not apply to the person, who derives income of the
nature referred to in 38[***] section 44B or 39[section 44BBA], on and from the 1st day
of April, 1985 or, as the case may be, the date on which the relevant section came into
force, whichever is later :
Provided further that] in a case where such person is required by or under any other
law to get his accounts audited 40[***], it shall be sufficient compliance with the
provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and 41[furnishes by] that date the
report of the audit as required under such other law and a further report 42[by an
accountant] in the form prescribed under this section.
Explanation.For the purposes of this section,
(i) accountant shall have the same meaning as in the Explanation below subsection (2) of section 288;
43
[(ii) specified date, in relation to the accounts of the assessee of the previous
year relevant to an assessment year, means the 31st day of October of the
assessment year.]]

45 46

[ Special provision for computing profits and gains of business of civil

construction, etc.
44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to
43C, in the case of an assessee engaged in the business of civil construction or supply
of labour for civil construction, a sum equal to eight per cent of the gross receipts paid
or payable to the assessee in the previous year on account of such business or, as the
case may be, a sum higher than the aforesaid sum as declared by the assessee in his
return of income, shall be deemed to be the profits and gains of such business
chargeable to tax under the head Profits and gains of business or profession:
Provided that nothing contained in this sub-section shall apply in case the aforesaid
gross receipts paid or payable exceed an amount of forty lakh rupees.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the
purposes of sub-section (1), be deemed to have been already given full effect to and
no further deduction under those sections shall be allowed :
47
[Provided that where the assessee is a firm, the salary and interest paid to its
partners shall be deducted from the income computed under sub-section (1) subject to
the conditions and limits specified in clause (b) of section 40.]
(3) The written down value of any asset used for the purpose of the business referred
to in sub-section (1) shall be deemed to have been calculated as if the assessee had
claimed and had been actually allowed the deduction in respect of the depreciation for
each of the relevant assessment years.

(4) The provisions of sections 44AA and 44AB shall not apply in so far as they relate
to the business referred to in sub-section (1) and in computing the monetary limits
under those sections, the gross receipts or, as the case may be, the income from the
said business shall be excluded.
48
[(5) Nothing contained in the foregoing provisions of this section shall apply, where
the assessee claims and produces evidence to prove that the profits and gains from the
aforesaid business during the previous year relevant to the assessment year
commencing on the 1st day of April, 1997 or any earlier assessment year, are lower
than the profits and gains specified in sub-section (1), and thereupon the Assessing
Officer shall proceed to make an assessment of the total income or loss of the assessee
and determine the sum payable by the assessee on the basis of assessment made under
sub-section (3) of section 143.]
49
[(6) Notwithstanding anything contained in the foregoing provisions of this section,
an assessee may claim lower profits and gains than the profits and gains specified in
sub-section (1), if he keeps and maintains such books of account and other documents
as required under sub-section (2) of section 44AA and gets his accounts audited and
furnishes a report of such audit as required under section 44AB.]
Explanation.For the purposes of this section, the expression civil construction
includes
(a) the construction or repair of any building, bridge, dam or other structure or
of any canal or road;
(b) the execution of any works contract.]
50

Special provision for computing profits and gains of business of plying, hiring
or leasing goods carriages.
44AE. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C,
in the case of an assessee, who owns not more than ten goods carriages 51[at any time
during the previous year] and who is engaged in the business of plying, hiring or
leasing such goods carriages, the income of such business chargeable to tax under the
head Profits and gains of business or profession shall be deemed to be the aggregate
of the profits and gains, from all the goods carriages owned by him in the previous
year, computed in accordance with the provisions of sub-section (2).
(2) For the purposes of sub-section (1), the profits and gains from each goods
carriage,
(i) being a heavy goods vehicle, shall be an amount equal to 52[three thousand
five hundred] rupees for every month or part of a month during which the
heavy goods vehicle is owned by the assessee in the previous year or, as the
case may be, an amount higher than the aforesaid amount as declared by
him in his return of income;
(ii) other than a heavy goods vehicle, shall be an amount equal to 53[three
thousand one hundred and fifty] rupees for every month or part of a month
during which the goods carriage is owned by the assessee in the previous
year or, as the case may be, an amount higher than the aforesaid amount as
declared by him in his return of income.
(3) Any deduction allowable under the provisions of sections 30 to 38 shall, for the
purposes of sub-section (1), be deemed to have been already given full effect to and
no further deduction under those sections shall be allowed :

54

[Provided that where the assessee is a firm, the salary and interest paid to its
partners shall be deducted from the income computed under sub-section (1) subject to
the conditions and limits specified in clause (b) of section 40.]
(4) The written down value of any asset used for the purpose of the business referred
to in sub-section (1) shall be deemed to have been calculated as if the assessee had
claimed and had been actually allowed the deduction in respect of the depreciation for
each of the relevant assessment years.
(5) The provisions of sections 44AA and 44AB shall not apply in so far as they relate
to the business referred to in sub-section (1) and in computing the monetary limits
under those sections, the gross receipts or, as the case may be, the income from the
said business shall be excluded.
55
[(6) Nothing contained in the foregoing provisions of this section shall apply, where
the assessee claims and produces evidence to prove that the profits and gains from the
aforesaid business during the previous year relevant to the assessment year
commencing on the 1st day of April, 1997 or any earlier assessment year, are lower
than the profits and gains specified in sub-sections (1) and (2), and thereupon the
Assessing Officer shall proceed to make an assessment of the total income or loss of
the assessee and determine the sum payable by the assessee on the basis of assessment
made under sub-section (3) of section 143.]
56
[(7) Notwithstanding anything contained in the foregoing provisions of this section,
an assessee may claim lower profits and gains than the profits and gains specified in
sub-sections (1) and (2), if he keeps and maintains such books of account and other
documents as required under sub-section (2) of section 44AA and gets his accounts
audited and furnishes a report of such audit as required under section 44AB.]
Explanation.For the purposes of this section,
(a) the expressions goods carriage57 and heavy goods vehicle57 shall have
the meanings respectively assigned to them in section 2 of the Motor
Vehicles Act, 1988 (59 of 1988);
(b) an assessee, who is in possession of a goods carriage, whether taken on hire
purchase or on instalments and for which the whole or part of the amount
payable is still due, shall be deemed to be the owner of such goods
carriage.]
58-59

[Special provisions for computing profits and gains of retail business.

44AF. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C,
in the case of an assessee engaged in retail trade in any goods or merchandise, a sum
equal to five per cent of the total turnover in the previous year on account of such
business or, as the case may be, a sum higher than the aforesaid sum as declared by
the assessee in his return of income shall be deemed to be the profits and gains of such
business chargeable to tax under the head Profits and gains of business or
profession :
Provided that nothing contained in this sub-section shall apply in respect of an
assessee whose total turnover exceeds an amount of forty lakh rupees in the previous
year.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the
purposes of sub-section (1), be deemed to have been already given full effect to and
no further deduction under those sections shall be allowed :

Provided that where the assessee is a firm, the salary and interest paid to its partners
shall be deducted from the income computed under sub-section (1) subject to the
conditions and limits specified in clause (b) of section 40.
(3) The written down value of any asset used for the purpose of the business referred
to in sub-section (1) shall be deemed to have been calculated as if the assessee had
claimed and had been actually allowed the deduction in respect of the depreciation for
each of the relevant assessment years.
(4) The provisions of sections 44AA and 44AB shall not apply in so far as they relate
to the business referred to in sub-section (1) and in computing the monetary limits
under those sections, the total turnover or, as the case may be, the income from the
said business shall be excluded.]
60
[(5) Notwithstanding anything contained in the foregoing provisions of this section,
an assessee may claim lower profits and gains than the profits and gains specified in
sub-section (1), if he keeps and maintains such books of account and other documents
as required under sub-section (2) of section 44AA and gets his accounts audited and
furnishes a report of such audit as required under section 44AB.]
61

[Special provision for computing profits and gains of shipping business in the
case of non-residents.
62
44B. (1) Notwithstanding anything to the contrary contained in sections 28 to 43A,
in the case of an assessee, being a non-resident, engaged in the business of operation
of ships, a sum equal to seven and a half per cent of the aggregate of the amounts
specified in sub-section (2) shall be deemed to be the profits and gains of such
business chargeable to tax under the head Profits and gains of business or
profession.
(2) The amounts referred to in sub-section (1) shall be the following, namely :
(i) the amount paid or payable (whether in or out of India) to the assessee or to
any person on his behalf on account of the carriage of passengers, livestock,
mail or goods shipped at any port in India; and
(ii) the amount received or deemed to be received in India by or on behalf of the
assessee on account of the carriage of passengers, livestock, mail or goods
shipped at any port outside India.]
63
[Explanation.For the purposes of this sub-section, the amount referred to in clause
(i) or clause (ii) shall include the amount paid or payable or received or deemed to be
received, as the case may be, by way of demurrage charges or handling charges or any
other amount of similar nature.]
64

[Special provision for computing profits and gains in connection with the
business of exploration, etc., of mineral oils.
44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41
and sections 43 and 43A, in the case of an assessee 65[, being a non-resident,] engaged
in the business of providing services or facilities in connection with, or supplying
plant and machinery on hire used, or to be used, in the prospecting for, or extraction
or production of, mineral oils, a sum equal to ten per cent of the aggregate of the
amounts specified in sub-section (2) shall be deemed to be the profits and gains of
such business chargeable to tax under the head Profits and gains of business or
profession :

Provided that this sub-section shall not apply in a case where the provisions of
section 42 or section 44D or section 115A or section 293A apply for the purposes of
computing profits or gains or any other income referred to in those sections.
(2) The amounts referred to in sub-section (1) shall be the following, namely :
(a) the amount paid or payable (whether in or out of India) to the assessee or to
any person on his behalf on account of the provision of services and
facilities in connection with, or supply of plant and machinery on hire used,
or to be used, in the prospecting for, or extraction or production of, mineral
oils in India; and
(b) the amount received or deemed to be received in India by or on behalf of the
assessee on account of the provision of services and facilities in connection
with, or supply of plant and machinery on hire used, or to be used, in the
prospecting for, or extraction or production of, mineral oils outside India.
66
[(3) Notwithstanding anything contained in sub-section (1), an assessee may claim
lower profits and gains than the profits and gains specified in that sub-section, if he
keeps and maintains such books of account and other documents as required under
sub-section (2) of section 44AA and gets his accounts audited and furnishes a report
of such audit as required under section 44AB, and thereupon the Assessing Officer
shall proceed to make an assessment of the total income or loss of the assessee under
sub-section (3) of section 143 and determine the sum payable by, or refundable to, the
assessee.]
Explanation.For the purposes of this section,
(i) plant includes ships, aircraft, vehicles, drilling units, scientific apparatus
and equipment, used for the purposes of the said business;
(ii) mineral oil includes petroleum and natural gas.]
67

[Special provision for computing profits and gains of the business of operation
of aircraft in the case of non-residents.
44BBA. (1) Notwithstanding anything to the contrary contained in sections 28 to
43A, in the case of an assessee, being a non-resident, engaged in the business of
operation of aircraft, a sum equal to five per cent of the aggregate of the amounts
specified in sub-section (2) shall be deemed to be the profits and gains of such
business chargeable to tax under the head Profits and gains of business or
profession.
(2) The amounts referred to in sub-section (1) shall be the following, namely :
(a) the amount paid or payable (whether in or out of India) to the assessee or to
any person on his behalf on account of the carriage of passengers, livestock,
mail or goods from any place in India; and
(b) the amount received or deemed to be received in India by or on behalf of the
assessee on account of the carriage of passengers, livestock, mail or goods
from any place outside India.]
68

[Special provision for computing profits and gains of foreign companies

engaged in the business of civil construction, etc., in certain turnkey power
projects.
69
44BBB. 70[(1)] Notwithstanding anything to the contrary contained in sections 28 to
44AA, in the case of an assessee, being a foreign company, engaged in the business of

civil construction or the business of erection of plant or machinery or testing or

commissioning thereof, in connection with a turnkey power project approved by the
Central Government in this behalf 71[***], a sum equal to ten per cent of the amount
paid or payable (whether in or out of India) to the said assessee or to any person on
his behalf on account of such civil construction, erection, testing or commissioning
shall be deemed to be the profits and gains of such business chargeable to tax under
the head Profits and gains of business or profession.]
72
[(2) Notwithstanding anything contained in sub-section (1), an assessee may claim
lower profits and gains than the profits and gains specified in that sub-section, if he
keeps and maintains such books of account and other documents as required under
sub-section (2) of section 44AA and gets his accounts audited and furnishes a report
of such audit as required under section 44AB, and thereupon the Assessing Officer
shall proceed to make an assessment of the total income or loss of the assessee under
sub-section (3) of section 143 and determine the sum payable by, or refundable to, the
assessee.]
73

[Deduction of head office expenditure in the case of non-residents.74

75
44C. Notwithstanding anything to the contrary contained in sections 28 to 43A, in
the case of an assessee, being a non-resident, no allowance shall be made, in
computing the income chargeable under the head Profits and gains of business or
profession, in respect of so much of the expenditure in the nature of head office
expenditure as is in excess of the amount computed as hereunder, namely:
(a) an amount equal to five per cent of the adjusted total income; or
(b) 76[***]
(c) the amount of so much of the expenditure in the nature of head office
expenditure incurred by the assessee as is attributable to the business or
profession of the assessee in India77,
whichever is the least :
Provided that in a case where the adjusted total income of the assessee is a loss, the
amount under clause (a) shall be computed at the rate of five per cent of the average
adjusted total income of the assessee.
Explanation.For the purposes of this section,
(i) adjusted total income means the total income computed in accordance
with the provisions of this Act, without giving effect to the allowance
referred to in this section or in sub-section (2) of section 32 or the deduction
referred to in section 32A or section 33 or section 33A or the first proviso to
clause (ix) of sub-section (1) of section 36 or any loss carried forward under
sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section
(1) 78[or sub-section (3)] of section 74 or sub-section (3) of section 74A or
the deductions under Chapter VI-A;
(ii) average adjusted total income means,
(a) in a case where the total income of the assessee is assessable for each of
the three assessment years immediately preceding the relevant
assessment year, one-third of the aggregate amount of the adjusted total
income in respect of the previous years relevant to the aforesaid three
assessment years;

(b) in a case where the total income of the assessee is assessable only for
two of the aforesaid three assessment years, one-half of the aggregate
amount of the adjusted total income in respect of the previous years
relevant to the aforesaid two assessment years;
(c) in a case where the total income of the assessee is assessable only for
one of the aforesaid three assessment years, the amount of the adjusted
total income in respect of the previous year relevant to that assessment
year;
79
(iii) [***]
(iv) head office expenditure means executive and general administration
expenditure incurred by the assessee outside India, including expenditure
incurred in respect of
(a) rent, rates, taxes, repairs or insurance of any premises outside India used
for the purposes of the business or profession;
(b) salary, wages, annuity, pension, fees, bonus, commission, gratuity,
perquisites or profits in lieu of or in addition to salary, whether paid or
allowed to any employee or other person employed in, or managing the
affairs of, any office outside India;
(c) travelling by any employee or other person employed in, or managing
the affairs of, any office outside India; and
(d) such other matters connected with executive and general administration
as may be prescribed.]
80

[Special provisions for computing income by way of royalties, etc., in the case of
foreign companies.
44D. Notwithstanding anything to the contrary contained in sections 28 to 44C, in
the case of an assessee, being a foreign company,
(a) the deductions admissible under the said sections in computing the income
by way of royalty or fees for technical services received 81[from
Government or an Indian concern in pursuance of an agreement made by
the foreign company with Government or with the Indian concern] before
the 1st day of April, 1976, shall not exceed in the aggregate twenty per cent
of the gross amount of such royalty or fees as reduced by so much of the
gross amount of such 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, design, secret formula or process or trade mark or
similar property;
(b) no deduction in respect of any expenditure or allowance shall be allowed
under any of the said sections in computing the income by way of royalty or
fees for technical services received 82[from Government or an Indian
concern in pursuance of an agreement made by the foreign company with
Government or with the Indian concern] after the 31st day of March, 1976
83
[but before the 1st day of April, 2003];
84
(c) [***]
(d) 85[***]
Explanation.For the purposes of this section,

(a) fees for technical services shall have the same meaning as in
86
[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 87[Explanation 2] to clause (vi)
of sub-section (1) of section 9;
(d) royalty received 88[from Government or an Indian concern in pursuance of
an agreement made by a foreign company with Government or with the
Indian concern] after the 31st day of March, 1976, shall be deemed to have
been received in pursuance of an agreement made before the 1st day of
April, 1976, if such agreement is deemed, for the purposes of the proviso to
clause (vi) of sub-section (1) of section 9, to have been made before the 1st
day of April, 1976.]
89

[Special provision for computing income by way of royalties, etc., in case of

non-residents.
44DA. (1) The income by way of royalty or fees for technical services received from
Government or an Indian concern in pursuance of an agreement made by a nonresident (not being a company) or a foreign company with Government or the Indian
concern after the 31st day of March, 2003, where such non-resident (not being a
company) or a foreign company carries on business in India through a permanent
establishment situated therein, or performs professional services from a fixed place of
profession situated therein, and the right, property or contract in respect of which the
royalties or fees for technical services are paid is effectively connected with such
permanent establishment or fixed place of profession, as the case may be, shall be
computed under the head Profits and gains of business or profession in accordance
with the provisions of this Act:
Provided that no deduction shall be allowed,
(i) in respect of any expenditure or allowance which is not wholly and
exclusively incurred for the business of such permanent establishment or
fixed place of profession in India; or
(ii) in respect of amounts, if any, paid (otherwise than towards reimbursement
of actual expenses) by the permanent establishment to its head office or to
any of its other offices.
(2) Every non-resident (not being a company) or a foreign company shall keep and
maintain books of account and other documents in accordance with the provisions
contained in section 44AA and get his accounts audited by an accountant as defined
in the Explanation below sub-section (2) of section 288 and furnish along with the
return of income, the report of such audit in the prescribed form 89a duly signed and
verified by such accountant.
Explanation.For the purposes of this section,
(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) royalty shall have the same meaning as in Explanation 2 to clause (vi) of
sub-section (1) of section 9;
(c) permanent establishment shall have the same meaning as in clause (iiia)
of section 92F.]

E.Capital gains
Capital gains.
90
45. 91[(1)] Any profits or gains arising from the transfer of a capital asset 92 effected
in the previous year shall, save as otherwise provided in sections 93[***] 94[54, 54B,
95
[***] 96[97[54D, 98[54E, 99[54EA, 54EB,] 54F 1[, 54G and 54H]]]]], be chargeable to
income-tax under the head Capital gains, and shall be deemed to be the income of
the previous year in which the transfer took place.
2
[(1A) Notwithstanding anything contained in sub-section (1), where any person
receives at any time during any previous year any money or other assets under an
insurance from an insurer on account of damage to, or destruction of, any capital
asset, as a result of
(i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of
nature; or
(ii) riot or civil disturbance; or
(iii) accidental fire or explosion; or
(iv) action by an enemy or action taken in combating an enemy (whether with or
without a declaration of war),
then, any profits or gains arising from receipt of such money or other assets shall be
chargeable to income-tax under the head Capital gains and shall be deemed to be
the income of such person of the previous year in which such money or other asset
was received and for the purposes of section 48, value of any money or the fair market
value of other assets on the date of such receipt shall be deemed to be the full value of
the consideration received or accruing as a result of the transfer of such capital asset.
Explanation.For the purposes of this sub-section, the expression insurer shall
have the meaning assigned to it in clause (9) of section 23 of the Insurance Act, 1938
(4 of 1938).]
4
[(2) Notwithstanding anything contained in sub-section (1), the profits or gains
arising from the transfer by way of conversion by the owner of a capital asset into, or
its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is
sold or otherwise transferred by him and, for the purposes of section 48, the fair
market value of the asset on the date of such conversion or treatment shall be deemed
to be the full value of the consideration received or accruing as a result of the transfer
of the capital asset.]
5
[(2A) 6Where any person has had at any time during previous year any beneficial
interest in any securities, then, any profits or gains arising from transfer made by the
depository or participant of such beneficial interest in respect of securities shall be
chargeable to income-tax as the income of the beneficial owner of the previous year in
which such transfer took place and shall not be regarded as income of the depository
who is deemed to be the registered owner of securities by virtue of sub-section (1) of
section 10 of the Depositories Act, 1996, and for the purposes of
(i) section 48; and
(ii) proviso to clause (42A) of section 2
the cost of acquisition and the period of holding of any securities shall be determined
on the basis of the first-in-first-out method.
Explanation.For the purposes of this sub-section, the expressions beneficial
owner, depository and security7 shall have the meanings respectively assigned

to them in clauses (a), (e) and (l) of sub-section (1) of section 2 of the Depositories
Act, 1996.]
8
[(3) The profits or gains arising from the transfer of a capital asset by a person to a
firm or other association of persons or body of individuals (not being a company or a
co-operative society) in which he is or becomes a partner or member, by way of
capital contribution or otherwise, shall be chargeable to tax as his income of the
previous year in which such transfer takes place and, for the purposes of section 48,
the amount recorded in the books of account of the firm, association or body as the
value of the capital asset shall be deemed to be the full value of the consideration
received or accruing as a result of the transfer of the capital asset.
(4) The profits or gains arising from the transfer of a capital asset by way of
distribution of capital assets on the dissolution of a firm or other association of
persons or body of individuals (not being a company or a co-operative society) or
otherwise, shall be chargeable to tax as the income of the firm, association or body, of
the previous year in which the said transfer takes place and, for the purposes of
section 48, the fair market value of the asset on the date of such transfer shall be
deemed to be the full value of the consideration received or accruing as a result of the
transfer.]
9
[(5) Notwithstanding anything contained in sub-section (1), where the capital gain
arises from the transfer of a capital asset, being a transfer by way of compulsory
acquisition under any law, or a transfer the consideration for which was determined or
approved by the Central Government or the Reserve Bank of India, and the
compensation or the consideration for such transfer is enhanced or further enhanced
by any court, Tribunal or other authority, the capital gain shall be dealt with in the
following manner, namely :
(a) the capital gain computed with reference to the compensation awarded in
the first instance9a or, as the case may be, the consideration determined or
approved in the first instance by the Central Government or the Reserve
Bank of India shall be chargeable as 10[income under the head Capital
gains of the previous year in which such compensation or part thereof, or
such consideration or part thereof, was first received]; and
(b) the amount by which the compensation or consideration is enhanced or
further enhanced by the court, Tribunal or other authority shall be deemed to
be income chargeable under the head Capital gains of the previous year in
which such amount is received by the assessee;
11
[(c) where in the assessment for any year, the capital gain arising from the
transfer of a capital asset is computed by taking the compensation or
consideration referred to in clause (a) or, as the case may be, enhanced
compensation or consideration referred to in clause (b), and subsequently
such compensation or consideration is reduced by any court, Tribunal or
other authority, such assessed capital gain of that year shall be recomputed
by taking the compensation or consideration as so reduced by such court,
Tribunal or other authority to be the full value of the consideration.]
Explanation.For the purposes of this sub-section,
(i) in relation to the amount referred to in clause (b), the cost of acquisition and
the cost of improvement shall be taken to be nil;
(ii) the provisions of this sub-section shall apply also in a case where the
transfer took place prior to the 1st day of April, 1988;

(iii) where by reason of the death of the person who made the transfer, or for any
other reason, the enhanced compensation or consideration is received by
any other person, the amount referred to in clause (b) shall be deemed to be
the income, chargeable to tax under the head Capital gains, of such other
person.]
12
[(6) Notwithstanding anything contained in sub-section (1), the difference between
the repurchase price of the units referred to in sub-section (2) of section 80CCB and
the capital value of such units shall be deemed to be the capital gains arising to the
assessee in the previous year in which such repurchase takes place or the plan referred
to in that section is terminated and shall be taxed accordingly.
Explanation.For the purposes of this sub-section, capital value of such units
means any amount invested by the assessee in the units referred to in sub-section (2)
of section 80CCB.]
Capital gains on distribution of assets by companies in liquidation.
13
46. (1) Notwithstanding anything contained in section 45, where the assets of a
company are distributed to its shareholders on its liquidation14, such distribution shall
not be regarded as a transfer by the company for the purposes of section 45.
(2) Where a shareholder on the liquidation of a company receives any money or other
assets14 from the company, he shall be chargeable to income-tax under the head
Capital gains, in respect of the money so received or the market value of the other
assets on the date of distribution, as reduced by the amount assessed as dividend
within the meaning of sub-clause (c) of clause (22) of section 2 and the sum so arrived
at shall be deemed to be the full value of the consideration for the purposes of section
48.
15

[Capital gains on purchase by company of its own shares or other specified

securities.
46A.Where a shareholder or a holder of other specified securities receives any
consideration from any company for purchase of its own shares or other specified
securities held by such shareholder or holder of other specified securities, then,
subject to the provisions of section 48, the difference between the cost of acquisition
and the value of consideration received by the shareholder or the holder of other
specified securities, as the case may be, shall be deemed to be the capital gains arising
to such shareholder or the holder of other specified securities, as the case may be, in
the year in which such shares or other specified securities were purchased by the
company.
Explanation.For the purposes of this section, specified securities shall have the
meaning assigned to it in Explanation to section 77A16 of the Companies Act, 1956 (1
of 1956).]
Transactions not regarded as transfer.
17
47. Nothing contained in section 45 shall apply to the following transfers :
(i) any distribution of capital assets18 on the total or partial partition of a Hindu
undivided family;
(ii) 19[***]
(iii) any transfer of a capital asset under a gift20 or will or an irrevocable trust :

21

(iv)

23

[(v)

25

[(vi)

27

[(via)

29

[(vib)
(vic)

(vid)

[Provided that this clause shall not apply to transfer under a gift or an
irrevocable trust of a capital asset being shares, debentures or warrants
allotted by a company directly or indirectly to its employees under 22[any
Employees Stock Option Plan or Scheme of the company offered to such
employees in accordance with the guidelines issued by the Central
Government in this behalf];]
any transfer of a capital asset by a company to its subsidiary company, if
(a) the parent company or its nominees hold the whole of the share capital
of the subsidiary company, and
(b) the subsidiary company is an Indian company;
any transfer of a capital asset by a subsidiary company to the holding
company, if
(a) the whole of the share capital of the subsidiary company is held by the
holding company, and
(b) the holding company is an Indian company :]
24
[Provided that nothing contained in clause (iv) or clause (v) shall apply to
the transfer of a capital asset made after the 29th day of February, 1988, as
stock-in-trade;]
any transfer, in a scheme of amalgamation 26, of a capital asset by the
amalgamating company to the amalgamated company if the amalgamated
company is an Indian company;]
any transfer, in a scheme of amalgamation 28, of a capital asset being a share
or shares held in an Indian company, by the amalgamating foreign company
to the amalgamated foreign company, if
(a) at least twenty-five per cent of the shareholders of the amalgamating
foreign company continue to remain shareholders of the amalgamated
foreign company, and
(b) such transfer does not attract tax on capital gains in the country, in
which the amalgamating company is incorporated;]
any transfer, in a demerger, of a capital asset by the demerged company to
the resulting company, if the resulting company is an Indian company;
any transfer in a demerger, of a capital asset, being a share or shares held in
an Indian company, by the demerged foreign company to the resulting
foreign company, if
(a) 30[the shareholders holding not less than three-fourths in value of the
shares] of the demerged foreign company continue to remain
shareholders of the resulting foreign company; and
(b) such transfer does not attract tax on capital gains in the country, in
which the demerged foreign company is incorporated :
Provided that the provisions of sections 391 to 39431 of the Companies Act,
1956 (1 of 1956) shall not apply in case of demergers referred to in this
clause;
any transfer or issue of shares by the resulting company, in a scheme of
demerger to the shareholders of the demerged company if the transfer or
issue is made in consideration of demerger of the undertaking;]

(vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital

asset being a share or shares held by him in the amalgamating company, if

(a) the transfer is made in consideration of the allotment to him of any share
or shares in the amalgamated company, and
(b) the amalgamated company is an Indian company;
32
[(viia) any transfer of a capital asset, being bonds or 33[Global Depository
Receipts] referred to in sub-section (1) of section 115AC, made outside
India by a non-resident to another non-resident;]
34
[(viii) any transfer of agricultural land in India effected before the 1st day of
March, 1970;]
35
[(ix) any transfer of a capital asset, being any work of art, archaeological,
scientific or art collection, book, manuscript, drawing, painting, photograph
or print, to the Government or a University or the National Museum,
National Art Gallery, National Archives or any such other public museum or
institution as may be notified36 by the Central Government in the Official
Gazette to be of national importance or to be of renown throughout any
State or States.
Explanation.For the purposes of this clause, University means a
University established or incorporated by or under a Central, State or
Provincial Act and includes an institution declared under section 3 of the
University Grants Commission Act, 1956 (3 of 1956), to be a University for
the purposes of that Act;]
37
[(x) any transfer by way of conversion of 38[bonds or] debentures, debenturestock or deposit certificates in any form, of a company into shares or
debentures of that company;]
39
[(xi) any transfer made on or before the 31st day of December, 40[1998] by a
person (not being a company) of a capital asset being membership of a
recognised stock exchange to a company in exchange of shares allotted by
that company to the transferor.
Explanation.For the purposes of this clause, the expression membership
of a recognised stock exchange means the membership of a stock exchange
in India which is recognised under the provisions of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);
(xii) any transfer of a capital asset, being land of a sick industrial company, made
under a scheme prepared and sanctioned under section 1841 of the Sick
Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) where such
sick industrial company is being managed by its workers co-operative :
Provided that such transfer is made during the period commencing from the
previous year in which the said company has become a sick industrial
company under sub-section (1) of section 1742 of that Act and ending with
the previous year during which the entire net worth of such company
becomes equal to or exceeds the accumulated losses.
Explanation.For the purposes of this clause, net worth shall have the
meaning assigned to it in clause (ga) of sub-section (1) of section 3 42 of the
Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);]
43
[(xiii) 44[any transfer of a capital asset or intangible asset by a firm to a company
as a result of succession of the firm by a company in the business carried on

by the firm, or any transfer of a capital asset to a company in the course of

45
[demutualisation or] corporatisation of a recognised stock exchange in
India as a result of which an association of persons or body of individuals is
succeeded by such company :]
Provided that
(a) all the assets and liabilities of the firm 46[or of the association of persons
or body of individuals] relating to the business immediately before the
succession become the assets and liabilities of the company;
(b) all the partners of the firm immediately before the succession become
the shareholders of the company in the same proportion in which their
capital accounts stood in the books of the firm on the date of the
succession;
(c) the partners of the firm do not receive any consideration or benefit,
directly or indirectly, in any form or manner, other than by way of
allotment of shares in the company; and
(d) the aggregate of the shareholding in the company of the partners of the
firm is not less than fifty per cent of the total voting power in the
company and their shareholding continues to be as such for a period of
five years from the date of the succession;
46
[(e) the 47[demutualisation or]corporatisation of a recognised stock exchange
in India is carried out in accordance with a scheme for
47
[demutualisation or] corporatisation which is approved by the
Securities and Exchange Board of India established under section 3 of
the Securities and Exchange Board of India Act, 1992 (15 of 1992);]
48
[(xiiia) any transfer of a capital asset being a membership right held by a member
of a recognised stock exchange in India for acquisition of shares and
trading or clearing rights acquired by such member in that recognised stock
exchange in accordance with a scheme for demutualisation or
corporatisation which is approved by the Securities and Exchange Board of
India established under section 3 of the Securities and Exchange Board of
India Act, 1992 (15 of 1992);]
(xiv) where a sole proprietary concern is succeeded by a company in the business
carried on by it as a result of which the sole proprietary concern sells or
otherwise transfers any capital asset or intangible asset to the company :
Provided that
(a) all the assets and liabilities of the sole proprietary concern relating to the
business immediately before the succession become the assets and
liabilities of the company;
(b) the shareholding of the sole proprietor in the company is not less than
fifty per cent of the total voting power in the company and his
shareholding continues to remain as such for a period of five years from
the date of the succession; and
(c) the sole proprietor does not receive any consideration or benefit, directly
or indirectly, in any form or manner, other than by way of allotment of
shares in the company;
(xv) any transfer in a scheme for lending of any securities under an agreement or
arrangement, which the assessee has entered into with the borrower of such
securities and which is subject to the guidelines issued by the Securities and

Exchange Board of India, established under section 3 of the Securities and

Exchange Board of India Act, 1992 (15 of 1992) 49[or the Reserve Bank of
India constituted under sub-section (1) of section 3 of the Reserve Bank of
India Act, 1934 (2 of 1934)], in this regard.]
50

[Withdrawal of exemption in certain cases.

47A. 51[(1)] Where at any time before the expiry of a period of eight years from the
date of the transfer of a capital asset referred to in clause (iv) or, as the case may be,
clause (v) of section 47,
(i) such capital asset is converted by the transferee company into, or is treated
by it as, stock-in-trade of its business; or
(ii) the parent company or its nominees or, as the case may be, the holding
company ceases or cease to hold the whole of the share capital of the
subsidiary company,
the amount of profits or gains arising from the transfer of such capital asset not
charged under section 45 by virtue of the provisions contained in clause (iv) or, as the
case may be, clause (v) of section 47 shall, notwithstanding anything contained in the
said clauses, be deemed to be income chargeable under the head Capital gains of the
previous year in which such transfer took place.]
52
[(2) Where at any time, before the expiry of a period of three years from the date of
the transfer of a capital asset referred to in clause (xi) of section 47, any of the shares
allotted to the transferor in exchange of a membership in a recognised stock exchange
are transferred, the amount of profits and gains not charged under section 45 by virtue
of the provisions contained in clause (xi) of section 47 shall, notwithstanding anything
contained in the said clause, be deemed to be the income chargeable under the head
Capital gains of the previous year in which such shares are transferred.]
53
[(3) Where any of the conditions laid down in the proviso to clause (xiii) or the
proviso to clause (xiv) of section 47 are not complied with, the amount of profits or
gains arising from the transfer of such capital asset or intangible asset not charged
under section 45 by virtue of conditions laid down in the proviso to clause (xiii) or the
proviso to clause (xiv) of section 47 shall be deemed to be the profits and gains
chargeable to tax of the successor company for the previous year in which the
requirements of the proviso to clause (xiii) or the proviso to clause (xiv), as the case
may be, are not complied with.]
54[Mode of computation.
5548. The income chargeable under the head Capital gains shall be computed, by
deducting from the full value of the consideration56 received or accruing as a result of
the transfer of the capital asset the following amounts, namely :
(i) expenditure incurred wholly and exclusively in connection with such
transfer56;
(ii) the cost of acquisition of the asset and the cost of any improvement56
thereto:
57Provided that in the case of an assessee, who is a non-resident, capital gains arising
from the transfer of a capital asset being shares in, or debentures of, an Indian
company shall be computed by converting the cost of acquisition, expenditure

incurred wholly and exclusively in connection with such transfer and the full value of
the consideration received or accruing as a result of the transfer of the capital asset
into the same foreign currency as was initially utilised in the purchase of the shares or
debentures, and the capital gains so computed in such foreign currency shall be
reconverted into Indian currency, so, however, that the aforesaid manner of
computation of capital gains shall be applicable in respect of capital gains accruing or
arising from every reinvestment thereafter in, and sale of, shares in, or debentures of,
an Indian company :
Provided further that where long-term capital gain arises from the transfer of a longterm capital asset, other than capital gain arising to a non-resident from the transfer of
shares in, or debentures of, an Indian company referred to in the first proviso, the
provisions of clause (ii) shall have effect as if for the words cost of acquisition and
cost of any improvement, the words indexed cost of acquisition and indexed cost
of any improvement had respectively been substituted:
58[Provided also that nothing contained in the second proviso shall apply to the longterm capital gain arising from the transfer of a long-term capital asset being bond or
debenture other than capital indexed bonds issued by the Government :]
59[Provided also that where shares, debentures or warrants referred to in the proviso
to clause (iii) of section 47 are transferred under a gift or an irrevocable trust, the
market value on the date of such transfer shall be deemed to be the full value of
consideration received or accruing as a result of transfer for the purposes of this
section.]
The following proviso shall be inserted after the fourth proviso to section 48 by
the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Provided also that no deduction shall be allowed in computing the income
chargeable under the head Capital gains in respect of any sum paid on account of
securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004.
Explanation.For the purposes of this section,
(i) foreign currency60 and Indian currency60 shall have the meanings
respectively assigned to them in section 2 of the Foreign Exchange
Regulation Act, 1973 (46 of 1973);
(ii) the conversion of Indian currency into foreign currency and the
reconversion of foreign currency into Indian currency shall be at the rate of
exchange prescribed in this behalf;
(iii) indexed cost of acquisition means an amount which bears to the cost of
acquisition the same proportion as Cost Inflation Index for the year in which
the asset is transferred bears to the Cost Inflation Index for the first year in
which the asset was held by the assessee or for the year beginning on the 1st
day of April, 1981, whichever is later;
(iv) indexed cost of any improvement means an amount which bears to the
cost of improvement the same proportion as Cost Inflation Index for the
year in which the asset is transferred bears to the Cost Inflation Index for
the year in which the improvement to the asset took place;
61[(v) Cost Inflation Index, in relation to a previous year, means such Index as
the Central Government may, having regard to seventy-five per cent of
average rise in the Consumer Price Index for urban non-manual employees

for the immediately preceding previous year to such previous year, by

notification62 in the Official Gazette, specify, in this behalf.]]
Cost with reference to certain modes of acquisition.
63
49. 64[(1)] Where the capital asset became the property of the assessee
(i) on any distribution of assets on the total or partial partition of a Hindu
undivided family;
(ii) under a gift or will;
(iii) (a) by succession, inheritance or devolution65, or
66
[(b) on any distribution of assets on the dissolution of a firm, body of
individuals, or other association of persons, where such dissolution had
taken place at any time before the 1st day of April, 1987, or]
(c) on any distribution of assets on the liquidation of a company, or
(d) under a transfer to a revocable or an irrevocable trust, or
(e) under any such transfer as is referred to in clause (iv) 67[or clause (v)]
68
[or clause (vi)] 69[or clause (via)] of section 47;
70
[(iv) such assessee being a Hindu undivided family, by the mode referred to in
sub-section (2) of section 64 at any time after the 31st day of December,
1969,]
the cost of acquisition of the asset shall be deemed to be the cost for which the
previous owner of the property acquired it, as increased by the cost of any
improvement of the assets incurred or borne by the previous owner or the assessee, as
the case may be.
71
[Explanation.In this 72[sub-section] the expression previous owner of the
property in relation to any capital asset owned by an assessee means the last previous
owner of the capital asset who acquired it by a mode of acquisition other than that
referred to in clause (i) or clause (ii) or clause (iii) 73[or clause (iv)] of this 74[subsection].]
75
[(2) Where the capital asset being a share or shares in an amalgamated company
which is an Indian company became the property of the assessee in consideration of a
transfer referred to in clause (vii) of section 47, the cost of acquisition of the asset
shall be deemed to be the cost of acquisition to him of the share or shares in the
amalgamating company.]
76
[(2A) Where the capital asset, being a share or debenture in a company, became the
property of the assessee in consideration of a transfer referred to in clause (x) of
section 47, the cost of acquisition of the asset to the assessee shall be deemed to be
that part of the cost of debenture, debenture-stock or deposit certificates in relation to
which such asset is acquired by the assessee.]
77
[(2AA) Where the capital gain arises from the transfer of the shares, debentures or
warrants, the value of which has been taken into account while computing the value of
perquisite under clause (2) of section 17, the cost of acquisition of such shares,
debentures or warrants shall be the value under that clause.]
78
[(2B) 79[***]
(2C) The cost of acquisition of the shares in the resulting company shall be the
amount which bears to the cost of acquisition of shares held by the assessee in the
demerged company the same proportion as the net book value of the assets transferred

in a demerger bears to the net worth of the demerged company immediately before
such demerger.
(2D) The cost of acquisition of the original shares held by the shareholder in the
demerged company shall be deemed to have been reduced by the amount as so arrived
at under sub-section (2C).]
Explanation.For the purposes of this section, net worth shall mean the aggregate
of the paid up share capital and general reserves as appearing in the books of account
of the demerged company immediately before the demerger.]
80
[(3) Notwithstanding anything contained in sub-section (1), where the capital gain
arising from the transfer of a capital asset referred to in clause (iv) or, as the case may
be, clause (v) of section 47 is deemed to be income chargeable under the head
Capital gains by virtue of the provisions contained in section 47A, the cost of
acquisition of such asset to the transferee-company shall be the cost for which such
asset was acquired by it.]
81

[Special provision for computation of capital gains in case of depreciable assets.

50. Notwithstanding anything contained in clause (42A) of section 2, where the
capital asset is an asset forming part of a block of assets in respect of which
depreciation has been allowed under this Act or under the Indian Income-tax Act,
1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the
following modifications :
(1) where the full value of the consideration received or accruing as a result of
the transfer of the asset together with the full value of such consideration
received or accruing as a result of the transfer of any other capital asset
falling within the block of the assets during the previous year, exceeds the
aggregate of the following amounts, namely :
(i) expenditure incurred wholly and exclusively in connection with such
transfer or transfers;
(ii) the written down value of the block of assets at the beginning of the
previous year; and
(iii) the actual cost of any asset falling within the block of assets acquired
during the previous year,
such excess shall be deemed to be the capital gains arising from the transfer
of short-term capital assets;
(2) where any block of assets ceases to exist as such, for the reason that all the
assets in that block are transferred during the previous year, the cost of
acquisition of the block of assets shall be the written down value of the
block of assets at the beginning of the previous year, as increased by the
actual cost of any asset falling within that block of assets, acquired by the
assessee during the previous year and the income received or accruing as a
result of such transfer or transfers shall be deemed to be the capital gains
arising from the transfer of short-term capital assets.]
82

83

[Special provision for cost of acquisition in case of depreciable asset.

50A.Where the capital asset is an asset in respect of which a deduction on account of
depreciation under clause (i) of sub-section (1) of section 32 has been obtained by the
assessee in any previous year, the provisions of sections 48 and 49 shall apply subject

to the modification that the written down value, as defined in clause (6) of section 43,
of the asset, as adjusted, shall be taken as the cost of acquisition of the asset.]
84

[Special provision for computation of capital gains in case of slump sale.

50B. (1) Any profits or gains arising from the slump sale effected in the previous
year shall be chargeable to income-tax as capital gains arising from the transfer of
long-term capital assets and shall be deemed to be the income of the previous year in
which the transfer took place :
Provided that any profits or gains arising from the transfer under the slump sale of
any capital asset being one or more undertakings owned and held by an assessee for
not more than thirty-six months immediately preceding the date of its transfer shall be
deemed to be the capital gains arising from the transfer of short-term capital assets.
(2) In relation to capital assets being an undertaking or division transferred by way of
such sale, the net worth of the undertaking or the division, as the case may be, shall
be deemed to be the cost of acquisition and the cost of improvement for the purposes
of sections 48 and 49 and no regard shall be given to the provisions contained in the
second proviso to section 48.
(3) Every assessee, in the case of slump sale, shall furnish in the prescribed form 85
along with the return of income, a report of an accountant as defined in the
Explanation below sub-section (2) of section 288, indicating the computation of the
net worth of the undertaking or division, as the case may be, and certifying that the
net worth of the undertaking or division, as the case may be, has been correctly
arrived at in accordance with the provisions of this section.
86
[Explanation 1.For the purposes of this section, net worth shall be the aggregate
value of total assets of the undertaking or division as reduced by the value of
liabilities of such undertaking or division as appearing in its books of account :
Provided that any change in the value of assets on account of revaluation of assets
shall be ignored for the purposes of computing the net worth.
Explanation 2.For computing the net worth, the aggregate value of total assets shall
be,
(a) in the case of depreciable assets, the written down value of the block of
assets determined in accordance with the provisions contained in sub-item
(C) of item (i) of sub-clause (c) of clause (6) of section 43; and
(b) in the case of other assets, the book value of such assets.]]
87

[Special provision for full value of consideration in certain cases.

50C. (1) Where the consideration received or accruing as a result of the transfer
by an assessee of a capital asset, being land or building or both, is less than the
value adopted or assessed by any authority of a State Government (hereafter in this
section referred to as the stamp valuation authority) for the purpose of payment of
stamp duty in respect of such transfer, the value so adopted or assessed shall, for the
purposes of section 48, be deemed to be the full value of the consideration received or
accruing as a result of such transfer.
(2) Without prejudice to the provisions of sub-section (1), where
(a) the assessee claims before any Assessing Officer that the value adopted or
assessed by the stamp valuation authority under sub-section (1) exceeds the
fair market value of the property as on the date of transfer;

(b) the value so adopted or assessed by the stamp valuation authority under subsection (1) has not been disputed in any appeal or revision or no reference
has been made before any other authority, court or the High Court,
the Assessing Officer may refer the valuation of the capital asset to a Valuation
Officer and where any such reference is made, the provisions of sub-sections (2), (3),
(4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and
(7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section
37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications,
apply in relation to such reference as they apply in relation to a reference made by the
Assessing Officer under sub-section (1) of section 16A of that Act.
Explanation.For the purposes of this section, Valuation Officer shall have the
same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).
(3) Subject to the provisions contained in sub-section (2), where the value ascertained
under sub-section (2) exceeds the value adopted or assessed by the stamp valuation
authority referred to in sub-section (1), the value so adopted or assessed by such
authority shall be taken as the full value of the consideration received or accruing as a
result of the transfer.]
Advance money received.
51. Where any capital asset was on any previous occasion the subject of
negotiations for its transfer, any advance or other money88 received and retained by
the assessee in respect of such negotiations shall be deducted from the cost for which
the asset was acquired or the written down value or the fair market value, as the case
may be, in computing the cost of acquisition.

Profit on sale of property used for residence.

91
54. 92[(1)] 93[94[Subject to the provisions of sub-section (2), where, in the case of
an assessee95 being an individual or a Hindu undivided family], the capital gain arises
from the transfer of a long-term capital asset 96[***], being buildings or lands
appurtenant thereto, and being a residential house, the income of which is chargeable
under the head Income from house property (hereafter in this section referred to as
the original asset), and the assessee has within a period of 97[one year before or two
years after the date on which the transfer took place purchased 98], or has within a
period of three years after that date constructed, a residential house, then], instead of
the capital gain being charged to income-tax as income of the previous year in which
the transfer took place, it shall be dealt with in accordance with the following
provisions of this section, that is to say,
(i) if the amount of the capital gain 99[is greater than the cost of 1[the residential
house] so purchased or constructed (hereafter in this section referred to as
the new asset)], the difference between the amount of the capital gain and
the cost of the new asset shall be charged under section 45 as the income of
the previous year; and for the purpose of computing in respect of the new
asset any capital gain arising from its transfer within a period of three years
of its purchase or construction, as the case may be, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost of the new
asset, the capital gain shall not be charged under section 45; and for the
purpose of computing in respect of the new asset any capital gain arising
from its transfer within a period of three years of its purchase or
construction, as the case may be, the cost shall be reduced by the amount of
the capital gain.
2
[***]
3
[(2) The amount of the capital gain which is not appropriated by the assessee towards
the purchase of the new asset made within one year before the date on which the
transfer of the original asset took place, or which is not utilised by him for the
purchase or construction of the new asset before the date of furnishing the return of
income under section 139, shall be deposited by him before furnishing such return
[such deposit being made in any case not later than the due date applicable in the case
of the assessee for furnishing the return of income under sub-section (1) of section
139] in an account in any such bank or institution as may be specified in, and utilised
in accordance with, any scheme4 which the Central Government may, by notification
in the Official Gazette, frame in this behalf and such return shall be accompanied by
proof of such deposit; and, for the purposes of sub-section (1), the amount, if any,
already utilised by the assessee for the purchase or construction of the new asset
together with the amount so deposited shall be deemed to be the cost of the new
asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or
partly for the purchase or construction of the new asset within the period specified in
sub-section (1), then,
(i) the amount not so utilised shall be charged under section 45 as the income
of the previous year in which the period of three years from the date of the
transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with
the scheme aforesaid.
Explanation.5[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

[Capital gain on transfer of land used for agricultural purposes not to be

charged in certain cases.
7
54B. 8[(1)] 9[Subject to the provisions of sub-section (2), where the capital gain
arises] from the transfer of a capital asset being land which, in the two years
immediately preceding the date on which the transfer took place, was being used by
the assessee or a parent of his for agricultural purposes 10[(hereinafter referred to as
the original asset)], and the assessee has, within a period of two years after that date,
purchased any other land for being used for agricultural purposes, then, instead of the
capital gain being charged to income-tax as income of the previous year in which the
transfer took place, it shall be dealt with in accordance with the following provisions
of this section, that is to say,
(i) if the amount of the capital gain is greater than the cost of the land so
purchased (hereinafter referred to as the new asset), the difference between
the amount of the capital gain and the cost of the new asset shall be charged
under section 45 as the income of the previous year; and for the purpose of

computing in respect of the new asset any capital gain arising from its
transfer within a period of three years of its purchase, the cost shall be nil;
or
(ii) if the amount of the capital gain is equal to or less than the cost of the new
asset, the capital gain shall not be charged under section 45; and for the
purpose of computing in respect of the new asset any capital gain arising
from its transfer within a period of three years of its purchase, the cost shall
be reduced, by the amount of the capital gain.]
11
[(2) The amount of the capital gain which is not utilised by the assessee for the
purchase of the new asset before the date of furnishing the return of income under
section 139, shall be deposited by him before furnishing such return [such deposit
being made in any case not later than the due date applicable in the case of the
assessee for furnishing the return of income under sub-section (1) of section 139] in
an account in any such bank or institution as may be specified in, and utilised in
accordance with, any scheme12 which the Central Government may, by notification in
the Official Gazette, frame in this behalf and such return shall be accompanied by
proof of such deposit; and, for the purposes of sub-section (1), the amount, if any,
already utilised by the assessee for the purchase of the new asset together with the
amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or
partly for the purchase of the new asset within the period specified in sub-section (1),
then,
(i) the amount not so utilised shall be charged under section 45 as the income
of the previous year in which the period of two years from the date of the
transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with
the scheme aforesaid.
Explanation.13[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

14

[Capital gain on compulsory acquisition of lands and buildings not to be

charged in certain cases.
15
54D. 16[(1)] 17[Subject to the provisions of sub-section (2), where the capital gain
arises] from the transfer by way of compulsory acquisition under any law of a capital
asset, being land or building or any right in land or building, forming part of an
industrial undertaking18 belonging to the assessee which, in the two years immediately
preceding the date on which the transfer took place, was being used by the assessee
for the purposes of the business of the said undertaking 19[(hereafter in this section
referred to as the original asset)], and the assessee has within a period of three years
after that date purchased any other land or building or any right in any other land or
building or constructed any other building for the purposes of shifting or reestablishing the said undertaking or setting up another industrial undertaking, then,
instead of the capital gain being charged to income-tax as the income of the previous
year in which the transfer took place, it shall be dealt with in accordance with the
following provisions of this section, that is to say,
(i) if the amount of the capital gain is greater than the cost of the land, building
or right so purchased or the building so constructed (such land, building or

right being hereafter in this section referred to as the new asset), the
difference between the amount of the capital gain and cost of the new asset
shall be charged under section 45 as the income of the previous year; and
for the purpose of computing in respect of the new asset any capital gain
arising from its transfer within a period of three years of its purchase or
construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new
asset, the capital gain shall not be charged under section 45; and for the
purpose of computing in respect of the new asset any capital gain arising
from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the
capital gain.]
20
[(2) The amount of the capital gain which is not utilised by the assessee for the
purchase or construction of the new asset before the date of furnishing the return of
income under section 139, shall be deposited by him before furnishing such return
[such deposit being made in any case not later than the due date applicable in the case
of the assessee for furnishing the return of income under sub-section (1) of section
139] in an account in any such bank or institution as may be specified in, and utilised
in accordance with, any scheme21 which the Central Government may, by notification
in the Official Gazette, frame in this behalf and such return shall be accompanied by
proof of such deposit; and, for the purposes of sub-section (1), the amount, if any,
already utilised by the assessee for the purchase or construction of the new asset
together with the amount so deposited shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this sub-section is not utilised wholly or
partly for the purchase or construction of the new asset within the period specified in
sub-section (1), then,
(i) the amount not so utilised shall be charged under section 45 as the income
of the previous year in which the period of three years from the date of the
transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with
the scheme aforesaid.
Explanation.22[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
23

[Capital gain on transfer of capital assets not to be charged in certain cases.

54E. (1) Where the capital gain arises from the transfer of a 25[long-term capital
asset] 26[before the 1st day of April, 1992], (the capital asset so transferred being
hereafter in this section referred to as the original asset) and the assessee has, within a
period of six months after the date of such transfer, invested or deposited the 27[whole
or any part of the net consideration] in any specified asset (such specified asset being
hereafter in this section referred to as the new asset), the capital gain shall be dealt
with in accordance with the following provisions of this section, that is to say,
(a) if the cost of the new asset is not less than the 28[net consideration] in
respect of the original asset, the whole of such capital gain shall not be
charged under section 45;
(b) if the cost of the new asset is less than the 28[net consideration] in respect of
the original asset, so much of the capital gain as bears to the whole of the
capital gain the same proportion as the cost of acquisition of the new asset
bears to the 29[net consideration] shall not be charged under section 45:
24

30

[Provided that in a case where the original asset is transferred after the 28th day of
February, 1983, the provisions of this sub-section shall not apply unless the assessee
has invested or deposited the whole or, as the case may be, any part of the net
consideration in the new asset by initially subscribing to such new asset:]
31
[Provided further that in a case where the transfer of the original asset is by way of
compulsory acquisition under any law and the full amount of compensation awarded
for such acquisition is not received by the assessee on the date of such transfer, the
period of six months referred to in this sub-section shall, in relation to so much of
such compensation as is not received on the date of the transfer, be reckoned from the
date immediately following the date on which such compensation is received by the
assessee 32[or the 31st day of March, 1992, whichever is earlier].]
Explanation 1.33[For the purposes of this sub-section, specified asset means,
(a) in a case where the original asset is transferred before the 1st day of March,
1979, any of the following assets, namely:]
(i) securities of the Central Government or a State Government;
(ii) 34savings certificates as defined in clause (c) of section 2 of the
Government Savings Certificates Act, 1959 (46 of 1959);
(iii) units in the Unit Trust of India established under the Unit Trust of India
Act, 1963 (52 of 1963);
(iv) debentures specified by the Central Government for the purposes of
clause (ii) of sub-section (1) of section 80L;
(v) shares in any Indian company which are issued to the public or are listed
in a recognised stock exchange in India in accordance with the
Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules
made thereunder, 35[where the investment in such shares is made before
the 1st day of March, 1978];
36
[(va) equity shares forming part of any eligible issue of capital, where the
investment in such shares is made after the 28th day of February, 1978;]
(vi) deposits for a period of not less than three years with the State Bank of
India established under the State Bank of India Act, 1955 (23 of 1955),
or any subsidiary bank as defined in the State Bank of India (Subsidiary
Banks) Act, 1959 (38 of 1959) or any nationalised bank, that is to say,
any corresponding new bank, constituted under section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of
1970), or any co-operative society engaged in carrying on the business
of banking (including a co-operative land mortgage bank or a cooperative land development bank);
37
[(b) in a case where the original asset is transferred after the 28th day of
February, 1979 38[but before the 1st day of March, 1983], such National
Rural Development Bonds as the Central Government may notify39 in this
behalf in the Official Gazette;]
40
[(c) in a case where the original asset is transferred after the 28th day of
February, 1983 41[but before the 1st day of April, 1986], any of the
following assets, namely :
(i) securities of the Central Government which that Government may, by
notification in the Official Gazette, specify in this behalf;
(ii) special series of units of the Unit Trust of India established under the
Unit Trust of India Act, 1963 (52 of 1963), which the Central

Government may, by notification42 in the Official Gazette, specify in this

behalf;
(iii) such National Rural Development Bonds as have been notified 43 under
clause (b) of Explanation 1 or as may be notified in this behalf under
this clause by the Central Government;
(iv) such debentures issued by the Housing and Urban Development
Corporation Limited [a 44Government company as defined in section
617 of the Companies Act, 1956 (1 of 1956)], as the Central
Government may, by notification in the Official Gazette, specify in this
behalf;]
45
[(d) in a case where the original asset is transferred after the 31st day of March,
1986, any of the assets specified in clause (c) and such bonds issued by any
public sector company, as the Central Government may, by notification 46 in
the Official Gazette, specify in this behalf;
47
[***]]
48
[(e) in a case where the original asset is transferred after the 31st day of March,
1989, any of the assets specified in clauses (c) and (d) and such debentures
or bonds issued by the National Housing Bank established under section 3
of the National Housing Bank Act, 1987 (53 of 1987), as the Central
Government may, by notification49 in the Official Gazette, specify in this
behalf.]
50
[Explanation 2.Eligible issue of capital shall have the meaning assigned to it in
sub-section (3) of section 80CC.]
51
[Explanation 3.An assessee shall not be deemed to have invested the 52[whole or
any part of the net consideration in any equity shares referred to in sub-clause (va) of
clause (a)] of Explanation 1, unless the assessee has subscribed to or purchased the
shares in the manner specified in sub-section (4) of section 80CC.]
Explanation 53[4]Cost, in relation to any new asset, being a deposit referred to in
54
[sub-clause (vi) of clause (a)] of Explanation 1, means the amount of such deposit.
55
[Explanation 5.Net consideration, in relation to the transfer of a capital asset,
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.
56
[(1A) Where the assessee deposits after the 27th day of April, 1978, the 57[whole or
any part of the net consideration in respect] of the original asset in any new asset,
being a deposit referred to in 58[sub-clause (vi) of clause (a)] of Explanation 1 below
sub-section (1), the cost of such new asset shall not be taken into account for the
purposes of that sub-section unless the following conditions are fulfilled, namely :
(a) the assessee furnishes, along with the deposit, a declaration in writing, to the
bank or the co-operative society referred to in the said 59[sub-clause (vi)]
with which such deposit is made, to the effect that the assessee will not take
any loan or advance on the security of such deposit during a period of three
years from the date on which the deposit is made;
(b) the assessee furnishes, along with the return of income for the assessment
year relevant to the previous year in which the transfer of the original asset
was effected or within such further time as may be allowed by the
60
[Assessing] Officer, a copy of the declaration referred to in clause (a) duly

attested by an officer not below the rank of sub-agent, agent or manager of

such bank or an officer of corresponding rank of such co-operative society.]
61
[(1B) Where on the fulfilment of the conditions specified in sub-section (1A), the
cost of the new asset referred to in that sub-section is taken into account for the
purposes of sub-section (1), the assessee shall, within a period of ninety days from the
expiry of the period of three years reckoned from the date of such deposit, furnish to
the 62[Assessing] Officer a certificate from the officer referred to in clause (b) of subsection (1A) to the effect that the assessee has not taken any loan or advance on the
security of such deposit during the said period of three years.]
63
[(1C) Notwithstanding anything contained in sub-section (1), where the capital gain
arises from the transfer of the original asset, made after the 31st day of March, 1992,
in respect of which the assessee had received any amount by way of advance on or
before the 29th day of February, 1992 and had invested or deposited the whole or any
part of such amount in the new asset on or before the later date, then, the provisions of
clauses (a) and (b) of sub-section (1) shall apply in the case of such investment or
deposit as they apply in the case of investment or deposit under that sub-section.]
(2) Where the new asset is transferred, or converted (otherwise than by transfer) into
money, within a period of three years from the date of its acquisition, the amount of
capital gain arising from the transfer of the original asset not charged under section 45
on the basis of the cost of such new asset as provided in clause (a) or, as the case may
be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the
head Capital gains relating to 64[long-term capital assets] of the previous year in
which the new asset is transferred or converted (otherwise than by transfer) into
money.]
65 66
[ [Explanation 1].Where the assessee deposits after the 27th day of April, 1978,
the 67[whole or any part of the net consideration in respect] of the original asset in any
new asset, being a deposit referred to in 68[sub-clause (vi) of clause (a)] of Explanation 1 below sub-section (1), and such assessee takes any loan or advance on the
security of such deposit, he shall be deemed to have converted (otherwise than by
transfer) such deposit into money on the date on which such loan or advance is taken.]
69
[Explanation 2.In a case where the original asset is transferred after the 28th day
of February, 1983 and the assessee invests the whole or any part of the net
consideration in respect of the original asset in any new asset and such assessee takes
any loan or advance on the security of such new asset, he shall be deemed to have
converted (otherwise than by transfer) such new asset on the date on which such loan
or advance is taken.]
70
[***]
71
[***]
72
[***]
73
[(3) Where the cost of the equity shares referred to in 74[sub-clause (va) of clause
(a)] of Explanation 1 below sub-section (1) is taken into account for the purposes of
clause (a) or clause (b) of sub-section (1) 75[***], a deduction with reference to such
cost shall not be allowed under section 80CC.]
76

[Capital gain on transfer of long-term capital assets not to be charged in the

case of investment in 77[specified securities].

78

54EA. (1) Where the capital gain arises from the transfer of a long-term capital
asset 79[before the 1st day of April, 2000] (the capital asset so transferred being
hereafter in this section referred to as the original asset) and the assessee has, at any
time within a period of six months after the date of such transfer, invested the whole
or any part of the net consideration in any of the 80[bonds, debentures, shares of a
public company or units of any mutual fund referred to in clause (23D) of section 10,]
specified81 by the Board in this behalf by notification in the Official Gazette (such
assets hereafter in this section referred to as the 82[specified securities]), the capital
gain shall be dealt with in accordance with the following provisions of this section,
that is to say,
(a) if the cost of the 82[specified securities] is not less than the net consideration
in respect of the original asset, the whole of such capital gain shall not be
charged under section 45;
(b) if the cost of the 82[specified securities] is less than the net consideration in
respect of the original asset, so much of the capital gain as bears to the
whole of the capital gain the same proportion as the cost of acquisition of
the 83[specified securities] bears to the net consideration shall not be charged
under section 45.
(2) Where the 83[specified securities] are transferred or converted (otherwise than by
transfer) into money at any time within a period of three years from the date of their
acquisition, the amount of capital gain arising from the transfer of the original asset
not charged under section 45 on the basis of the cost of such 83[specified securities] as
provided in clause (a) or clause (b) of sub-section (1) shall be deemed to be the
income chargeable under the head Capital gains relating to long-term capital assets
of the previous year in which the 83[specified securities] are transferred or converted
(otherwise than by transfer) into money.
Explanation.In a case where the original asset is transferred and the assessee invests
the whole or any part of the net consideration in respect of the original asset in any
83
[specified securities] and such assessee takes any loan or advance on the security of
such 83[specified securities], he shall be deemed to have converted (otherwise than by
transfer) such 83[specified securities] into money on the date on which such loan or
advance is taken.
(3) Where the cost of the 83[specified securities] has been taken into account for the
purposes of clause (a) or clause (b) of sub-section (1), a rebate with reference to such
cost shall not be allowed under section 88.
Explanation.For the purposes of this section,
(a) cost, in relation to any 83[specified securities], means the amount invested
in such 83[specified securities] out of the net consideration received or
accruing as a result of the transfer of the original asset ;
(b) net consideration, in relation to the transfer of a capital asset, means the
full value of the consideration received or accruing as a result of the transfer
of the capital asset as reduced by the expenditure incurred wholly and
exclusively in connection with such transfer.
Capital gain on transfer of long-term capital assets not to be charged in certain
cases.
84
54EB. (1) Where the capital gain arises from the transfer of a long-term capital
asset 85[before the 1st day of April, 2000] (the capital asset so transferred being

hereafter in this section referred to as the original asset), and the assessee has, at any
time within a period of six months after the date of such transfer invested the whole or
any part of capital gains, in any of the assets specified 86 by the Board in this behalf by
notification in the Official Gazette (such assets hereafter in this section referred to as
the long-term specified assets), the capital gain shall be dealt with in accordance with
the following provisions of this section, that is to say,
(a) if the cost of the long-term specified asset is not less than the capital gain
arising from the transfer of the original asset, the whole of such capital gain
shall not be charged under section 45 ;
(b) if the cost of the long-term specified asset is less than the capital gain
arising from the transfer of the original asset, so much of the capital gain as
bears to the whole of the capital gain the same proportion as the cost of
acquisition of the long-term specified asset bears to the whole of the capital
gain, shall not be charged under section 45.
Explanation.Cost, in relation to any long-term specified asset, means the amount
invested in such specified asset out of capital gains received or accruing as a result of
the transfer of the original asset.
(2) Where the long-term specified asset is transferred or converted (otherwise than by
transfer) into money at any time within a period of seven years from the date of its
acquisition, the amount of capital gains arising from the transfer of the original asset
not charged under section 45 on the basis of the cost of such long-term specified asset
as provided in clause (a), or as the case may be, clause (b) of sub-section (1) shall be
deemed to be the income chargeable under the head Capital gains relating to longterm capital assets of the previous year in which the long-term specified asset is
transferred or converted (otherwise than by transfer) into money.
Explanation.In a case where the original asset is transferred and the assessee invests
the whole or any part of the capital gain received or accrued as a result of transfer of
the original asset in any long-term specified asset and such assessee takes any loan or
advance on the security of such specified asset, he shall be deemed to have converted
(otherwise than by transfer) such specified asset into money on the date on which
such loan or advance is taken.
(3) Where the cost of the long-term specified asset has been taken into account for the
purposes of clause (a) or clause (b) of sub-section (1), a deduction from the amount
of income-tax with reference to such cost shall not be allowed under section 88.]
87

[Capital gain not to be charged on investment in certain bonds.

54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset
(the capital asset so transferred being hereafter in this section referred to as the
original asset) and the assessee has, at any time within a period of six months after the
date of such transfer, invested the whole or any part of capital gains in the long-term
specified asset, the capital gain shall be dealt with in accordance with the following
provisions of this section, that is to say,
(a) if the cost of the long-term specified asset is not less than the capital gain
arising from the transfer of the original asset, the whole of such capital gain
shall not be charged under section 45;
(b) if the cost of the long-term specified asset is less than the capital gain
arising from the transfer of the original asset, so much of the capital gain as
bears to the whole of the capital gain the same proportion as the cost of

acquisition of the long-term specified asset bears to the whole of the capital
gain, shall not be charged under section 45.
(2) Where the long-term specified asset is transferred or converted (otherwise than by
transfer) into money at any time within a period of three years from the date of its
acquisition, the amount of capital gains arising from the transfer of the original asset
not charged under section 45 on the basis of the cost of such long-term specified asset
as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be
deemed to be the income chargeable under the head Capital gains relating to longterm capital asset of the previous year in which the long-term specified asset is
transferred or converted (otherwise than by transfer) into money.
Explanation.In a case where the original asset is transferred and the assessee invests
the whole or any part of the capital gain received or accrued as a result of transfer of
the original asset in any long-term specified asset and such assessee takes any loan or
advance on the security of such specified asset, he shall be deemed to have converted
(otherwise than by transfer) such specified asset into money on the date on which
such loan or advance is taken.
(3) Where the cost of the long-term specified asset has been taken into account for the
purposes of clause (a) or clause (b) of sub-section (1), a deduction from the amount of
income-tax with reference to such cost shall not be allowed under section 88.
Explanation.For the purposes of this section,
(a) cost, in relation to any long-term specified asset, means the amount
invested in such specified asset out of capital gains received or accruing as a
result of the transfer of the original asset;
88
[(b) long-term specified asset means any bond redeemable after three years,
issued,
(i) on or after the 1st day of April, 2000, by the National Bank for
Agriculture and Rural Development established under section 3 of the
National Bank for Agriculture and Rural Development Act, 1981 (61 of
1981) or by the National Highways Authority of India constituted
under section 3 of the National Highways Authority of India Act, 1988
(68 of 1988);
(ii) on or after the 1st day of April, 2001, by the Rural Electrification
Corporation Limited, a company formed and registered under the
Companies Act, 1956 (1 of 1956);]]
89
[(iii) on or after the 1st day of April, 2002, by the National Housing Bank
established under sub-section (1) of section 3 of the National Housing
Bank Act, 1987 (53 of 1987) or by the Small Industries Development
Bank of India established under sub-section (1) of section 3 of the Small
Industries Development Bank of India Act, 1989 (39 of 1989).]
90

[Capital gain on transfer of certain listed securities or unit not to be charged in

certain cases.
54ED. (1) Where the capital gain arises from the transfer of a long-term capital
asset, being listed securities or unit (the capital asset so transferred being hereafter in
this section referred to as the original asset), and the assessee has, within a period of
six months after the date of such transfer, invested the whole or any part of the capital
gain in acquiring equity shares forming part of an eligible issue of capital (such equity
shares being hereafter in this section referred to as the specified equity shares), the

said capital gain shall be dealt with in accordance with the following provisions of
this section, that is to say,
(a) if the cost of the specified equity shares is not less than the capital gain
arising from the transfer of the original asset, the whole of such capital gain
shall not be charged under section 45;
(b) if the cost of the specified equity shares is less than the capital gain arising
from the transfer of the original asset, so much of the capital gain as bears to
the whole of the capital gain the same proportion as the cost of the specified
equity shares acquired bears to the whole of the capital gain shall not be
charged under section 45.
Explanation.For the purposes of this sub-section,
(i) eligible issue of capital means an issue of equity shares which satisfies the
following conditions, namely:
(a) the issue is made by a public company formed and registered in India;
(b) the shares forming part of the issue are offered for subscription to the
public;
(ii) listed securities shall have the same meaning as in clause (a) of the
Explanation to sub-section (1) of section 112;
(iii) unit shall have the meaning assigned to it in clause (b) of the Explanation
to section 115AB.
(2) Where the specified equity shares are sold or otherwise transferred within a period
of one year from the date of their acquisition, the amount of capital gain arising from
the transfer of the original asset not charged under section 45 on the basis of the cost
of such specified equity shares as provided in clause (a) or, as the case may be, clause
(b), of sub-section (1) shall be deemed to be the income chargeable under the head
Capital gains relating to long-term capital assets of the previous year in which such
equity shares are sold or otherwise transferred.
(3) Where the cost of the specified equity shares has been taken into account for the
purposes of clause (a) or clause (b) of sub-section (1), a deduction from the amount of
income-tax with reference to such cost shall not be allowed under section 88.]
91

[Capital gain on transfer of certain capital assets not to be charged in case of

investment in residential house.92
54F. (1) 93[Subject to the provisions of sub-section (4), where, in the case of an
assessee being an individual or a Hindu undivided family], the capital gain arises from
the transfer of any long-term capital asset, not being a residential house (hereafter in
this section referred to as the original asset), and the assessee has, within a period of
one year before or 94[two years] after the date on which the transfer took place
purchased, or has within a period of three years after that date constructed, a
residential house (hereafter in this section referred to as the new asset), the capital
gain shall be dealt with in accordance with the following provisions of this section,
that is to say,
(a) if the cost of the new asset is not less than the net consideration in respect of
the original asset, the whole of such capital gain shall not be charged under
section 45 ;

(b) if the cost of the new asset is less than the net consideration in respect of the
original asset, so much of the capital gain as bears to the whole of the
capital gain the same proportion as the cost of the new asset bears to the net
consideration, shall not be charged under section 45:
95
[Provided that nothing contained in this sub-section shall apply where
(a) the assessee,
(i) owns more than one residential house, other than the new asset, on the
date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a
period of one year after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a
period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house
owned on the date of transfer of the original asset, is chargeable under the
head Income from house property.]
Explanation.For the purposes of this section,
96
[***]
97
[***] net consideration, in relation to the transfer of a capital asset, 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.
(2) Where the assessee purchases, within the period of 98[two years] after the date of
the transfer of the original asset, or constructs, within the period of three years after
such date, any residential house, the income from which is chargeable under the head
Income from house property, other than the new asset, the amount of capital gain
arising from the transfer of the original asset not charged under section 45 on the basis
of the cost of such new asset as provided in clause (a), or, as the case may be, clause
(b), of sub-section (1), shall be deemed to be income chargeable under the head
Capital gains relating to long-term capital assets of the previous year in which such
residential house is purchased or constructed.
(3) Where the new asset is transferred within a period of three years from the date of
its purchase or, as the case may be, its construction, the amount of capital gain arising
from the transfer of the original asset not charged under section 45 on the basis of the
cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of
sub-section (1) shall be deemed to be income chargeable under the head Capital
gains relating to long-term capital assets of the previous year in which such new
asset is transferred.]
99
[(4) The amount of the net consideration which is not appropriated by the assessee
towards the purchase of the new asset made within one year before the date on which
the transfer of the original asset took place, or which is not utilised by him for the
purchase or construction of the new asset before the date of furnishing the return of
income under section 139, shall be deposited by him before furnishing such return
[such deposit being made in any case not later than the due date applicable in the case
of the assessee for furnishing the return of income under sub-section (1) of section
139] in an account in any such bank or institution as may be specified in, and utilised
in accordance with, any scheme1 which the Central Government may, by notification
in the Official Gazette, frame in this behalf and such return shall be accompanied by

proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any,
already utilised by the assessee for the purchase or construction of the new asset
together with the amount so deposited shall be deemed to be the cost of the new
asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or
partly for the purchase or construction of the new asset within the period specified in
sub-section (1), then,
(i) the amount by which
(a) the amount of capital gain arising from the transfer of the original asset
not charged under section 45 on the basis of the cost of the new asset as
provided in clause (a) or, as the case may be, clause (b) of sub-section
(1), exceeds
(b) the amount that would not have been so charged had the amount
actually utilised by the assessee for the purchase or construction of the
new asset within the period specified in sub-section (1) been the cost of
the new asset,
shall be charged under section 45 as income of the previous year in which
the period of three years from the date of the transfer of the original asset
expires ; and
(ii) the assessee shall be entitled to withdraw the unutilised amount in
accordance with the scheme aforesaid.
Explanation.2[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
3

[Exemption of capital gains on transfer of assets in cases of shifting of industrial

undertaking from urban area.
54G. (1) Subject to the provisions of sub-section (2), where the capital gain arises
from the transfer of a capital asset, being machinery or plant or building or land or any
rights in building or land used for the purposes of the business of an industrial
undertaking situate in an urban area, effected in the course of, or in consequence of,
the shifting of such industrial undertaking (hereafter in this section referred to as the
original asset) to any area (other than an urban area) and the assessee has within a
period of one year before or three years after the date on which the transfer took place,

(a) purchased new machinery or plant for the purposes of business of the
industrial undertaking in the area to which the said undertaking is shifted ;
(b) acquired building or land or constructed building for the purposes of his
business in the said area ;
(c) shifted the original asset and transferred the establishment of such
undertaking to such area; and
(d) incurred expenses on such other purpose as may be specified in a scheme
framed by the Central Government for the purposes of this section,
then, instead of the capital gain being charged to income-tax as income of the
previous year in which the transfer took place, it shall be dealt with in accordance
with the following provisions of this section, that is to say,
(i) if the amount of the capital gain is greater than the cost and expenses
incurred in relation to all or any of the purposes mentioned in clauses (a) to
(d) (such cost and expenses being hereafter in this section referred to as the
new asset), the difference between the amount of the capital gain and the

cost of the new asset shall be charged under section 45 as the income of the
previous year ; and for the purpose of computing in respect of the new asset
any capital gain arising from its transfer within a period of three years of its
being purchased, acquired, constructed or transferred, as the case may be,
the cost shall be nil ; or
(ii) if the amount of the capital gain is equal to, or less than, the cost of the new
asset, the capital gain shall not be charged under section 45 ; and for the
purpose of computing in respect of the new asset any capital gain arising
from its transfer within a period of three years of its being purchased, acquired, constructed or transferred, as the case may be, the cost shall be
reduced by the amount of the capital gain.
Explanation.In this sub-section, urban area means any such area within the limits
of a municipal corporation or municipality as the Central Government may, having
regard to the population, concentration of industries, need for proper planning of the
area and other relevant factors, by general or special order4, declare to be an urban
area for the purposes of this sub-section.
(2) The amount of capital gain which is not appropriated by the assessee towards the
cost and expenses incurred in relation to all or any of the purposes mentioned in
clauses (a) to (d) of sub-section (1) within one year before the date on which the
transfer of the original asset took place, or which is not utilised by him for all or any
of the purposes aforesaid before the date of furnishing the return of income under
section 139, shall be deposited by him before furnishing such return [such deposit
being made in any case not later than the due date applicable in the case of the
assessee for furnishing the return of income under sub-section (1) of section 139] in
an account in any such bank or institution as may be specified in, and utilised in
accordance with, any scheme5 which the Central Government may, by notification in
the Official Gazette, frame in this behalf and such return shall be accompanied by
proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any,
already utilised by the assessee for all or any of the purposes aforesaid together with
the amount, so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or
partly for all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1)
within the period specified in that sub-section, then,
(i) the amount not so utilised shall be charged under section 45 as the income
of the previous year in which the period of three years from the date of the
transfer of the original asset expires ; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with
the scheme aforesaid.
Explanation.6[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
7

[Extension of time for acquiring new asset or depositing or investing amount of

capital gain.
54H. Notwithstanding anything contained in sections 54, 54B, 54D 8[***] 9[, 54EC]
and 54F, where the transfer of the original asset is by way of compulsory acquisition
under any law and the amount of compensation awarded for such acquisition is not
received by the assessee on the date of such transfer, the period for acquiring the new
asset by the assessee referred to in those sections or, as the case may be, the period
available to the assessee under those sections for depositing or investing the amount

of capital gain in relation to such compensation as is not received on the date of the
transfer, shall be reckoned from the date of receipt of such compensation :
Provided that where the compensation in respect of transfer of the original asset by
way of compulsory acquisition under any law is received before the 1st day of April,
1991, the aforesaid period or periods, if expired, shall extend up to the 31st day of
December, 1991.]
Meaning of adjusted, cost of improvement and cost of acquisition.
10
55. (1) For the purposes of 11[sections 48 and 49],
12
(a)
[***]
13
[(b) cost of any improvement,
(1)
in relation to a capital asset being goodwill of a business 14[or a
right to manufacture, produce or process any article or thing] 15[or right
to carry on any business] shall be taken to be nil ; and
(2)
in relation to any other capital asset,]
(i)
where the capital asset became the property of the
previous owner or the assessee before the 16[1st day of April,
17
[1981]], 18[***] means all expenditure of a capital nature incurred
in making any additions or alterations to the capital asset on or after
the said date by the previous owner or the assessee, and
(ii)
in any other case, means all expenditure of a capital
nature incurred in making any additions or alterations to the capital
asset by the assessee after it became his property, and, where the
capital asset became the property of the assessee by any of the
modes specified in 19[sub-section (1) of] section 49, by the previous
owner,
but does not include any expenditure which is deductible in
computing the income chargeable under the head Interest on
securities, Income from house property, Profits and gains of
business or profession, or Income from other sources, and the
expression improvement shall be construed accordingly.
20
(2) 21[For the purposes of sections 48 and 49, cost of acquisition22,
23
[(a) in relation to a capital asset, being goodwill of a business 24[or a
trade mark or brand name associated with a business] 25[or a right to
manufacture, produce or process any article or thing] 26[or right to carry on
any business], tenancy rights, stage carriage permits or loom hours,
(i)
in the case of acquisition of such asset by the assessee by
purchase from a previous owner, means the amount of the purchase
price ; and
(ii)
in any other case [not being a case falling under sub-clauses (i)
to (iv) of sub-section (1) of section 49], shall be taken to be nil ;
(aa) 27[in a case where, by virtue of holding a capital asset, being a
share or any other security28, within the meaning of clause (h) of section 2
of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in
this clause referred to as the financial asset), the assessee
(A)
becomes entitled to subscribe to any additional financial
asset; or

(B)
is allotted any additional financial asset without any
payment,
then, subject to the provisions of sub-clauses (i) and (ii) of
clause (b)],
(i)
in relation to the original financial asset, on the basis of which
the assessee becomes entitled to any additional financial asset, means
the amount actually paid for acquiring the original financial asset ;
(ii)
in relation to any right to renounce the said entitlement to
subscribe to the financial asset, when such right is renounced by the
assessee in favour of any person, shall be taken to be nil in the case of
such assessee ;
(iii)
in relation to the financial asset, to which the assessee has
subscribed on the basis of the said entitlement, means the amount
actually paid by him for acquiring such asset ;
29
[(iiia)in relation to the financial asset allotted to the assessee without
any payment and on the basis of holding of any other financial asset,
shall be taken to be nil in the case of such assessee ;] and
(iv)
in relation to any financial asset purchased by any person in
whose favour the right to subscribe to such asset has been renounced,
means the aggregate of the amount of the purchase price paid by him to
the person renouncing such right and the amount paid by him to the
company or institution, as the case may be, for acquiring such financial
asset ;]
30
[(ab) in relation to a capital asset, being equity share or shares
allotted to a shareholder of a recognised stock exchange in India under a
scheme for 31[demutualisation or] corporatisation approved by the Securities
and Exchange Board of India established under section 3 of the Securities
and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of
acquisition of his original membership of the exchange:]
31
[Provided that the cost of a capital asset, being trading or clearing
rights of the recognised stock exchange acquired by a shareholder who has
been allotted equity share or shares under such scheme of demutualisation
or corporatisation, shall be deemed to be nil;]
(b)
in relation to any other capital asset,]
(i)
where the capital asset became the property of the assessee 32
before the 33[1st day of April, 34[1981]], means the cost of acquisition of
the asset to the assessee or the fair 35 market value of the asset on the
36
[1st day of April, 37[1981]], at the option of the assessee ;
(ii)
where the capital asset became the property of the assessee 38 by
any of the modes specified in 39[sub-section (1) of] section 49, and the
capital asset became the property of the previous owner before the 36[1st
day of April, 37[1981]], means the cost of the capital asset to the
previous owner or the fair40 market value of the asset on the 36[1st day of
April, 37[1981]], at the option of the assessee ;
(iii)
where the capital asset became the property of the assessee 38 on
the distribution of the capital assets of a company on its liquidation and
the assessee has been assessed to income-tax under the head Capital

gains in respect of that asset under section 46, means the fair40 market
value of the asset on the date of distribution ;
41
(iv)
[***]
42
[(v) where the capital asset, being a share or a stock of a company,
became the property of the assessee on
(a)
the consolidation and division of all or any of the share
capital of the company into shares of larger amount than its existing
shares,
(b)
the conversion of any shares of the company into stock,
(c)
the re-conversion of any stock of the company into
shares,
(d)
the sub-division of any of the shares of the company
into shares of smaller amount, or
(e)
the conversion of one kind of shares of the company
into another kind,
means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such
asset is derived.]
(3) Where the cost for which the previous owner acquired the property cannot be
ascertained, the cost of acquisition to the previous owner means the fair market value
on the date on which the capital asset became the property of the previous owner.
43

[Reference to Valuation Officer.

55A. With a view to ascertaining the fair market value of a capital asset for the
purposes of this Chapter45, the 46[Assessing] Officer may refer the valuation of capital
asset to a Valuation Officer
(a) in a case where the value of the asset as claimed by the assessee is in
accordance with the estimate made by a registered valuer, if the
47
[Assessing] Officer is of opinion that the value so claimed is less than its
fair market value ;
(b) in any other case, if the 47[Assessing] Officer is of opinion
(i) that the fair market value of the asset exceeds the value of the asset as
claimed by the assessee by more than such percentage48 of the value of
the asset as so claimed or by more than such amount 48 as may be
prescribed in this behalf ; or
(ii) that having regard to the nature of the asset and other relevant
circumstances, it is necessary so to do,
49
and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5)
and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and sub-sections (3A)
and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and
section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the necessary
modifications, apply in relation to such reference as they apply in relation to a
reference made by the 50[Assessing] Officer under sub-section (1) of section 16A of
that Act.
Explanation.In this section, Valuation Officer has the same meaning, as in clause
(r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]
44

F.Income from other sources

Income from other sources.
51
56. (1) Income of every kind which is not to be excluded from the total income
under this Act shall be chargeable to income-tax under the head Income from other
sources, if it is not chargeable to income-tax under any of the heads specified in
section 14, items A to E.
(2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes, shall be chargeable to income-tax under the head
Income from other sources, namely :
(i) dividends ;
52
[(ia) income referred to in sub-clause (viii) of clause (24) of section 2 ;]
53
[(ib) income referred to in sub-clause (ix) of clause (24) of section 2 ;]
54
[(ic) income referred to in sub-clause (x) of clause (24) of section 2 if such
income is not chargeable to income-tax under the head Profits and gains of
business or profession ;]
55
[(id) income by way of interest on securities, if the income is not chargeable to
income-tax under the head Profits and gains of business or profession ;]
(ii) income from machinery, plant or furniture belonging to the assessee and let
on hire, if the income is not chargeable to income-tax under the head
Profits and gains of business or profession;
iii(iii) where an assessee lets on hire machinery, plant or furniture belonging to
him and also buildings, and the letting of the buildings is inseparable
from the letting of the said machinery, plant or furniture, the income from
such letting, if it is not chargeable to income-tax under the head Profits
and gains of business or profession;
56
[(iv) income referred to in sub-clause (xi) of clause (24) of section 2, if such
income is not chargeable to income-tax under the head Profits and gains of
business or profession or under the head Salaries.]
The following clause (v) shall be inserted after clause (iv) of sub-section (2) of
section 56 by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(v) where any sum of money exceeding twenty-five thousand rupees is received
without consideration by an individual or a Hindu undivided family from
any person on or after the 1st day of September, 2004, the whole of such
sum :
Provided that this clause shall not apply to any sum of money received
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer.
Explanation.For the purposes of this clause, relative means
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;

(v) any lineal ascendant or descendant of the individual;

(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the persons referred to in clauses (ii) to (vi).
Deductions.
57
57. The income chargeable under the head Income from other sources shall be
computed after making the following deductions, namely :
(i) in the case of dividends, 58[other than dividends referred to in section 115O,] 59[or interest on securities], any reasonable sum paid by way of
commission or remuneration to a banker or any other person for the purpose
of realising such dividend 60[or interest] on behalf of the assessee ;
61
[(ia) in the case of income of the nature referred to in sub-clause (x) of clause
(24) of section 2 which is chargeable to income-tax under the head Income
from other sources, deductions, so far as may be, in accordance with the
provisions of clause (va) of sub-section (1) of section 36 ;]
(ii) in the case of income of the nature referred to in clauses (ii) and (iii) of subsection (2) of section 56, deductions, so far as may be, in accordance with
the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30,
section 31 and 62[sub-sections (1) 63[***] and (2)] of section 32 and subject
to the provisions of 64[section 38] ;
65
[(iia) in the case of income in the nature of family pension, a deduction of a sum
equal to thirty-three and one-third per cent of such income or 66[fifteen]
thousand rupees, whichever is less.
Explanation.For the purposes of this clause, family pension means a
regular monthly amount payable by the employer to a person belonging to
the family of an employee in the event of his death ;]
(iii) any other expenditure (not being in the nature of capital expenditure) laid
out or expended wholly and exclusively for the purpose 67 of making or
earning such income.
68
[***]
Explanation.69[Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]
Amounts not deductible.
70
58. 71[(1)] Notwithstanding anything to the contrary contained in section 57, the
following amounts shall not be deductible in computing the income chargeable under
the head Income from other sources, namely :
(a) in the case of any assessee,
(i) any personal expenses of the assessee ;
72
[(ia) any expenditure of the nature referred to in sub-section (12) 73 of section
40A ;]
(ii) 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 74[***] ;

(iii) any payment which is chargeable under the head Salaries, if it is

payable outside India, unless tax has been paid thereon or deducted
therefrom under Chapter XVII-B ;
(iv) 75[***]
(b) 76[***]
77
[(1A) The provisions of sub-clause (iia) of clause (a) of section 40 shall, so far as
may be, apply in computing the income chargeable under the head Income from
other sources as they apply in computing the income chargeable under the head
Profits and gains of business or profession.]
78
[(2) The provisions of section 40A shall, so far as may be, apply in computing the
income chargeable under the head Income from other sources as they apply in
computing the income chargeable under the head Profits and gains of business or
profession.]
79
[(3) In the case of an assessee, being a foreign company, the provisions of section
44D shall, so far as may be, apply in computing the income chargeable under the head
Income from other sources as they apply in computing the income chargeable under
the head Profits and gains of business or profession.]
80
[(4) In the case of an assessee having income chargeable under the head Income
from other sources, no deduction in respect of any expenditure or allowance in
connection with such income shall be allowed under any provision of this Act in
computing the income by way of 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 :
Provided that nothing contained in this sub-section shall apply in computing the
income of an assessee, being the owner of horses maintained by him for running in
horse races, from the activity of owning and maintaining such horses.
Explanation.For the purposes of this sub-section, horse race means a horse race
upon which wagering or betting may be lawfully made.]
Profits chargeable to tax.
59. (1) The provisions of sub-section (1) of section 41 shall apply, so far as may be,
in computing the income of an assessee under section 56, as they apply in computing
the income of an assessee under the head Profits and gains of business or
profession.
(2) 81[***]
(3) 82[***]
83
[***]
CHAPTER V
INCOME OF OTHER PERSONS, INCLUDED IN ASSESSEES TOTAL
INCOME
Transfer of income where there is no transfer of assets.
84
60. All income arising to any person by virtue of a transfer85 whether revocable or
not and whether effected before or after the commencement of this Act shall, where

there is no transfer of the assets from which the income arises, be chargeable to
income-tax as the income of the transferor and shall be included in his total income.
Revocable transfer of assets.
61. All income arising to any person by virtue of a revocable transfer 85 of assets
shall be chargeable to income-tax as the income of the transferor and shall be included
in his total income.
Transfer irrevocable for a specified period.
86
62. (1) The provisions of section 61 shall not apply to any income arising to any
person by virtue of a transfer
(i) by way of trust which is not revocable during the lifetime of the beneficiary,
and, in the case of any other transfer, which is not revocable during the
lifetime of the transferee ; or
(ii) made before the 1st day of April, 1961, which is not revocable for a period
exceeding six years :
Provided that the transferor derives no direct or indirect benefit from such income in
either case.
(2) Notwithstanding anything contained in sub-section (1), all income arising to any
person by virtue of any such transfer shall be chargeable to income-tax as the income
of the transferor as and when the power to revoke the transfer arises, and shall then be
included in his total income.
Transfer and revocable transfer defined.
87
63. For the purposes of sections 60, 61 and 62 and of this section,
(a) a transfer88 shall be deemed to be revocable if
(i) it contains any provision for the re-transfer directly or indirectly89 of the
whole or any part of the income or assets to the transferor, or
(ii) it, in any way, gives the transferor a right to re-assume power directly or
indirectly over the whole or any part of the income or assets ;
(b) transfer88 includes any settlement, trust, covenant, agreement or
arrangement88.
Income of individual to include income of spouse, minor child, etc.
89
64. 90[91[(1)] In computing the total income of any individual, there shall be
included all such income as arises directly or indirectly
(i) 92[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
(ii) to the spouse93 of such individual by way of salary, commission, fees or any
other form of remuneration whether in cash or in kind from a concern in
which such individual has a substantial interest :
94
[Provided that nothing in this clause shall apply in relation to any income
arising to the spouse where the spouse possesses technical or professional
qualifications93 and the income is solely attributable to the application of his
or her technical or professional knowledge and experience ;]
(iii) 95[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

(iv) subject to the provisions of clause (i) of section 27, 96[* * *] to the spouse97
of such individual from assets transferred97 directly or indirectly to the
spouse by such individual otherwise than for adequate consideration 97 or in
connection with an agreement to live apart ;
(v) 98[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
(vi) to the sons wife, 99[* * *] of such individual, from assets transferred97
directly or indirectly on or after the 1st day of June, 1973, to the sons wife
1
[* * *] by such individual otherwise than for adequate consideration; 2[* *
*]
(vii) to any person3 or association of persons from assets transferred 3 directly or
indirectly otherwise than for adequate consideration3 to the person or
association of persons by such individual, to the extent to which the income
from such assets is for the immediate or deferred benefit3 of his or her
spouse 4[* * *]; and]
5
[(viii) to any person3 or association of persons from assets transferred 3 directly or
indirectly on or after the 1st day of June, 1973, otherwise than for adequate
consideration3, to the person or association of persons by such individual, to
the extent to which the income from such assets is for the immediate or
deferred benefit3 of his sons wife 6[* * *].]
7
[Explanation 1.For the purposes of clause (ii), the individual in computing whose
total income the income referred to in that clause is to be included, shall be the
husband or wife whose total income (excluding the income referred to in that clause)
is greater ; and where any such income is once included in the total income of either
spouse, any such income arising in any succeeding year shall not be included in the
total income of the other spouse unless the Assessing Officer is satisfied, after giving
that spouse an opportunity of being heard, that it is necessary8 so to do.]
Explanation 2.For the purposes of clause (ii), an individual 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 his relatives ;
(ii) in any other case, if such person is entitled, or such person and one or more
of his relatives 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.
Explanation 2A.9[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
10
[Explanation 3.For the purposes of clauses (iv) and (vi), where the assets
transferred directly or indirectly by an individual to his spouse or sons wife (hereafter
in this Explanation referred to as the transferee) are invested by the transferee,
(i) in any business, such investment being not in the nature of contribution of
capital as a partner in a firm or, as the case may be, for being admitted to the
benefits of partnership in a firm, that part of the income arising out of the
business to the transferee in any previous year, which bears the same
proportion to the income of the transferee from the business as the value of
the assets aforesaid as on the first day of the previous year bears to the total
investment in the business by the transferee as on the said day ;

(ii) in the nature of contribution of capital as a partner in a firm, that part of the
interest receivable by the transferee from the firm in any previous year,
which bears the same proportion to the interest receivable by the transferee
from the firm as the value of investment aforesaid as on the first day of the
previous year bears to the total investment by way of capital contribution as
a partner in the firm as on the said day,
shall be included in the total income of the individual in that previous year.]
11
[(1A) In computing the total income of any individual, there shall be included all
such income as arises or accrues to his minor child 12[, not being a minor child
suffering from any disability of the nature specified in section 80U] :
Provided that nothing contained in this sub-section shall apply in respect of such
income as arises or accrues to the minor child on account of any
(a) manual work done by him ; or
(b) activity involving application of his skill, talent or specialised know-ledge
and experience.
Explanation.For the purposes of this sub-section, the income of the minor child
shall be included,
(a) where the marriage of his parents subsists, in the income of that parent
whose total income (excluding the income includible under this sub-section)
is greater ; or
(b) where the marriage of his parents does not subsist, in the income of that
parent who maintains the minor child in the previous year,
and where any such income is once included in the total income of either parent, any
such income arising in any succeeding year shall not be included in the total income
of the other parent, unless the Assessing Officer is satisfied, after giving that parent an
opportunity of being heard, that it is necessary so to do.]
13
[(2) Where, in the case of an individual being a member of a Hindu undivided
family, any property having been the separate property of the individual has, at any
time after the 31st day of December, 1969, been converted by the individual into
property belonging to the family through the act of impressing such separate property
with the character of property belonging to the family or throwing it 14[into the
common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so
converted or transferred being hereinafter referred to as the converted property)], then,
notwithstanding anything contained in any other provision of this Act or in any other
law for the time being in force, for the purpose of computation of the total income of
the individual under this Act for any assessment year commencing on or after the 1st
day of April, 1971,
(a) the individual shall be deemed to have transferred the converted property,
through the family, to the members of the family for being held by them
jointly ;
(b) the income derived from the converted property or any part thereof 15 16[* *
*] shall be deemed to arise to the individual and not to the family ;
17
[(c) where the converted property has been the subject-matter of a partition
(whether partial or total) amongst the members of the family, the income
derived from such converted property as is received by the spouse 18[* * *]
on partition shall be deemed to arise to the spouse 18[* * *] from assets

transferred indirectly by the individual to the spouse 18[* * *] and the

provisions of sub-section (1) shall, so far as may be, apply accordingly :]
Provided that the income referred to in clause (b) or clause (c) shall, on being
included in the total income of the individual, be excluded from the total income of
the family or, as the case may be, the spouse 19[* * *] of the individual.
Explanation 20[1].For the purposes of sub-section (2),
21
[* * *] property includes any interest in property, movable or immovable, the
proceeds of sale thereof and any money or investment for the time being representing
the proceeds of sale thereof and where the property is converted into any other
property by any method, such other property.
22
[* * *]]
23
[Explanation 2.For the purposes of this section, income includes loss.]
Liability of person in respect of income included in the income of another
person.
65. Where, by reason of the provisions contained in this Chapter or in clause (i) of
section 27, the income from any asset or from membership in a firm of a person other
than the assessee is included in the total income of the assessee, the person in whose
name such asset stands or who is a member of the firm shall, notwithstanding
anything to the contrary contained in any other law for the time being in force, be
liable, on the service of a notice of demand by the 24[Assessing] Officer in this behalf,
to pay that portion of the tax levied on the assessee which is attributable to the income
so included, and the provisions of Chapter XVII-D shall, so far as may be, apply
accordingly :
Provided that where any such asset is held jointly by more than one person, they shall
be jointly and severally liable to pay the tax which is attributable to the income from
the assets so included.
CHAPTER VI
AGGREGATION OF INCOME AND SET OFF OR
CARRY FORWARD OF LOSS
Aggregation of income
Total income.
66. In computing the total income of an assessee, there shall be included all income
on which no income-tax is payable under Chapter VII 25[* * *].

27

[Method of computing a members share in income of association of persons or

body of individuals.
67A.(1) In computing the total income of an assessee who is a member of an
association of persons or a body of individuals wherein the shares of the members are
determinate and known [other than a company or a cooperative society or a society
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], whether the net result of the

computation of the total income of such association or body is a profit or a loss, his
share (whether a net profit or net loss) shall be computed as follows, namely :
(a) any interest, salary, bonus, commission or remuneration by whatever name
called, paid to any member in respect of the previous year shall be deducted
from the total income of the association or body and the balance ascertained
and apportioned among the members in the proportions in which they are
entitled to share in the income of the association or body ;
(b) where the amount apportioned to a member under clause (a) is a profit, any
interest, salary, bonus, commission or remuneration aforesaid paid to the
member by the association or body in respect of the previous year shall be
added to that amount, and the result shall be treated as the members share
in the income of the association or body ;
(c) where the amount apportioned to a member under clause (a) is a loss, any
interest, salary, bonus, commission or remuneration aforesaid paid to the
member by the association or body in respect of the previous year shall be
adjusted against that amount, and the result shall be treated as the members
share in the income of the association or body.
(2) The share of a member in the income or loss of the association or body, as
computed under sub-section (1), shall, for the purposes of assessment, be apportioned
under the various heads of income in the same manner in which the income or loss of
the association or body has been determined under each head of income.
(3) Any interest paid by a member on capital borrowed by him for the purposes of
investment in the association or body shall, in computing his share chargeable under
the head Profits and gains of business or profession in respect of his share in the
income of the association or body, be deducted from his share.
Explanation.In this section, paid has the same meaning as is assigned to it in
clause (2) of section 43.]
Cash credits.
28
68. 29Where any sum is found credited in the books 30 of an assessee maintained for
any previous year, and the assessee offers no explanation about the nature and source
thereof or the explanation offered by him is not, in the opinion of the 31[Assessing]
Officer, satisfactory, the sum so credited may be charged to income-tax as the income
of the assessee of that previous year.
Unexplained investments.
32
69. Where in the financial year immediately preceding the assessment year the
assessee has made investments which are not recorded in the books of account, if any,
maintained by him for any source of income, and the assessee offers no explanation
about the nature and source of the investments or the explanation offered by him is
not, in the opinion of the 31[Assessing] Officer, satisfactory, the value of the
investments may be deemed to be the income of the assessee of such financial year.
33

[Unexplained money, etc.

69A. Where in any financial year the assessee is found to be the owner of any
money, bullion, jewellery or other valuable article and such money, bullion, jewellery
or valuable article is not recorded in the books of account, if any, maintained by him
34

for any source of income35, and the assessee offers no explanation about the nature
and source of acquisition of the money, bullion, jewellery or other valuable article, or
the explanation offered by him is not, in the opinion of the 36[Assessing] Officer,
satisfactory, the money and the value of the bullion, jewellery or other valuable article
may be deemed to be the income35 of the assessee for such financial year.]
37

[Amount of investments, etc., not fully disclosed in books of account.

69B.Where in any financial year the assessee has made investments or is found to
be the owner of any bullion, jewellery or other valuable article, and the 36[Assessing]
Officer finds that the amount expended on making such investments or in acquiring
such bullion, jewellery or other valuable article exceeds the amount recorded in this
behalf in the books of account maintained by the assessee for any source of income,
and the assessee offers no explanation about such excess amount or the explanation
offered by him is not, in the opinion of the 38[Assessing] Officer, satisfactory, the
excess amount may be deemed to be the income of the assessee for such financial
year.]
34

39

[Unexplained expenditure, etc.

69C. Where in any financial year an assessee has incurred any expenditure and he
offers no explanation about the source of such expenditure or part thereof, or the
explanation, if any, offered by him is not, in the opinion of the 38[Assessing] Officer,
satisfactory, the amount covered by such expenditure or part thereof, as the case may
be, may be deemed to be the income of the assessee for such financial year :]
41
[Provided that, notwithstanding anything contained in any other provision of this
Act, such unexplained expenditure which is deemed to be the income of the assessee
shall not be allowed as a deduction under any head of income.]
40

42

[Amount borrowed or repaid on hundi.

43
69D. Where any amount is borrowed on a hundi from, or any amount due thereon
is repaid to, any person otherwise than through an account payee cheque drawn on a
bank, the amount so borrowed or repaid shall be deemed to be the income of the
person borrowing or repaying the amount aforesaid for the previous year in which the
amount was borrowed or repaid, as the case may be :
Provided that, if in any case any amount borrowed on a hundi has been deemed
under the provisions of this section to be the income of any person, such person shall
not be liable to be assessed again in respect of such amount under the provisions of
this section on repayment of such amount.
Explanation.For the purposes of this section, the amount repaid shall include the
amount of interest paid on the amount borrowed.]
Set off, or carry forward and set off
[Set off of loss from one source against income from another source under the
same head of income.
70. (1) Save as otherwise provided in this Act, where the net result for any
assessment year in respect of any source falling under any head of income, other than
Capital gains, is a loss, the assessee shall be entitled to have the amount of such loss
set off against his income from any other source under the same head.
44

(2) Where the result of the computation made for any assessment year under sections
48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be
entitled to have the amount of such loss set off against the income, if any, as arrived at
under a similar computation made for the assessment year in respect of any other
capital asset.
(3) Where the result of the computation made for any assessment year under sections
48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss,
the assessee shall be entitled to have the amount of such loss set off against the
income, if any, as arrived at under a similar computation made for the assessment year
in respect of any other capital asset not being a short-term capital asset.]
45

[Set off of loss from one head against income from another.
71. (1) Where in respect of any assessment year the net result of the computation
under any head of income, other than Capital gains, is a loss and the assessee has no
income under the head Capital gains, he shall, subject to the provisions of this
Chapter, be entitled to47 have the amount of such loss set off against his income, if any,
assessable for that assessment year under any other head.
(2) Where in respect of any assessment year, the net result of the computation under
any head of income, other than Capital gains, is a loss and the assessee has income
assessable under the head Capital gains, such loss may, subject to the provisions of
this Chapter, be set off against his income, if any, assessable for that assessment year
under any head of income including the head Capital gains (whether relating to
short-term capital assets or any other capital assets).
The following sub-section (2A) shall be inserted after sub-section (2) of section 71
by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where
in respect of any assessment year, the net result of the computation under the head
Profits and gains of business or profession is a loss and the assessee has income
assessable under the head Salaries, the assessee shall not be entitled to have such
loss set off against such income.
46

(3) Where in respect of any assessment year, the net result of the computation under
the head Capital gains is a loss and the assessee has income assessable under any
other head of income, the assessee shall not be entitled to have such loss set off
against income under the other head.]
48
[(4) Where the net result of the computation under the head Income from house
property is a loss, in respect of the assessment years commencing on the 1st day of
April, 1995 and the 1st day of April, 1996, such loss shall be first set off under subsections (1) and (2) and thereafter the loss referred to in section 71A shall be set off in
the relevant assessment year in accordance with the provisions of that section.]
49

[Transitional provisions for set off of loss under the head Income from house
property.
71A. Where in respect of the assessment year commencing on the 1st day of April,
1993 or the 1st day of April, 1994, the net result of the computation under the head
Income from house property is a loss, such loss in so far as it relates to interest on
borrowed capital referred to in clause (vi) of sub-section (1) of section 24 and to the
extent it has not been set off shall be carried forward and set off in the assessment

year commencing on the 1st day of April, 1995, and the balance, if any, in the
assessment year commencing on the 1st day of April, 1996, against the income under
any head.]
50

[Carry forward and set off of loss from house property.

71B.Where for any assessment year the net result of computation under the head
Income from house property is a loss to the assessee and such loss cannot be or is
not wholly set off against income from any other head of income in accordance with
the provisions of section 71, so much of the loss as has not been so set-off or where he
has no income under any other head, the whole loss shall, subject to the other
provisions of this Chapter, be carried forward to the following assessment year and
(i) be set off against the income from house property assessable for that
assessment year; and
(ii) the loss, if any, which has not been set off wholly, the amount of loss not so
set off,
shall be carried forward to the following assessment year, not being more than eight
assessment years immediately succeeding the assessment year for which the loss was
first computed.]
Carry forward and set off of business losses.
51
72. 52[(1) Where for any assessment year, the net result of the computation under
the head Profits and gains of business or profession is a loss to the assessee, not
being a loss sustained in a speculation business, and such loss cannot be or is not
wholly set off against income under any head of income in accordance with the
provisions of section 71, so much of the loss as has not been so set off or, 53[* * *]
where he has no income under any other head, the whole loss shall, subject to the
other provisions of this Chapter, be carried forward to the following assessment year,
and
(i) it shall be set off against the profits and gains, if any, of any business or
profession carried on by him and assessable for that assessment year ;
54
[* * *]
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall
be carried forward to the following assessment year and so on :]
55
[Provided that where the whole or any part of such loss is sustained in any such
business as is referred to in section 33B which is discontinued in the circumstances
specified in that section, and, thereafter, at any time before the expiry of the period of
three years referred to in that section, such business is re-established, reconstructed or
revived by the assessee, so much of the loss as is attributable to such business shall be
carried forward to the assessment year relevant to the previous year in which the
business is so re-established, reconstructed or revived, and
(a) it shall be set off against the profits and gains, if any, of that business or any
other business carried on by him and assessable for that assessment year ;
and
(b) if the loss cannot be wholly so set off, the amount of loss not so set off shall,
in case the business so re-established, reconstructed or revived continues to
be carried on by the assessee, be carried forward to the following
assessment year and so on for seven assessment years immediately
succeeding.]

(2) Where any allowance or part thereof is, under sub-section (2) of section 32 or subsection (4) of section 35, to be carried forward, effect shall first be given to the
provisions of this section.
(3) No loss 56[(other than the loss referred to in the proviso to sub-section (1) of this
section)] shall be carried forward under this section for more than eight assessment
years immediately succeeding the assessment year for which the loss was first
computed.
57

[Provisions relating to carry forward and set off of accumulated loss and
unabsorbed depreciation allowance in amalgamation or demerger, etc.
58
[72A. (1) Where there has been an amalgamation of a company owning an
industrial undertaking or a ship or a hotel with another company or an amalgamation
of a banking company referred to in clause (c) of section 5 of the Banking Regulation
Act, 1949 (10 of 1949) with a specified bank, then, notwithstanding anything
contained in any other provision of this Act, the accumulated loss and the unabsorbed
depreciation of the amalgamating company shall be deemed to be the loss or, as the
case may be, allowance for depreciation of the amalgamated company for the
previous year in which the amalgamation was effected, and other provisions of this
Act relating to set off and carry forward of loss and allowance for depreciation shall
apply accordingly.
(2) Notwithstanding anything contained in sub-section (1), the accumulated loss
shall not be set off or carried forward and the unabsorbed depreciation shall not be
allowed in the assessment of the amalgamated company unless
(a) the amalgamating company
(i) has been engaged in the business, in which the accumulated loss
occurred or depreciation remains unabsorbed, for three or more years;
(ii) has held continuously as on the date of the amalgamation at least threefourths of the book value of fixed assets held by it two years prior to the
date of amalgamation;
(b) the amalgamated company
(i) holds continuously for a minimum period of five years from the date of
amalgamation at least three-fourths of the book value of fixed assets of
the amalgamating company acquired in a scheme of amalgamation;
(ii) continues the business of the amalgamating company for a minimum
period of five years from the date of amalgamation;
(iii) fulfils such other conditions as may be prescribed 59 to ensure the revival
of the business of the amalgamating company or to ensure that the
amalgamation is for genuine business purpose.]
(3) In a case where any of the conditions laid down in sub-section (2) are not
complied with, the set off of loss or allowance of depreciation made in any previous
year in the hands of the amalgamated company shall be deemed to be the income of
the amalgamated company chargeable to tax for the year in which such conditions are
not complied with.
(4) Notwithstanding anything contained in any other provisions of this Act, in the case
of a demerger, the accumulated loss and the allowance for unabsorbed depreciation of
the demerged company shall

(a) where such loss or unabsorbed depreciation is directly relatable to the

undertakings transferred to the resulting company, be allowed to be carried
forward and set off in the hands of the resulting company;
(b) where such loss or unabsorbed depreciation is not directly relatable to the
undertakings transferred to the resulting company, be apportioned between
the demerged company and the resulting company in the same proportion in
which the assets of the undertakings have been retained by the demerged
company and transferred to the resulting company, and be allowed to be carried forward and set off in the hands of the demerged company or the
resulting company, as the case may be.
(5) The Central Government may, for the purposes of this Act, by notification in the
Official Gazette, specify such conditions as it considers necessary to ensure that the
demerger is for genuine business purposes.
(6) Where there has been reorganisation of business, whereby, a firm is succeeded by
a company fulfilling the conditions laid down in clause (xiii) of section 47 or a
proprietary concern is succeeded by a company fulfilling the conditions laid down in
clause (xiv) of section 47, then, notwithstanding anything contained in any other
provision of this Act, the accumulated loss and the unabsorbed depreciation of the
predecessor firm or the proprietary concern, as the case may be, shall be deemed to be
the loss or allowance for depreciation of the successor company for the purpose of
previous year in which business reorganisation was effected and other provisions of
this Act relating to set off and carry forward of loss and allowance for depreciation
shall apply accordingly :
Provided that if any of the conditions laid down in the proviso to clause (xiii) or the
proviso to clause (xiv) to section 47 are not complied with, the set off of loss or
allowance of depreciation made in any previous year in the hands of the successor
company, shall be deemed to be the income of the company chargeable to tax in the
year in which such conditions are not complied with.
(7) For the purposes of this section,
(a) accumulated loss means so much of the loss of the predecessor firm or the
proprietary concern or the amalgamating company or the demerged
company, as the case may be, under the head Profits and gains of business
or profession (not being a loss sustained in a speculation business) which
such predecessor firm or the proprietary concern or amalgamating company
or demerged company, would have been entitled to carry forward and set off
under the provisions of section 72 if the reorganisation of business or
amalgamation or demerger had not taken place;
60
[(aa) industrial undertaking means any undertaking which is engaged in
(i) the manufacture or processing of goods; or
(ii) the manufacture of computer software; or
(iii) the business of generation or distribution of electricity or any other form
of power; or
61
[(iiia) the business of providing telecommunication services, whether basic or
cellular, including radio paging, domestic satellite service, network of
trunking, broadband network and internet services; or]
(iv) mining; or

(v) the construction of ships, aircrafts or rail systems;]

(b) unabsorbed depreciation means so much of the allowance for depreciation
of the predecessor firm or the proprietary concern or the amalgamating
company or the demerged company, as the case may be, which remains to
be allowed and which would have been allowed to the predecessor firm or
the proprietary concern or amalgamating company or demerged company,
as the case may be, under the provisions of this Act, if the reorganisation of
business or amalgamation or demerger had not taken place;]
62
[(c) specified bank means the State Bank of India constituted under the State
Bank of India Act, 1955 (23 of 1955) or a subsidiary bank as defined in the
State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959) or a
corresponding new bank constituted under section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of
1970) or under section 3 of the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1980 (40 of 1980).]
Losses in speculation business.
63
73. (1) Any loss, computed in respect of a speculation business carried on by the
assessee, shall not be set off except against profits and gains, if any, of another
speculation business.
(2) Where for any assessment year any loss computed in respect of a speculation
business has not been wholly set off under sub-section (1), so much of the loss as is
not so set off or the whole loss where the assessee had no income from any other
speculation business, shall, subject to the other provisions of this Chapter, be carried
forward to the following assessment year, and
(i) it shall be set off against the profits and gains, if any, of any speculation
business carried on by him assessable for that assessment year ; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall
be carried forward to the following assessment year and so on.
(3) In respect of allowance on account of depreciation or capital expenditure on
scientific research, the provisions of sub-section (2) of section 72 shall apply in
relation to speculation business as they apply in relation to any other business.
(4) No loss shall be carried forward under this section for more than eight assessment
years immediately succeeding the assessment year for which the loss was first
computed.
64
[Explanation.Where any part of the business of a company 65[other than a
company whose gross total income consists mainly of income which is chargeable
under the heads Interest on securities, Income from house property, Capital
gains and Income from other sources], or a company the principal business of
which is the business of banking or the granting of loans and advances) consists in
the purchase and sale of shares of other companies, such company shall, for the
purposes of this section, be deemed to be carrying on a speculation business to the
extent to which the business consists of the purchase and sale of such shares.]
66

[Losses under the head Capital gains.

74. 67[(1) Where in respect of any assessment year, the net result of the computation
under the head Capital gains is a loss to the assessee, the whole loss shall, subject to

the other provisions of this Chapter, be carried forward to the following assessment
year, and
(a) in so far as such loss relates to a short-term capital asset, it shall be set off
against income, if any, under the head Capital gains assessable for that
assessment year in respect of any other capital asset;
(b) in so far as such loss relates to a long-term capital asset, it shall be set off
against income, if any, under the head Capital gains assessable for that
assessment year in respect of any other capital asset not being a short-term
capital asset;
(c) if the loss cannot be wholly so set off, the amount of loss not so set off shall
be carried forward to the following assessment year and so on.]
(2) No loss shall be carried forward under this section for more than eight assessment
years immediately succeeding the assessment year for which the loss was first
computed.
(3) 68[Omitted by the Finance Act, 2002, w.e.f. 1-4-2003.]]
69

[Losses from certain specified sources falling under the head Income from
other sources.
74A. (1) 70[* * *]
(2) 71[* * *]
72
[(3) 73[* * *] In the case of an assessee, being the owner of horses maintained by
him for running in horse races (such horses being hereafter in this sub-section referred
to as race horses), 74[the amount of loss incurred by the assessee in the activity of
owning and maintaining race horses in any assessment year shall not be set off against
income, if any, from any source other than the activity of owning and maintaining
race horses in that year and] shall, subject to the other provisions of this Chapter, be
carried forward to the following assessment year and
(a) it shall be set off against the income, if any, 75[from the activity of owning
and maintaining race horses] assessable for that assessment year :
Provided that the activity of owning and maintaining race horses is carried
on by him in the previous year relevant for that assessment year ; and
(b) if the loss cannot be wholly so set off, the amount of loss not so set off shall
be carried forward to the following assessment year and so on; so, however,
that no portion of the loss shall be carried forward for more than four
assessment years immediately succeeding the assessment year for which the
loss was first computed.
Explanation.For the purposes of this sub-section
(a) amount of loss incurred by the assessee in the activity of owning and
maintaining race horses means
(i) in a case where the assessee has no income by way of stake money, the
amount of expenditure (not being in the nature of capital expenditure)
laid out or expended by him wholly and exclusively for the purposes of
maintaining race horses ;
(ii) in a case where the assessee has income by way of stake money, the
amount by which such income falls short of the amount of expenditure
(not being in the nature of capital expenditure) laid out or expended by

the assessee wholly and exclusively for the purposes of maintaining race
horses ;
(b) horse race means a horse race upon which wagering or betting may be
lawfully made ;
(c) income by way of stake money means the gross amount of prize money
received on a race horse or race horses by the owner thereof on account of
the horse or horses or any one or more of the horses winning or being
placed second or in any lower position in horse races.]
76-77

[Losses of firms.
75. Where the assessee is a firm, any loss in relation to the assessment year
commencing on or before the 1st day of April, 1992, which could not be set off
against any other income of the firm and which had been apportioned to a partner of
the firm but could not be set off by such partner prior to the assessment year
commencing on the 1st day of April, 1993, then, such loss shall be allowed to be set
off against the income of the firm subject to the condition that the partner continues in
the said firm and to be carried forward for set off under sections 70, 71, 72, 73, 74 and
74A.]
Carry forward and set off of losses in case of change in constitution of firm or on
succession.
78
78. 79[(1) Where a change has occurred in the constitution of a firm, nothing in this
Chapter shall entitle the firm to have carried forward and set off so much of the loss
proportionate to the share of a retired or deceased partner as exceeds his share of
profits, if any, in the firm in respect of the previous year.]
(2) Where any person carrying on any business or profession has been succeeded in
such capacity by another person otherwise than by inheritance, nothing in this Chapter
shall entitle any person other than the person incurring the loss to have it carried
forward and set off against his income.
Carry forward and set off of losses in the case of certain companies.
79. Notwithstanding anything contained in this Chapter, where a change in
shareholding has taken place in a previous year in the case of a company, not being a
company in which the public are substantially interested, no loss 80 incurred in any
year prior to the previous year shall be carried forward and set off against the income
of the previous year unless
(a) on the last day of the previous year the shares of the company carrying not
less than fifty-one per cent of the voting power were beneficially held by
persons who beneficially held shares of the company carrying not less than
fifty-one per cent of the voting power on the last day of the year or years in
which the loss was incurred 81[* * *] :
82
[Provided that nothing contained in this section shall apply to a case
where a change in the said voting power takes place in a previous year
consequent upon the death of a shareholder or on account of transfer of
shares by way of gift to any relative of the shareholder making such gift :]
83
[Provided further that nothing contained in this section shall apply to any
change in the shareholding of an Indian company which is a subsidiary of a

foreign company as a result of amalgamation or demerger of a foreign

company subject to the condition that fifty-one per cent shareholders of the
amalgamating or demerged foreign company continue to be the
shareholders of the amalgamated or the resulting foreign company.]
(b) 84-85[Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]
Submission of return for losses.
80. Notwithstanding anything contained in this Chapter, no loss which has not been
determined in pursuance of a return filed 86[in accordance with the provisions of subsection (3) of section 139], shall be carried forward and set off under sub-section (1)
of section 72 or sub-section (2) of section 73 or sub-section (1) 87[or sub-section (3)]
of section 74 88[or sub-section (3) of section 74A].
89

[CHAPTER VI-A
DEDUCTIONS TO BE MADE IN COMPUTING TOTAL INCOME
A.General
Deductions to be made in computing total income.
80A. (1) In computing the total income of an assessee, there shall be allowed from
his gross total income, in accordance with and subject to the provisions of this
Chapter, the deductions specified in sections 80C to 90[80U].
(2) The aggregate amount of the deductions91 under this Chapter shall not, in any case,
exceed the gross total income of the assessee.
92
[(3) Where, in computing the total income of an association of persons or a body of
individuals, any deduction is admissible under section 80G or section 80GGA 93[or
section 80GGC] or section 80HH or section 80HHA or section 80HHB or section
80HHC or section 80HHD or section 80-I or section 80-IA 94[or section 80-IB] or
section 80J95 or section 80JJ, no deduction under the same section shall be made in
computing the total income of a member of the association of persons or body of
individuals in relation to the share of such member in the income of the association of
persons or body of individuals.]
(4) 96[* * *]

98

[Deductions to be made with reference to the income included in the gross total
income.
99
80AB. Where any deduction is required to be made or allowed under any section 1[*
* *] included in this Chapter under the heading C.Deductions in respect of certain
incomes in respect of any income of the nature specified in that section which is
included in the gross total income of the assessee, then, notwithstanding anything
contained in that section, for the purpose of computing the deduction under that
section, the amount of income of that nature as computed in accordance with the
provisions of this Act (before making any deduction under this Chapter) shall alone be
deemed to be the amount of income of that nature which is derived or received by the
assessee and which is included in his gross total income.]

[Definitions.
80B. In this Chapter
(1) 3[* * *]
(2) 4[* * *]
(3) 5[* * *]
(4) 6[* * *]
(5) gross total income means the total income computed in accordance with
the provisions of this Act, before making any deduction under this Chapter
7
[* * *] 8[* * *];
(6) 9[* * *]
(7) 10[* * *]
(8) 11[* * *]
(9) 12[* * *].]

16

[Deduction in respect of deposits under National Savings Scheme or payment to

a deferred annuity plan.
17
80CCA. (1) Where an assessee, being
(a)
an individual, or
(b)
a Hindu undivided family, 18[* * *]
19
(c)
[* * *]
has in the previous year
(i)
deposited any amount in accordance with such scheme as the Central
Government may, by notification20 in the Official Gazette, specify in
this behalf 21[* * *]; or
(ii)
paid any amount to effect or to keep in force a contract for such
annuity plan of the Life Insurance Corporation as the Central
Government may, by notification22 in the Official Gazette, specify,
out of his income chargeable to tax, he shall, in accordance with, and subject to, the
provisions of this section, be allowed a deduction in the computation of his total
income of the whole of the amount deposited or paid (excluding interest or bonus
accrued or credited to the assessees account, if any) as does not exceed the amount of
twenty thousand rupees in the previous year :
23
[Provided that in relation to
(a)
the assessment years commencing on the 1st day of April, 1989 and the
1st day of April, 1990, this sub-section shall have effect as if for the
words twenty thousand rupees, the words thirty thousand rupees
had been substituted;
(b)
the assessment year commencing on the 1st day of April, 1991 and
subsequent assessment years, this sub-section shall have effect as if for

the words twenty thousand rupees, the words forty thousand

rupees had been substituted:]
24
[Provided further that no deduction under this sub-section shall be allowed in
relation to any amount deposited or paid under clauses (i) and (ii) on or after the 1st
day of April, 1992.]
(2) Where any amount
(a)
standing to the credit of the assessee 25[under the scheme referred to in
clause (i) of sub-section (1)] in respect of which a deduction has been
allowed under sub-section (1) together with the interest accrued on
such amount is withdrawn in whole or in part in any previous year, or
(b)
is received on account of the surrender of the policy or as annuity or
bonus in accordance with the annuity plan of the Life Insurance
Corporation in any previous year,
an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall
be deemed to be the income of the assessee of that previous year in which such
withdrawal is made or, as the case may be, amount is received, and shall, accordingly,
be chargeable to tax as the income of that previous year :
26
[Provided that nothing contained in this sub-section shall apply to any amount
received by the assessee on account of the surrender of the policy in accordance with
the terms of the annuity plan of the Life Insurance Corporation where the assessee
elects to surrender before the 1st day of October, 1992, the said annuity plan in
respect of which he had paid any amount under clause (ii) of sub-section (1) before
the 1st day of April, 1992.]
27
[(3) Notwithstanding anything contained in any other provision of this Act, where a
partition has taken place among the members of a Hindu undivided family or where
an association of persons has been dissolved after a deduction has been allowed under
sub-section (1), the provisions of sub-section (2) shall apply as if the person in receipt
of income referred to therein is the assessee.]
Explanation I.For the removal of doubts, it is hereby declared that interest on the
deposits made 28[under the scheme referred to in clause (i) of sub-section (1)] shall not
be chargeable to tax except in the manner and to the extent specified in sub-section
(2).
Explanation II.For the purposes of this section, Life Insurance Corporation shall
have the same meaning as in clause (a) of sub-section (8) of section 80C.]
27

[Deduction in respect of investment made under Equity Linked Savings

Scheme.
80CCB. (1) Where an assessee, being
(a)
an individual, or
(b)
a Hindu undivided family, 29[* * *]
30
(c)
[* * *]
has acquired in the previous year, out of his income chargeable to tax, units of any
Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India
established under the Unit Trust of India Act, 1963 (52 of 1963), under any plan
formulated in accordance with such scheme as the Central Government may, by
notification in the Official Gazette, specify in this behalf (hereafter in this section
referred to as the Equity Linked Savings Scheme), he shall, in accordance with, and

subject to, the provisions of this section, be allowed a deduction in the computation of
his total income of so much of the amount invested as does not exceed the amount of
ten thousand rupees in the previous year :
31
[Provided that no deduction shall be allowed in relation to any amount invested
under this sub-section on or after the 1st day of April, 1992.]
(2) Where any amount invested by the assessee in the units issued under a plan
formulated under the Equity Linked Savings Scheme in respect of which a deduction
has been allowed under sub-section (1) is returned to him in whole or in part either by
way of repurchase of such units or on the termination of the plan, by the Fund or the
Trust, as the case may be, in any previous year, it shall be deemed to be the income of
the assessee of that previous year and chargeable to tax accordingly.
(3) Notwithstanding anything contained in any other provision of this Act, where a
partition has taken place among the members of a Hindu undivided family or where
an association of persons has been dissolved after a deduction has been allowed under
sub-section (1), the provisions of sub-section (2) shall apply as if the person in receipt
of income referred to therein is the assessee.]
32

[Deduction in respect of contribution to certain pension funds.

80CCC. (1) Where an assessee being an individual has in the previous year paid or
deposited any amount out of his income chargeable to tax to effect or keep in force a
contract for any annuity plan of Life Insurance Corporation of India 33[or any other
insurer] for receiving pension from the fund referred to in clause (23AAB) of section
10, he shall, in accordance with, and subject to, the provisions of this section, be
allowed a deduction in the computation of his total income, of the whole of the
amount paid or deposited (excluding interest or bonus accrued or credited to the assessees account, if any) as does not exceed the amount of ten thousand rupees in the
previous year.
(2) Where any amount standing to the credit of the assessee in a fund, referred to in
sub-section (1) in respect of which a deduction has been allowed under sub-section
(1), together with the interest or bonus accrued or credited to the assessees account, if
any, is received by the assessee or his nominee
(a)
on account of the surrender of the annuity plan whether in whole or in
part, in any previous year, or
(b)
as pension received from the annuity plan,
an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall
be deemed to be the income of the assessee or his nominee, as the case may be, in that
previous year in which such withdrawal is made or, as the case may be, pension is
received, and shall accordingly be chargeable to tax as income of that previous year.
(3) Where any amount paid or deposited by the assessee has been taken into account
for the purposes of this section, a rebate with reference to such amount shall not be
allowed under section 88.]
33a

[Deduction in respect of contribution to pension scheme of Central

Government.
80CCD. (1) Where an assessee, being an individual employed by the Central
Government on or after the 1st day of January, 2004, has in the previous year paid or
deposited any amount in his account under a pension scheme notified or as may be

notified by the Central Government, he shall, in accordance with, and subject to, the
provisions of this section, be allowed a deduction in the computation of his total
income, of the whole of the amount so paid or deposited as does not exceed ten per
cent of his salary in the previous year.
(2) Where, in the case of an assessee referred to in sub-section (1), the Central
Government makes any contribution to his account referred to in that sub-section, the
assessee shall be allowed a deduction in the computation of his total income, of the
whole of the amount contributed by the Central Government as does not exceed ten
per cent of his salary in the previous year.
(3) Where any amount standing to the credit of the assessee in his account referred to
in sub-section (1), in respect of which a deduction has been allowed under that subsection or sub-section (2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,
(a)
on account of closure or his opting out of the pension scheme referred
to in sub-section (1); or
(b)
as pension received from the annuity plan purchased or taken on such
closure or opting out,
the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be
the income of the assessee or his nominee, as the case may be, in the previous year in
which such amount is received, and shall accordingly be charged to tax as income of
that previous year.
(4) Where any amount paid or deposited by the assessee has been allowed as a
deduction under sub-section (1), no rebate with reference to such amount shall be
allowed under section 88.
Explanation.For the purposes of this section, salary includes dearness
allowance, if the terms of employment so provide, but excludes all other allowances
and perquisites.]
34

[Deduction in respect of medical insurance premia.

80D. (1) In computing the total income of an assessee, there shall be deducted at the
following rates, such sum as is specified in sub-section (2) and paid by him by cheque
in the previous year out of his income chargeable to tax, namely :
(i)
in a case where such sum does not exceed in the aggregate 35[ten]
thousand rupees, the whole of such sum; and
(ii)
in any other case, 35[ten] thousand rupees :
36
[Provided that where the sum specified in sub-section (2) is paid to effect or to keep
in force an insurance on the health of the assessee, or his wife or her husband or
dependant parents or any member of the family in case the assessee is a Hindu
undivided family, and who is a senior citizen, the provisions of this section shall have
effect as if for the words ten thousand rupees, the words fifteen thousand rupees
had been substituted.]
(2) The sum referred to in sub-section (1) shall be the following, namely :

(a)

where the assessee is an individual, any sum paid to effect or to keep in

force an insurance on the health of the assessee or on the health of the
wife or husband, dependent parents or dependent children of the
assessee;
(b)
where the assessee is a Hindu undivided family, any sum paid to effect
or to keep in force an insurance on the health of any member of the
family :
37
(c)
[* * *]
38
[Provided that such insurance shall be in accordance with a scheme 39 framed in this
behalf by
(a)
the General Insurance Corporation of India formed under section 9 of
the General Insurance Business (Nationalisation) Act, 1972 (57 of
1972) and approved by the Central Government in this behalf; or
(b)
any other insurer and approved by the Insurance Regulatory and
Development Authority established under sub-section (1) of section 3
of the Insurance Regulatory and Development Authority Act, 1999 (41
of 1999).]]
40
[Explanation.For the purpose of this section, senior citizen shall have the
meaning assigned to it in the Explanation to section 80DDB.]
41

[Deduction in respect of maintenance including medical treatment of a

dependant who is a person with disability.
80DD. (1) Where an assessee, being an individual or a Hindu undivided family, who
is a resident in India, has, during the previous year,
(a)
incurred any expenditure for the medical treatment (including
nursing), training and rehabilitation of a dependant, being a person
with disability; or
(b)
paid or deposited any amount under a scheme framed in this behalf by
the Life Insurance Corporation or any other insurer or the
Administrator or the specified company subject to the conditions
specified in sub-section (2) and approved by the Board in this behalf
for the maintenance of a dependant, being a person with disability,
the assessee shall, in accordance with and subject to the provisions
of this section, be allowed a deduction of a sum of fifty thousand
rupees from his gross total income in respect of the previous year:
Provided that where such dependant is a person with severe disability, the provisions
of this sub-section shall have effect as if for the words fifty thousand rupees, the
words seventy-five thousand rupees had been substituted.
(2) The deduction under clause (b) of sub-section (1) shall be allowed only if the
following conditions are fulfilled, namely:
(a)

the scheme referred to in clause (b) of sub-section (1) provides for

payment of annuity or lump sum amount for the benefit of a dependant,
being a person with disability, in the event of the death of the

individual or the member of the Hindu undivided family in whose name

subscription to the scheme has been made;
(b)
the assessee nominates either the dependant, being a person with
disability, or any other person or a trust to receive the payment on his
behalf, for the benefit of the dependant, being a person with disability.
(3) If the dependant, being a person with disability, predeceases the individual or the
member of the Hindu undivided family referred to in sub-section (2), an amount equal
to the amount paid or deposited under clause (b) of sub-section (1) shall be deemed to
be the income of the assessee of the previous year in which such amount is received
by the assessee and shall accordingly be chargeable to tax as the income of that
previous year.
(4) The assessee, claiming a deduction under this section, shall furnish a copy of the
certificate issued by the medical authority in the prescribed form and manner 41a,
along with the return of income under section 139, in respect of the assessment year
for which the deduction is claimed:
Provided that where the condition of disability requires reassessment of its extent
after a period stipulated in the aforesaid certificate, no deduction under this section
shall be allowed for any assessment year relating to any previous year beginning after
the expiry of the previous year during which the aforesaid certificate of disability had
expired, unless a new certificate is obtained from the medical authority in the form
and manner, as may be prescribed, and a copy thereof is furnished along with the
return of income.
Explanation.For the purposes of this section,
(a)
Administrator means the Administrator as referred to in clause (a) of
section 2 of the Unit Trust of India (Transfer of Undertaking and
Repeal) Act, 2002 (58 of 2002) 42;
(b)
dependant means
(i)

(ii)

(c)

in the case of an individual, the spouse, children,

parents, brothers and sisters of the individual or
any of them;

in the case of a Hindu undivided family, a member of the Hindu

undivided family,
dependant wholly or mainly on such individual or Hindu undivided
family for his support and maintenance, and who has not claimed any
deduction under section 80U in computing his total income for the
assessment year relating to the previous year;
disability shall have the meaning assigned to it in clause (i) of
section 2 43 of the Persons with Disabilities (Equal Opportunities,
Protection of Rights and Full Participation) Act, 1995 (1 of 1996)

43a

(d)
(e)

(f)

(g)

(g)

(h)

44

[and includes autism, cerebral palsy and multiple disability

referred to in clauses (a), (c) and (h) of section 2 of the National Trust
for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999)];
Life Insurance Corporation shall have the same meaning as in
clause (iii) of sub-section (8) of section 88;
medical authority means the medical authority as referred to in
clause (p) of section 2 43 of the Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995
(1 of 1996) 43a[or such other medical authority as may, by notification,
be specified by the Central Government for certifying autism,
cerebral palsy, multiple disabilities, person with disability and
severe disability referred to in clauses (a), (c), (h), (j) and (o) of
section 2 of the National Trust for Welfare of Persons with Autism,
Cerebral Palsy, Mental Retardation and Multiple Disabilities Act,
1999 (44 of 1999)];
person with disability means a person as referred to in clause (t) of
section 243b of the Persons with Disabilities (Equal Opportunities,
Protection of Rights and Full Participation) Act, 1995 (1 of 1996) 43c[or
clause (j) of section 2 of the National Trust for Welfare of Persons with
Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities
Act, 1999 (44 of 1999)];
person with severe disability means a person with eighty per cent or
more of one or more disabilities, as referred to in sub-section (4) of
section 5643b of the Persons with Disabilities (Equal Opportunities,
Protection of Rights and Full Participation) Act, 1995 (1 of 1996);
Clause (g) of Explanation to section 80DD shall be substituted by
the following by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
person with severe disability means
(i)
a person with eighty per cent or more of one or more
disabilities, as referred to in sub-section (4) of section 56 of the
Persons with Disabilities (Equal Opportunities, Protection of
Rights and Full Participation) Act, 1995 (1 of 1996); or
(ii)
a person with severe disability referred to in clause (o) of
section 2 of the National Trust for Welfare of Persons with
Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities Act, 1999 (44 of 1999);
specified company means a company as referred to in clause (h) of
section 243d of the Unit Trust of India (Transfer of Undertaking and
Repeal) Act, 2002 (58 of 2002).]

[Deduction in respect of medical treatment, etc.

80DDB. Where an assessee who is resident in India has, during the previous year,
actually paid any amount for the medical treatment of such disease or ailment as may
be specified in the rules44a made in this behalf by the Board
(a)
for himself or a dependant, in case the assessee is an individual; or

(b)

for any member of a Hindu undivided family, in case the assessee is a

Hindu undivided family,
the assessee shall be allowed a deduction of the amount actually paid or a sum of forty
thousand rupees, whichever is less, in respect of that previous year in which such
amount was actually paid :
Provided that no such deduction shall be allowed unless the assessee furnishes with
the return of income, a certificate in such form, as may be prescribed 44a, from a
neurologist, an oncologist, a urologist, a haematologist, an immunologist or such
other specialist, as may be prescribed44a, working in a Government hospital :
Provided further that the deduction under this section shall be reduced by the
amount received, if any, under an insurance from an insurer, or reimbursed by an
employer, for the medical treatment of the person referred to in clause (a) or clause
(b) :
Provided also that where the amount actually paid is in respect of the assessee or his
dependant or any member of a Hindu undivided family of the assessee and who is a
senior citizen, the provisions of this section shall have effect as if for the words forty
thousand rupees, the words sixty thousand rupees had been substituted.
Explanation.For the purposes of this section,
(i)
dependant means
(a) in the case of an individual, the spouse, children, parents, brothers and sisters
of the individual or any of them,
(b)

in the case of a Hindu undivided family, a member of the Hindu

undivided family,
dependant wholly or mainly on such individual or Hindu undivided family for his
support and maintenance;
(ii)

Government hospital includes a departmental dispensary whether

full-time or part-time established and run by a Department of the
Government for the medical attendance and treatment of a class or
classes of Government servants and members of their families, a
hospital maintained by a local authority and any other hospital with
which arrangements have been made by the Government for the
treatment of Government servants;

(iii)

insurer44b shall have the meaning assigned to it in clause (9) of

section 2 of the Insurance Act, 1938 (4 of 1938);

(iv)

senior citizen means an individual resident in India who is of the

age of sixty-five years or more at any time during the relevant previous
year.]

45

[Deduction in respect of repayment of loan taken for higher education.

80E. (1) In computing the total income of an assessee, being an individual, there
shall be deducted, in accordance with and subject to the provisions of this section, any
amount paid by him in the previous year, out of his income chargeable to tax, by way
of repayment of loan, taken by him from any financial institution or any approved
charitable institution for the purpose of pursuing his higher education, or interest on
such loan :
Provided that the amount which may be so deducted shall not exceed 46[forty]
thousand rupees.
(2) The deduction specified in sub-section (1) shall be allowed in computing the total
income in respect of the initial assessment year and seven assessment years
immediately succeeding the initial assessment year or until the loan referred to in subsection (1) together with interest thereon is paid by the assessee in full, whichever is
earlier.
(3) For the purposes of this section,
(a)
approved charitable institution means an institution specified in, or,
as the case may be, an institution established for charitable purposes
and notified by the Central Government under clause (23C) of section
10 or an institution referred to in clause (a) of sub-section (2) of
section 80G;
(b)
financial institution means 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); or any other
financial institution which the Central Government may, by
notification in the Official Gazette47, specify in this behalf;
47
(c)
higher education means full-time studies for any graduate or postgraduate course in engineering, medicine, management or for postgraduate course in applied sciences or pure sciences including
mathematics and statistics;
(d)
initial assessment year means the assessment year relevant to the
previous year, in which the assessee starts repaying the loan or interest
thereon.]
Deduction in respect of educational expenses in certain cases.
80F. 48[Omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Original section was
inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 in place of section 87A
which was inserted by the Finance Act, 1964, w.e.f. 1-4-1964. New section 80F,
dealing with deduction in respect of amounts applied for charitable or religious
purposes, etc., was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 14-1989. This section was omitted by the Direct Tax Laws (Amendment) Act, 1989,
with effect from the same date.]

49

Deduction in respect of donations to certain funds, charitable institutions, etc.

80G. 51[(1) In computing the total income of an assessee 52, there shall be deducted,
in accordance with and subject to the provisions of this section,
53
[(i) in a case where the aggregate of the sums specified in sub-section (2)
includes any sum or sums of the nature specified in 54[sub-clause (i) or
in] 55[sub-clause (iiia) 56[or in sub-clause (iiiaa) 57[or in sub-clause
(iiiab)] 58[or in sub-clause (iiie)] 59[or in sub-clause (iiif)] 60[or in subclause (iiig)] 61[or in sub-clause (iiiga)] or 62[sub-clause (iiih) or]
63
[sub-clause (iiiha) or sub-clause (iiihb) or sub-clause (iiihc) 64[or subclause (iiihd)] 65[or sub-clause (iiihe)] 66[or sub-clause (iiihf)] 67[or subclause (iiihg) or sub-clause (iiihh)] 68[or sub-clause (iiihi)] 69[or subclause (iiihj)] or] in] sub-clause (vii) of clause (a) 70[or in clause (c)]
71
[or in clause (d)] thereof, an amount equal to the whole of the sum or,
as the case may be, sums of such nature plus fifty per cent of the
balance of such aggregate; and]
(ii)
in any other case, an amount equal to fifty per cent of the aggregate of
the sums specified in sub-section (2).]
(2) The sums referred to in sub-section (1) shall be the following, namely :
(a)
any sums paid72 by the assessee in the previous year as donations to
(i)
the National Defence Fund set up by the Central Government;
or
(ii)
the Jawaharlal Nehru Memorial Fund referred to in the Deed of
Declaration of Trust adopted by the National Committee at its
meeting held on the 17th day of August, 1964; or
(iii)
the Prime Ministers Drought Relief Fund; or
73
[(iiia)
the Prime Ministers National Relief Fund; or]
74
[(iiiaa)
the Prime Ministers Armenia Earthquake Relief Fund;
or]
75
[(iiiab)
the Africa (Public Contributions - India) Fund; or]
76
[(iiib)
the National Childrens Fund; or]
77
[(iiic)
the Indira Gandhi Memorial Trust, the deed of
declaration in respect whereof was registered at New
Delhi on the 21st day of February, 1985; or]
78
[(iiid)
the Rajiv Gandhi Foundation, the deed of declaration in
respect whereof was registered at New Delhi on the 21st
day of June, 1991; or]
79
[(iiie)
the National Foundation for Communal Harmony; or]
80
[(iiif)
a University or any educational institution of national
eminence as may be approved81 by the prescribed
authority82 in this behalf; or]
83
[(iiig)
the Maharashtra Chief Ministers Relief Fund during the
period beginning on the 1st day of October, 1993 and
ending on the 6th day of October, 1993 or to the Chief
Ministers Earthquake Relief Fund, Maharashtra; or]
50

84

[(iiiga)

any fund set up by the State Government of Gujarat

exclusively for providing relief to the victims of
earthquake in Gujarat; or]
85
[(iiih)
any Zila Saksharta Samiti constituted in any district
under the chairmanship of the Collector of that district
for the purposes of improvement of primary education
in villages and towns in such district and for literacy
and post-literacy activities.
Explanation.For the purposes of this sub-clause,
town means a town which has a population not
exceeding one lakh according to the last preceding
census of which the relevant figures have been
published before the first day of the previous year ; or]
86
[(iiiha)
the National Blood Transfusion Council or to any State
Blood Transfusion Council which has its sole object the
control, supervision, regulation or encouragement in
India of the services related to operation and
requirements of blood banks.
Explanation.For the purposes of this sub-clause,
(a)
National Blood Transfusion Council means a
society registered under the Societies
Registration Act, 1860 (21 of 1860) and has an
officer not below the rank of an Additional
Secretary to the Government of India dealing
with the AIDS Control Project as its Chairman,
by whatever name called;
(b)
State Blood Transfusion Council means a
society registered, in consultation with the
National Blood Transfusion Council, 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 has Secretary to the
Government of that State dealing with the
Department of Health, as its Chairman, by
whatever name called; or
(iiihb)
any fund set up by a State Government to
provide medical relief to the poor; or
(iiihc)
the Army Central Welfare Fund or the Indian
Naval Benevolent Fund or the Air Force Central
Welfare Fund established by the armed forces of
the Union for the welfare of the past and present
members of such forces or their dependants; or]
87
[(iiihd)
the Andhra Pradesh Chief Ministers Cyclone
Relief Fund, 1996; or]
88
[(iiihe)
the National Illness Assistance Fund; or]
89
[(iiihf)
the Chief Ministers Relief Fund or the
Lieutenant Governors Relief Fund in respect of
any State or Union territory, as the case may be :

90

[(iiihg)

(iiihh)
91

[(iiihi)

92

[(iiihj)

(iv)
(v)

94 95

[ [(vi)

96

[(via)
(vii)

(b)

98

[(c)

Provided that such Fund is

(a)
the only Fund of its kind established in the State
or the Union territory, as the case may be;
(b)
under the overall control of the Chief Secretary
or the Department of Finance of the State or the
Union territory, as the case may be;
(c)
administered in such manner as may be specified
by the State Government or the Lieutenant
Governor, as the case may be; or]
the National Sports Fund to be set up by the Central
Government; or
the National Cultural Fund set up by the Central Government;
or]
the Fund for Technology Development and Application set up
by the Central Government; or]
the National Trust for Welfare of Persons with Autism, Cerebral
Palsy, Mental Retardation and Multiple Disabilities constituted
under sub-section (1) of section 3 of the National Trust for
Welfare of Persons with Autism, Cerebral Palsy, Mental
Retardation and Multiple Disabilities Act, 1999 (44 of 1999);
or]
any other fund or any institution to which this section applies;
or
the Government or any local authority, to be utilised for any
charitable purpose 93[other than the purpose of promoting
family planning; or]
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;]
any corporation referred to in clause (26BB) of section 10; or]
the Government or to any such local authority, institution or
association as may be approved in this behalf by the Central
Government, to be utilised for the purpose of promoting family
planning;]
any sums paid by the assessee in the previous year as donations
for the renovation or repair of any such temple, mosque,
gurdwara, church or other place as is notified 97 by the Central
Government in the Official Gazette to be of historic,
archaeological or artistic importance or to be a place of public
worship of renown throughout any State or States;
any sums paid by the assessee, being a company, in the
previous year as donations to the Indian Olympic Association
or to any other association or institution 99[established in India,
as the Central Government may, having regard to the prescribed

guidelines1, by notification in the Official Gazette, specify in

this behalf] for
(i)
the development of infrastructure for sports and games;
or
(ii)
the sponsorship of sports and games,
in India;]
2
[(d) any sums paid by the assessee, during the period beginning on the 26th
day of January, 2001 and ending on the 30th day of September, 2001,
to any trust, institution or fund to which this section applies for
providing relief to the victims of earthquake in Gujarat.]
3
(3) [Omitted by the Finance Act, 1994, w.e.f. 1-4-1994.]
4
[(4) Where the aggregate of the sums referred to in sub-clauses (iv), (v), (vi) 5[, (via)]
and (vii) of clause (a) and in 6[clauses (b) and (c)] of sub-section (2) exceeds ten per
cent of the gross total income (as reduced by any portion thereof on which income-tax
is not payable under any provision of this Act and by any amount in respect of which
the assessee is entitled to a deduction under any other provision of this Chapter), then
the amount in excess of ten per cent of the gross total income shall be ignored for the
purpose of computing the aggregate of the sums in respect of which deduction is to be
allowed under sub-section (1)].
(5) This section applies to donations to any institution or fund referred to in subclause (iv) of clause (a) of sub-section (2), only if it is established in India for a
charitable purpose and if it fulfils the following conditions, namely :
7
[(i) where the institution or fund derives any income, such income would
not be liable to inclusion in its total income under the provisions of
sections 11 and 12 8[* * *] 9[10[***]] 11[or clause (23AA)] 12[or clause
(23C)] of section 10 :
13
[Provided that where an institution or fund derives any income,
being profits and gains of business, the condition that such income
would not be liable to inclusion in its total income under the provisions
of section 11 shall not apply in relation to such income, if
(a)
the institution or fund maintains separate books of account in
respect of such business;
(b)
the donations made to the institution or fund are not used by it,
directly or indirectly, for the purposes of such business; and
(c)
the institution or fund issues to a person making the donation a
certificate to the effect that it maintains separate books of
account in respect of such business and that the donations
received by it will not be used, directly or indirectly, for the
purposes of such business;]]
(ii)
the instrument under which the institution or fund is constituted does
not, or the rules governing the institution or fund do not, contain any
provision for the transfer or application at any time of the whole or any
part of the income or assets of the institution or fund for any purpose
other than a charitable purpose;
(iii)
the institution or fund is not expressed to be for the benefit of any
particular religious community or caste;

(iv)

the institution or fund maintains regular accounts of its receipts and

expenditure; 14[* * *]
(v)
the institution or fund is either constituted as a public charitable trust or
is 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 or
under section 25 15 of the Companies Act, 1956 (1 of 1956), or is a
University established by law, or is any other educational institution
recognised by the Government or by a University established by law,
or affiliated to any University established by law, 16[17[***]] or is an
institution financed wholly or in part by the Government or a local
authority; 18[and]
19
[(vi) in relation to donations made after the 31st day of March, 1992, the
institution or fund is for the time being approved by the Commissioner
in accordance with the rules20 made in this behalf :
Provided that any approval shall have effect for such assessment year
or years, not exceeding 21[five] assessment years, as may be specified
in the approval.]
22
[(5A) Where a deduction under this section is claimed and allowed for any
assessment year in respect of any sum specified in sub-section (2), the sum in respect
of which deduction is so allowed shall not qualify for deduction under any other
provision of this Act for the same or any other assessment year.]
23
[(5B) Notwithstanding anything contained in clause (ii) of sub-section (5) and
Explanation 3, an institution or fund which incurs expenditure, during any previous
year, which is of a religious nature for an amount not exceeding five per cent of its
total income in that previous year shall be deemed to be an institution or fund to
which the provisions of this section apply.]
24
[(5C) This 25[section] applies in relation to amounts referred to in clause (d) of subsection (2) only if the trust or institution or fund is established in India for a charitable
purpose and it fulfils the following conditions, namely :
(i)
it is approved in terms of clause (vi) of sub-section (5);
(ii)
it maintains separate accounts of income and expenditure for providing
relief to the victims of earthquake in Gujarat;
(iii)
the donations made to the trust or institution or fund are applied only
for providing relief to the earthquake victims of Gujarat on or before
the 31st day of March, 26[2004];
27
[(iv) the amount of donation remaining unutilised on the 31st day of March,
26
[2004] is transferred to the Prime Ministers National Relief Fund on
or before the 31st day of March, 26[2004];]
(v)
it renders accounts of income and expenditure to such authority 28 and
in such manner as may be prescribed29, on or before the 30th day of
June, 26[2004].]
Explanation 1.An institution or fund established for the benefit of Scheduled
Castes, backward classes, Scheduled Tribes or of women and children shall not be
deemed to be an institution or fund expressed to be for the benefit of a religious
community or caste within the meaning of clause (iii) of sub-section (5).
30
[Explanation 2.For the removal of doubts, it is hereby declared that a deduction to
which the assessee is entitled in respect of any donation made to an institution or fund

to which sub-section (5) applies shall not be denied merely on either or both of the
following grounds, namely :
31
[(i) that, subsequent to the donation, any part of the income of the
institution or fund has become chargeable to tax due to noncompliance with any of the provisions of section 11, 32[section 12 or
section 12A];
(ii)
that, under clause (c) of sub-section (1) of section 13, the exemption
under section 11 33[or section 12] is denied to the institution or fund in
relation to any income arising to it from any investment referred to in
clause (h) of sub-section (2) of section 13 where the aggregate of the
funds invested by it in a concern referred to in the said clause (h) does
not exceed five per cent of the capital of that concern.]
Explanation 3.In this section, charitable purpose does not include any purpose
the whole or substantially the whole of which is of a religious nature.
34
[Explanation 4.For the purposes of this section, an association or institution
having as its object the control, supervision, regulation or encouragement in India of
such games or sports as the Central Government may, by notification in the Official
Gazette35, specify in this behalf, shall be deemed to be an institution established in
India for a charitable purpose.]
36
[Explanation 5.For the removal of doubts, it is hereby declared that no deduction
shall be allowed under this section in respect of any donation unless such donation is
of a sum of money.]
(6) 37[* * *]
38

[Deductions in respect of rents paid.39

80GG. In computing the total income of an assessee, not being an assessee having
any income falling within clause (13A) of section 10, there shall be deducted any
expenditure incurred by him in excess of ten per cent of his total income towards
payment of rent (by whatever name called) in respect of any furnished or unfurnished
accommodation occupied by him for the purposes of his own residence, to the extent
to which such excess expenditure does not exceed two thousand rupees per month or
twenty-five per cent of his total income for the year, whichever is less, and subject to
such other conditions or limitations as may be prescribed 40, having regard to the area
or place in which such accommodation is situated and other relevant considerations :
Provided that nothing in this section shall apply to an assessee in any case where any
residential accommodation is
(i)
owned by the assessee or by his spouse or minor child or, where such
assessee is a member of a Hindu undivided family, by such family at
the place where he ordinarily resides or performs duties of his office or
employment or carries on his business or profession; or
(ii)
owned by the assessee at any other place, being accommodation in the
occupation of the assessee, the value of which is to be determined
41
[under clause (a) of sub-section (2) or, as the case may be, clause (a)
of sub-section (4) of section 23].
Explanation.In this section, the expressions ten per cent of his total income and
twenty-five per cent of his total income shall mean ten per cent or twenty-five per

cent, as the case may be, of the assessees total income before allowing deduction for
any expenditure under this section.]
42

[Deduction in respect of certain donations for scientific research or rural

development.
80GGA. (1) In computing the total income of an assessee, there shall be deducted, in
accordance with and subject to the provisions of this section, the sums specified in
sub-section (2).
(2) The sums referred to in sub-section (1) shall be the following, namely :
(a)
any sum paid by the assessee in the previous year to a scientific
research association which has as its object the undertaking of
scientific research or to a University, college or other institution to be
used for scientific research :
Provided that such association, University, college or institution is for
the time being approved for the purposes of clause (ii) of sub-section
(1) of section 35;
43
[(aa) any sum paid by the assessee in the previous year to a University,
college or other institution to be used for research in social science or
statistical research :
Provided that such University, college or institution is for the time
being approved for the purposes of clause (iii) of sub-section (1) of
section 35;]
(b)
any sum paid by the assessee in the previous year
(i)
to an association or institution, which has as its object the
undertaking of any programme of rural development, to be used
for carrying out any programme of rural development approved
for the purposes of section 35CCA; or
(ii)
to an association or institution which has as its object the
training of persons for implementing programmes of rural
development :
44
[Provided that the assessee furnishes the certificate referred
to in sub-section (2) or, as the case may be, sub-section (2A) of
section 35CCA from such association or institution;]
45
[(bb) any sum paid by the assessee in the previous year to a public sector
company or a local authority or to an association or institution
approved by the National Committee, for carrying out any eligible
project or scheme :
Provided that the assessee furnishes the certificate referred to in clause
(a) of sub-section (2) of section 35AC from such public sector
company or local authority or, as the case may be, association or
institution.
Explanation.For the purposes of this clause, the expressions
National Committee and eligible project or scheme shall have the
meanings respectively assigned to them in the Explanation to section
35AC;]
46
[(c) 47[any sum paid by the assessee in any previous year ending on or
before the 31st day of March, 2002] to an association or institution,

which has as its object the undertaking of any programme of

conservation of natural resources 48[or of afforestation], to be used for
carrying out any programme of conservation of natural resources 48[or
of afforestation] approved for the purposes of section 35CCB :
Provided that the association or institution is for the time being
approved for the purposes of sub-section (2) of section 35CCB;]
49
[(cc) 47[any sum paid by the assessee in any previous year ending on or
before the 31st day of March, 2002] to such fund for afforestation as is
notified by the Central Government under clause (b) of sub-section (1)
of section 35CCB;]
50
[(d) any sum paid by the assessee in the previous year to a rural
development fund set up and notified by the Central Government for
the purposes of clause (c) of sub-section (1) of section 35CCA;]
51
[(e) any sum paid by the assessee in the previous year to the National
Urban Poverty Eradication Fund set up and notified by the Central
Government for the purposes of clause (d) of sub-section (1) of section
35CCA.]
(3) Notwithstanding anything contained in sub-section (1), no deduction under this
section shall be allowed in the case of an assessee whose gross total income includes
income which is chargeable under the head Profits and gains of business or
profession.
(4) Where a deduction under this section is claimed and allowed for any assessment
year in respect of any payments of the nature specified in sub-section (2), deduction
shall not be allowed in respect of such payments under any other provision of this Act
for the same or any other assessment year.]]
52

[Deduction in respect of contributions given by companies to political parties.

80GGB. In computing the total income of an assessee, being an Indian company,
there shall be deducted any sum contributed by it, in the previous year to any political
party.
Explanation.For the removal of doubts, it is hereby declared that for the purposes of
this section, the word contribute, with its grammatical variation, has the meaning
assigned to it under section 293A52a of the Companies Act, 1956 (1 of 1956).
Deduction in respect of contributions given by any person to political parties.
80GGC. In computing the total income of an assessee, being any person, except local
authority and every artificial juridical person wholly or partly funded by the
Government, there shall be deducted any amount of contribution made by him, in the
previous year, to a political party.
Explanation.For the purposes of sections 80GGB and 80GGC, political party
means a political party registered under section 29A of the Representation of the
People Act, 1951 (43 of 1951).]

53

[Deduction in respect of profits and gains from newly established industrial

undertakings or hotel business in backward areas.
54
80HH. (1) Where the gross total income of an assessee includes any profits and
gains derived55 from an industrial undertaking55, or the business of a hotel, to which
this section applies, there shall, in accordance with and subject to the provisions of
this section, be allowed, in computing the total income of the assessee, a deduction
from such profits and gains of an amount equal to twenty per cent thereof.
(2) This section applies to any industrial undertaking which fulfils all
the following conditions, namely :
it has begun or begins to manufacture or produce 55a articles55a after the
31st day of December, 1970 56[but before the 1st day of April, 1990], in
any backward area;
(ii)
it is not formed by the splitting up, or the reconstruction, of a business
already in existence in any backward area :
Provided that this condition shall not apply in respect of any industrial
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 in any backward area;
(iv)
it employs ten or more workers57 in a manufacturing process carried on
with the aid of power, or employs twenty or more workers in a
manufacturing process carried on without the aid of power.
Explanation.Where any machinery or plant or any part thereof previously used for
any purpose in any backward area is transferred to a new business in that area or in
any other backward area and the total value of the machinery or plant or part so
transferred does not exceed twenty per cent of the total value of the machinery or
plant used in the business, then, for the purposes of clause (iii) of this sub-section, the
condition specified therein shall be deemed to have been fulfilled.
(3) This section applies to the business of any hotel, where all the following
conditions are fulfilled, namely :
(i)
the business of the hotel has started or starts functioning after the 31st
day of December, 1970 58[but before the 1st day of April, 1990], in any
backward area;
(ii)
the business of the hotel is not formed by the splitting up, or the
reconstruction, of a business already in existence;
(iii)
the hotel is for the time being approved for the purposes of this subsection by the Central Government.
(i)

(4) The deduction specified in sub-section (1) shall be allowed in

computing the total income in respect of each of the ten
assessment years beginning with the assessment year relevant to
the previous year in which the industrial undertaking begins to

manufacture or produce articles or the business of the hotel starts

functioning :
Provided that,
(i)
in the case of an industrial undertaking which has begun to
manufacture or produce articles, and
(ii)
in the case of the business of a hotel which has started functioning,
after the 31st day of December, 1970, but before the 1st day of
April, 1973, this sub-section shall have effect as if the reference to
ten assessment years were a reference to ten assessment years as
reduced by the number of assessment years which expired before
the 1st day of April, 1974.
(5) Where the assessee is a person other than a company or a co-operative society, the
deduction under sub-section (1) shall not be admissible unless the accounts of the
industrial undertaking or the business of the hotel for the previous year relevant to the
assessment year for which the deduction is claimed have been audited by an
accountant as defined in the Explanation below sub-section (2) of section 288 and the
assessee furnishes, along with his return of income, the report of such audit in the
prescribed form59 duly signed and verified by such accountant.
(6) Where any goods held for the purposes of the business of the industrial
undertaking or the hotel are transferred to any other business carried on by the
assessee, or where any goods held for the purposes of any other business carried on by
the assessee are transferred to the business of the industrial undertaking or the hotel
and, in either case, the consideration, if any, for such transfer as recorded in the
accounts of the business of the industrial undertaking or the hotel does not correspond
to the market value of such goods as on the date of the transfer, then, for the purposes
of the deduction under this section, the profits and gains of the industrial undertaking
or the business of the hotel shall be computed as if the transfer, in either case, had
been made at the market value of such goods as on that date :
Provided that where, in the opinion of the 60[Assessing] Officer, the computation of
the profits and gains of the industrial undertaking or the business of the hotel in the
manner hereinbefore specified presents exceptional difficulties, the 61[Assessing]
Officer may compute such profits and gains on such reasonable basis as he may deem
fit.
Explanation.In this sub-section, market value in relation to any goods means the
price that such goods would ordinarily fetch on sale in the open market.
(7) Where it appears to the 61[Assessing] Officer that, owing to the close connection
between the assessee carrying on the business of the industrial undertaking or the
hotel to which this section applies and any other person, or for any other reason, the
course of business between them is so arranged that the business transacted between
them produces to the assessee more than the ordinary profits which might be expected
to arise in the business of the industrial undertaking or the hotel, the 61[Assessing]
Officer shall, in computing the profits and gains of the industrial undertaking or the
hotel for the purposes of the deduction under this section, take the amount of profits
as may be reasonably deemed to have been derived therefrom.
(8) 62[***]

(9) In a case where the assessee is entitled also to the deduction under 63[section 80-I
or] section 80J in relation to the profits and gains of an industrial undertaking or the
business of a hotel to which this section applies, effect shall first be given to the
provisions of this section.
64
[(9A) Where a deduction in relation to the profits and gains of a small-scale
industrial undertaking to which section 80HHA applies is claimed and allowed under
that section for any assessment year, deduction in relation to such profits and gains
shall not be allowed under this section for the same or any other assessment year.]
(10) Nothing contained in this section shall apply in relation to any undertaking
engaged in mining.
65
[(11) For the purposes of this section, backward area means such area as the
Central Government may, having regard to the stage of development of that area, by
notification66 in the Official Gazette, specify in this behalf :
Provided that any notification under this sub-section may be issued so as to have
retrospective effect to a date not earlier than the 1st day of April, 1983.]
67

[Deduction in respect of profits and gains from newly established small-scale

industrial undertakings in certain areas.
68
80HHA. (1) Where the gross total income of an assessee includes any profits and
gains derived from a small-scale industrial undertaking to which this section applies,
there shall, in accordance with and subject to the provisions of this section, be
allowed, in computing the total income of the assessee, a deduction from such profits
and gains of an amount equal to twenty per cent thereof.
(2) This section applies to any small-scale industrial undertaking which fulfils all the
following conditions, namely :
(i)
it begins to manufacture or produce articles after the 30th day of
September, 1977 69[but before the 1st day of April, 1990], in any rural
area ;
(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 smallscale 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 ;
(iv)
it employs ten or more workers in a manufacturing process carried on
with the aid of power, or employs twenty or more workers in a
manufacturing process carried on without the aid of power.
Explanation.Where in the case of a small-scale industrial undertaking, any
machinery or plant or any part thereof previously used for any purpose is transferred
to a new business and the total value of the machinery or plant or part so transferred
does not exceed twenty per cent of the total value of the machinery or plant used in
the business, then, for the purposes of clause (iii) of this sub-section, the condition
specified therein shall be deemed to have been fulfilled.

(3) The deduction specified in sub-section (1) shall be allowed in computing the total
income 70[of each of the ten previous years beginning with the previous year in which
the industrial undertaking] begins to manufacture or produce articles :
71
[Provided that such deduction shall not be allowed in computing the total income of
any of the ten previous years aforesaid in respect of which the industrial undertaking
is not a small-scale industrial undertaking within the meaning of clause (b) of the
Explanation below sub-section (8).]
(4) Where the assessee is a person, other than a company or a co-operative society, the
deduction under sub-section (1) shall not be admissible unless the accounts of the
small-scale industrial undertaking for the previous year relevant to the assessment
year for which the deduction is claimed have been audited by an accountant as
defined in the Explanation below sub-section (2) of section 288 and the assessee
furnishes, along with his return of income, the report of such audit in the prescribed
form72 duly signed and verified by such accountant.
(5) The provisions of sub-sections (6) and (7) of section 80HH shall, so far as may be,
apply in relation to the computation of the profits and gains of a small-scale industrial
undertaking for the purposes of the deduction under this section as they apply in
relation to the computation of the profits and gains of an industrial undertaking for the
purposes of the deduction under that section.
(6) In a case where the assessee is entitled also to the deduction under 73[section 80-I
or] section 80J in relation to the profits and gains of a small-scale industrial
undertaking to which this section applies, effect shall first be given to the provisions
of this section.
(7) Where a deduction in relation to the profits and gains of a small-scale industrial
undertaking to which section 80HH applies is claimed and allowed under that section
for any assessment year, deduction in relation to such profits and gains shall not be
allowed under this section for the same or any other assessment year.
(8) Nothing contained in this section shall apply in relation to any small-scale
industrial undertaking engaged in mining.
Explanation.For the purposes of this section,
74
[(a) rural area means any area other than
(i)
an area which is comprised within the jurisdiction of a
municipa-lity (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
(ii)
an area within such distance, not being more than fifteen kilometres from the local limits of any municipality or cantonment
board referred to in sub-clause (i), as the Central Government
may, having regard to the stage of development of such area
(including the extent of, and scope for, urbanisation of such
area) and other relevant considerations specify in this behalf by
notification75 in the Official Gazette ;]
76
[(b) an industrial undertaking shall be deemed to be a small-scale industrial
undertaking which is, on the last day of the previous year, regarded as

a small-scale industrial undertaking under section 11B77 of the

Industries (Development and Regulation) Act, 1951 (65 of 1951)].
78

[Deduction in respect of profits and gains from projects outside India.

80HHB. (1) Where the gross total income of an assessee being an Indian company
or a person (other than a company) who is resident in India includes any profits and
gains derived from the business of80
(a)
the execution of a foreign project80 undertaken by the assessee in
pursuance of a contract entered into by him, or
(b)
the execution of any work undertaken by him and forming part of a
foreign project80 undertaken by any other person in pursuance of a
contract entered into by such other person,
with the Government of a foreign State or any statutory or other public authority or
agency in a foreign State, or a foreign enterprise, there shall, in accordance with and
subject to the provisions of this section, be allowed, in computing the total income of
the assessee, 81[a deduction from such profits and gains of an amount equal to
(i)
forty per cent thereof for an assessment year beginning on the 1st day
of April, 2001;
(ii)
thirty per cent thereof for an assessment year beginning on the 1st day
of April, 2002;
(iii)
twenty per cent thereof for an assessment year beginning on the 1st day
of April, 2003;
(iv)
ten per cent thereof for an assessment year beginning on the 1st day of
April, 2004,
79

and no deduction shall be allowed in respect of the assessment year

beginning on the 1st day of April, 2005 and any subsequent
assessment year] :
Provided that the consideration for the execution of such project or, as the case may
be, of such work is payable in convertible foreign exchange.
(2) For the purposes of this section,
(a)
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 ;
(b)
foreign project means a project for
(i)
the construction of any building, road, dam, bridge or other
structure outside India ;
(ii)
the assembly or installation of any machinery or plant outside
India ;
(iii)
the execution of such other work (of whatever nature) as may
be prescribed82.

(3) The deduction under this section shall be allowed only if the
following conditions are fulfilled, namely :
(i)

the assessee maintains separate accounts in respect of the profits and

gains derived from the business of the execution of the foreign project,
or, as the case may be, of the work forming part of the foreign project
undertaken by him and, where the assessee is a person other than an
Indian company or a co-operative society, such accounts have been
audited by an accountant as defined in the Explanation below subsection (2) of section 288 and the assessee furnishes, along with his
return of income, the report of such audit in the prescribed form 83 duly
signed and verified by such accountant ;
84
[(ia) the assessee furnishes, along with his return of income, a certificate in
the prescribed form85 from an accountant as defined in the Explanation
below sub-section (2) of section 288, duly signed and verified by such
accountant, certifying that the deduction has been correctly claimed in
accordance with the provisions of this section ;]
(ii)
an amount equal to 86[such percentage of the profits and gains as is
referred to in sub-section (1) in relation to the relevant assessment
year] is debited to the profit and loss account of the previous year in
respect of which the deduction under this section is to be allowed and
credited to a reserve account (to be called the Foreign Projects
Reserve Account) to be utilised by the assessee during a period of five
years next following for the purposes of his business other than for
distribution by way of dividends or profits ;
(iii)
an amount equal to 86[such percentage of the profits and gains as is
referred to in sub-section (1) in relation to the relevant assessment
year] is brought by the assessee in convertible foreign exchange into
India, in accordance with the provisions of the Foreign Exchange
Regulation Act, 1973 (46 of 1973), and any rules made thereunder,
within a period of six months from the end of the previous year
referred to in clause (ii) or, 87[within such further period as the
competent authority may allow in this behalf] :
Provided that where the amount credited by the assessee to the Foreign Projects
Reserve Account in pursuance of clause (ii) or the amount brought into India by the
assessee in pursuance of clause (iii) or each of the said amounts is less than 88[such
percentage of the profits and gains as is referred to in sub-section (1) in relation to the
relevant assessment year], the deduction under that sub-section shall be limited to the
amount so credited in pursuance of clause (ii) or the amount so brought into India in
pursuance of clause (iii), whichever is less.
89
[Explanation.For the purposes of clause (iii), the expression competent authority
means the Reserve Bank of India or such other authority as is authorised under any
law for the time being in force for regulating payments and dealings in foreign exchange.]
(4) If at any time before the expiry of five years from the end of the previous year in
which the deduction under sub-section (1) is allowed, the assessee utilises the amount
credited to the Foreign Projects Reserve Account for distribution by way of dividends
or profits or for any other purpose which is not a purpose of the business of the
assessee, the deduction originally allowed under sub-section (1) shall be deemed to

have been wrongly allowed, and the 90[Assessing] Officer may, notwithstanding
anything contained in this Act, recompute the total income of the assessee for the
relevant previous year and make the necessary amendment; and the provisions of
section 154 shall, so far as may be, apply thereto, the period of four years specified in
sub-section (7) of that section being reckoned from the end of the previous year in
which the money was so utilised.
(5) Notwithstanding anything contained in any other provision of this Chapter under
the heading C.Deductions in respect of certain incomes, no part of the
consideration or of the income comprised in the consideration payable to the assessee
for the execution of a foreign project referred to in clause (a) of sub-section (1) or of
any work referred to in clause (b) of that sub-section shall qualify for deduction for
any assessment year91 under any such other provision.]
92

[Deduction in respect of profits and gains from housing projects in certain

cases.
80HHBA. (1) Where the gross total income of an assessee being an Indian company
or a person (other than a company) who is a resident in India includes any profits and
gains derived from the execution of a housing project awarded to the assessee on the
basis of global tender and such project is aided by the World Bank, there shall, in
accordance with and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, 93[a deduction from such profits and gains
of an amount equal to
(i)
forty per cent thereof for an assessment year beginning on the 1st day
of April, 2001;
(ii)
thirty per cent thereof for an assessment year beginning on the 1st day
of April, 2002;
(iii)
twenty per cent thereof for an assessment year beginning on the 1st day
of April, 2003;
(iv)
ten per cent thereof for an assessment year beginning on the 1st day of
April, 2004,
and no deduction shall be allowed in respect of the
assessment year beginning on the 1st day of April, 2005
and any subsequent assessment year].
(2) The deductions under this section shall be allowed only if the following conditions
are fulfilled, namely :
(i)
the assessee maintains separate accounts in respect of the profits and
gains derived from the business of the execution of the housing project
undertaken by him and, where the assessee is a person other than an
Indian company or a co-operative society, such accounts have been
audited by an accountant as defined in the Explanation below subsection (2) of section 288 and the assessee furnishes along with his
return of income the report of such audit in the prescribed form 94 duly
signed and verified by such accountant;
(ii)
an amount equal to 95[such percentage of the profits and gains as is
referred to in sub-section (1) in relation to the relevant assessment
year] is debited to the profits and loss account of the previous year in

respect of which the deduction under this section is to be allowed and

credited to a reserve account (to be called the Housing Projects
Reserve Account) to be utilised by the assessee during a period of five
years next following for the purposes of his business other than for
distribution by way of dividends or profit :
Provided that where the amount credited by the assessee to the Housing Projects
Reserve Account in pursuance of clause (ii) is less than 95[such percentage of the
profits and gains as is referred to in sub-section (1) in relation to the relevant
assessment year], the deduction under this section shall be limited to the amount so
credited in pursuance of clause (ii).
(3) If at any time before the expiry of five years from the end of the previous year in
which the deduction under sub-section (1) is allowed, the assessee utilises the amount
credited to the Housing Projects Reserve Account for distribution by way of dividends
or profit or for any other purpose which is not a purpose of the business of the
assessee, the deduction originally allowed under sub-section (1) shall be deemed to
have been wrongly allowed and the Assessing Officer may, notwithstanding anything
contained in this Act, recompute the total income of the assessee for the relevant
previous year and make necessary amendment and the provision of section 154 shall,
so far as may be, apply thereto, the period of four years specified in sub-section (7) of
that section being reckoned from the end of the previous year in which the money was
so utilised.
(4) Notwithstanding anything contained in any other provision of this Chapter under
heading C.Deduction in respect of certain incomes, no part of the income payable
to the assessee for the execution of a housing project under sub-section (1) shall
qualify for deduction for any assessment year under any other provision.
Explanation.For the purposes of this section,
(a)
housing project means a project for
(i)
the construction of any building, road, bridge or other structure
in any part of India;
(ii)
the execution of such other work (of whatever nature) as may
be prescribed;
(b)
World Bank means the International Bank for Reconstruction and
Development Bank referred to in the International Monetary Fund and
Bank Act, 1945.]
96

[Deduction in respect of profits retained for export business.

80HHC. 98[(1) Where an assessee, being an Indian company or a person (other than
a company) resident in India, is engaged in the business of export out of India of any
goods or merchandise to which this section applies, there shall, in accordance with
and subject to the provisions of this section, be allowed, in computing the total
income of the assessee, 99[a deduction to the extent of profits 1, referred to in subsection (1B),] derived by the assessee from the export of such goods or merchandise :
Provided that if the assessee, being a holder of an Export House Certificate or a
Trading House Certificate (hereafter in this section referred to as an Export House or a
Trading House, as the case may be,) issues a certificate referred to in clause (b) of
sub-section (4A), that in respect of the amount of the export turnover specified
therein, the deduction under this sub-section is to be allowed to a supporting
manufacturer, then the amount of deduction in the case of the assessee shall be
97

reduced by such amount which bears to the 2[total profits derived by the assessee from
the export of trading goods, the same proportion as the amount of export turnover
specified in the said certificate bears to the total export turnover of the assessee in
respect of such trading goods].
(1A) Where the assessee, being a supporting manufacturer, has during the previous
year, sold goods or merchandise to any Export House or Trading House in respect of
which the Export House or Trading House has issued a certificate under the proviso to
sub-section (1), there shall, in accordance with and subject to the provisions of this
section, be allowed in computing the total income of the assessee, 3[a deduction to the
extent of profits, referred to in sub-section (1B),] derived by the assessee from the sale
of goods or merchandise to the Export House or Trading House in respect of which
the certificate has been issued by the Export House or Trading House.]
4
[(1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of the
profits shall be an amount equal to
(i)
eighty per cent thereof for an assessment year beginning on the 1st day
of April, 2001;
5
[(ii) seventy per cent thereof for an assessment year beginning on the 1st
day of April, 2002;
(iii)
fifty per cent thereof for an assessment year beginning on the 1st day
of April, 2003;
(iv)
thirty per cent thereof for an assessment year beginning on the 1st day
of April, 2004,]
and no deduction shall be allowed in respect of the assessment year beginning on the
1st day of April, 2005 and any subsequent assessment year.]
(2)(a) This section applies to all goods or merchandise, other than those specified in
clause (b), if the sale proceeds6 of such goods or merchandise exported out of India
are 7[received in, or brought into, India] by the assessee 8[(other than the supporting
manufacturer)] in convertible foreign exchange 9[, within a period of six months from
the end of the previous year or, 10[within such further period as the competent
authority may allow in this behalf].]
11
[Explanation.For the purposes of this clause, the expression competent authority
means the Reserve Bank of India or such other authority as is authorised under any
law for the time being in force for regulating payments and dealings in foreign exchange.]
(b) This section does not apply to the following goods or merchandise, namely :
(i)
mineral oil ; and
(ii)
minerals12 and ores 13[(other than processed minerals and ores specified
in the Twelfth Schedule)].
14
[Explanation 1.The sale proceeds referred to in clause (a) shall be deemed to have
been received in India where such sale proceeds are credited to a separate account
maintained for the purpose by the assessee with any bank outside India with the
approval of the Reserve Bank of India.
Explanation 2.For the removal of doubts, it is hereby declared that where any goods
or merchandise are transferred by an assessee to a branch, office, warehouse or any
other establishment of the assessee situate outside India and such goods or

merchandise are sold from such branch, office, warehouse or establishment, then,
such transfer shall be deemed to be export out of India of such goods and merchandise
and the value of such goods or merchandise declared in the shipping bill or bill of
export as referred to in sub-section (1) of section 5015 of the Customs Act, 1962 (52 of
1962), shall, for the purposes of this section, be deemed to be the sale proceeds
thereof.]
16
[(3) For the purposes of sub-section (1),
(a)
where the export out of India is of goods or merchandise manufactured
17
[or processed] by the assessee, the profits 18 derived from such export
shall be the amount which bears to the profits of the business 19, the
same proportion as the export turnover in respect of such goods bears
to the total turnover of the business carried on by the assessee ;
(b)
where the export out of India is of trading goods, the profits derived
from such export shall be the export turnover19 in respect of such
trading goods as reduced by the direct costs and indirect costs
attributable to such export ;
(c)
where the export out of India is of goods or merchandise manufactured
20
[or processed] by the assessee and of trading goods, the profits
derived from such export shall,
(i)
in respect of the goods or merchandise manufactured 20[or
processed] by the assessee, be the amount which bears to the
adjusted profits of the business, the same proportion as the
adjusted export turnover in respect of such goods bears to the
adjusted total turnover of the business carried on by the assessee ; and
(ii)
in respect of trading goods, be the export turnover in respect of
such trading goods as reduced by the direct and indirect costs
attributable to export of such trading goods :
Provided that the profits computed under clause (a) or clause (b) or clause (c) of this
sub-section shall be further increased by the amount which bears to ninety per cent of
any sum referred to in clause (iiia) (not being profits on sale of a licence acquired
from any other person), and clauses (iiib) and (iiic) of section 28, the same proportion
as the export turnover bears to the total turnover of the business carried on by the
assessee.
Explanation.For the purposes of this sub-section,
(a)
adjusted export turnover means the export turnover as reduced by the
export turnover in respect of trading goods ;
(b)
adjusted profits of the business means the profits of the business as
reduced by the profits derived from the business of export out of India
of trading goods as computed in the manner provided in clause (b) of
sub-section (3) ;
(c)
adjusted total turnover means the total turnover of the business as
reduced by the export turnover in respect of trading goods ;
(d)
direct costs means costs directly attributable to the trading goods
exported out of India including the purchase price of such goods ;

(e)

indirect costs means costs, not being direct costs, allocated in the
ratio of the export turnover in respect of trading goods to the total
turnover ;
(f)
trading goods means goods which are not manufactured 20[or
processed] by the assessee.]
21
[(3A) For the purposes of sub-section (1A), profits derived by a supporting
manufacturer from the sale of goods or merchandise shall be,
(a)
in a case where the business carried on by the supporting manufacturer
consists exclusively of sale of goods or merchandise to one or more
Export Houses or Trading Houses, the profits of the business 22[***] ;
(b)
in a case where the business carried on by the supporting manufacturer
does not consist exclusively of sale of goods or merchandise to one or
more Export Houses or Trading Houses, the amount which bears to the
profits of the business 23[***] the same proportion as the turnover in
respect of sale to the respective Export House or Trading House bears
to the total turnover of the business carried on by the assessee.]
24
[(4) The deduction under sub-section (1) shall not be admissible unless the assessee
furnishes in the prescribed form25, along with the return of income, the report of an
accountant, as defined in the Explanation below sub-section (2) of section 288,
certifying that the deduction has been correctly claimed 26[in accordance with the
provisions of this section:]]
27
[Provided that in the case of an undertaking referred to in sub-section (4C), the
assessee shall also furnish along with the return of income, a certificate from the
undertaking in the special economic zone containing such particulars as may be
prescribed27a, duly certified by the auditor auditing the accounts of the undertaking in
the special economic zone under the provisions of this Act or under any other law for
the time being in force.]
28
[(4A) The deduction under sub-section (1A) shall not be admissible unless the
supporting manufacturer furnishes in the prescribed form along with his return of
income,
(a)
the report of an accountant29, as defined in the Explanation below subsection (2) of section 288, certifying that the deduction has been
correctly claimed on the basis of the 30[profits] of the supporting
manufacturer in respect of his sale of goods or merchandise to the
Export House or Trading House ; and
(b)
a certificate from the Export House or Trading House containing such
particulars as may be prescribed and verified in the manner
prescribed31 that in respect of the export turnover mentioned in the
certificate, the Export House or Trading House has not claimed the
deduction under this section :
Provided that the certificate specified in clause (b) shall be duly
certified by the auditor auditing the accounts of the Export House or
Trading House under the provisions of this Act or under any other law.]
32
[(4B) For the purposes of computing the total income under sub-section (1) or subsection (1A), any income not charged to tax under this Act shall be excluded.]
33
[(4C) The provisions of this section shall apply to an assessee,

(a)

for an assessment year beginning after the 31st day of March, 2004
and ending before the 1st day of April, 2005;
(b)
who owns any undertaking which manufactures or produces goods or
merchandise anywhere in India (outside any special economic zone)
and sells the same to any undertaking situated in a special economic
zone which is eligible for deduction under section 10A and such sale
shall be deemed to be export out of India for the purposes of this
section.]
Explanation.For the purposes of this section,
(a)
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 ;
34
[(aa) export out of India shall not include any transaction by way of sale
or otherwise, in a shop,35emporium or any other establishment situate
in India, not involving clearance at any customs station 36 as defined in
the Customs Act, 1962 (52 of 1962) ;]
(b)
export turnover means the sale proceeds 37[, received in, or brought
into, India] by the assessee in convertible foreign exchange 38[in
accordance with clause (a) of sub-section (2)] of any goods or
merchandise to which this section applies and which are exported out
of India, but does not include freight or insurance attributable to the
transport of the goods or merchandise beyond the customs station36 as
defined in the Customs Act, 1962 (52 of 1962) ;]
39
[(ba) total turnover shall not include freight or insurance attributable to the
transport of the goods or merchandise beyond the customs station as
defined in the Customs Act, 1962 (52 of 1962) :
Provided that in relation to any assessment year commencing on or
after the 1st day of April, 1991, the expression total turnover shall
have effect as if it also excluded any sum referred to in clauses (iiia),
(iiib) and (iiic) of section 28 ;]
40
[(baa) profits of the business means the profits of the business as computed
under the head Profits and gains of business or profession as
reduced by
(1) ninety per cent of any sum referred to in clauses (iiia), (iiib)
and (iiic) of section 28 or of any receipts by way of
brokerage, commission, interest, rent, charges or any other
receipt of a similar nature included in such profits40a; and
(2) the profits of any branch, office, warehouse or any other
establishment of the assessee situate outside India ;]
41
[***]
42
[***]
43 44
[ [(c)]
Export House Certificate or Trading House Certificate
means a valid Export House Certificate or Trading House
Certificate, as the case may be, issued by the Chief Controller
of Imports and Exports, Government of India ;

44

[(d)]

46

[(e)

47

supporting manufacturer means a person being an Indian

company or a person (other than a company) resident in India,
45
[manufacturing (including processing) goods] or merchandise
and selling such goods or merchandise to an Export House or a
Trading House for the purposes of export;]
special economic zone shall have the meaning assigned to it
in clause (viii) of the Explanation 2 to section 10A.]

[Deduction in respect of earnings in convertible foreign exchange.

80HHD. (1) Where an assessee, being an Indian company or a person (other than a
company) resident in India, is engaged in the business of a hotel or of a tour operator,
approved by the prescribed authority48 in this behalf or of a travel agent, there shall, in
accordance with and subject to the provisions of this section, be allowed, 49[in
computing the total income of the assessee
(a)
for an assessment year beginning on the 1st day of April, 2001, a
deduction of a sum equal to the aggregate of
(i)
forty per cent of the profits derived by him from services
provided to foreign tourists; and
(ii)
so much of the amount not exceeding forty per cent of the
profits referred to in sub-clause (i) as is debited to the profit and
loss account of the previous year in respect of which the
deduction is to be allowed and credited to a reserve account to
be utilised for the purposes of the business of the assessee in
the manner laid down in sub-section (4);
(b)
for an assessment year beginning on the 1st day of April, 2002, a
deduction of a sum equal to the aggregate of
(i)
thirty per cent of the profits derived by him from services
provided to foreign tourists; and
(ii)
so much of the amount not exceeding thirty per cent of the
profits referred to in sub-clause (i) as is debited to the profit and
loss account of the previous year in respect of which the
deduction is to be allowed and credited to a reserve account to
be utilised for the purposes of the business of the assessee in
the manner laid down in sub-section (4);
(c)
for an assessment year beginning on the 1st day of April, 2003, a
deduction of a sum equal to the aggregate of
50
(i)
[twenty-five] per cent of the profits derived by him from
services provided to foreign tourists; and
(ii)
so much of the amount not exceeding 50[twenty-five] per cent of
the profits referred to in sub-clause (i) as is debited to the profit
and loss account of the previous year in respect of which the
deduction is to be allowed and credited to a reserve account to
be utilised for the purposes of the business of the assessee in
the manner laid down in sub-section (4);
(d)
for an assessment year beginning on the 1st day of April, 2004, a
deduction of a sum equal to the aggregate of

(i)
(ii)

51

[fifteen] per cent of the profits derived by him from services

provided to foreign tourists; and
so much of the amount not exceeding 51[fifteen] per cent of the
profits referred to in sub-clause (i) as is debited to the profit and
loss account of the previous year in respect of which the
deduction is to be allowed and credited to a reserve account to
be utilised for the purposes of the business of the assessee in
the manner laid down in sub-section (4),

and no deduction shall be allowed in respect of the assessment year

beginning on the 1st day of April, 2005 and any subsequent
assessment year] :
52

[Provided that a hotel or, as the case may be, a tour operator approved by the
prescribed authority on or after the 30th day of November, 1989 and before the 1st
day of October, 1991, shall be deemed to have been approved by the prescribed
authority for the purposes of this section in relation to the assessment year
commencing on the 1st day of April, 1989 or the 1st day of April, 1990 or, as the case
may be, the 1st day of April, 1991 if the assessee was engaged in the business of such
hotel or as such tour operator during the previous year relevant to any of the said
assessment years.]
(2) This section applies only to services provided to foreign tourists the receipts in
relation to which are received 53[in, or brought into, India by the assessee in
convertible foreign exchange within a period of six months from the end of the
previous year or, 54[within such further period as the competent authority may allow in
this behalf].]
55
[Explanation 56[1].For the purposes of this sub-section, any payment received by
an assessee, engaged in the business of a hotel or of a tour operator or of a travel
agent, in Indian currency obtained by conversion of foreign exchange brought into
India through an authorised dealer, 57[from another hotelier, tour operator or travel
agent, as the case may be,] on behalf of a foreign tourist or group of foreign tourists,
shall be deemed to have been received by the assessee in convertible foreign exchange
if the person making the payment furnishes to the assessee a certificate specified in
sub-section (2A).
58
[Explanation 2.For the purposes of this sub-section, the expression competent
authority means the Reserve Bank of India or such other authority as is authorised
under any law for the time being in force for regulating payments and dealings in
foreign exchange.]
(2A) Every person making payment to an assessee referred to in the Explanation 58[1]
to sub-section (2) out of Indian currency obtained by conversion of foreign exchange
received from or on behalf of a foreign tourist or a group of foreign tourists shall
furnish to that assessee a certificate in the prescribed form 59 indicating the amount
received in foreign exchange, its conversion into Indian currency and such other
particulars as may be prescribed.]
60
[(3) For the purposes of sub-section (1), profits derived from services provided to
foreign tourists shall be the amount which bears to the profits of the business (as
computed under the head Profits and gains of business or profession) the same
proportion as the receipts specified in sub-section (2) 61[[as reduced by any payment,

referred to in sub-section (2A), made by the assessee]] bear to the total receipts of the
business carried on by the assessee.]
(4) The amount credited to the reserve account under clause (b) of sub-section (1),
shall be utilised by the assessee before the expiry of a period of five years next
following the previous year in which the amount was credited for the following
purposes, namely :
(a)
construction of new hotels approved by the prescribed authority in this
behalf or expansion of facilities in existing hotels already so approved ;
(b)
purchase of new cars and new coaches by tour operators already so
approved or by travel agents ;
(c)
purchase of sports equipment for mountaineering, trekking, golf, riverrafting and other sports in or on water ;
(d)
construction of conference or convention centres ;
(e)
provision of such new facilities for the growth of Indian tourism as the
Central Government may, by notification in the Official Gazette,
specify in this behalf ;
62
[(f) subscription to equity shares forming part of any eligible issue of
capital made by a public company:]
Provided that where any of the activities referred to in clauses (a) to 63[(f)] would
result in creation of any asset owned by the assessee outside India, such asset should
be created only after obtaining prior approval of the prescribed authority.
(5) Where any amount credited to the reserve account under clause (b) of sub-section
(1),
(a)
has been utilised for any purpose other than those referred to in subsection (4), the amount so utilised; or
(b)
has not been utilised in the manner specified in sub-section (4), the
amount not so utilised,
shall be deemed to be the profits,
(i)
in a case referred to in clause (a), in the year in which the amount was
so utilised; or
(ii)
in a case referred to in clause (b), in the year immediately following
the period of five years specified in sub-section (4),
and shall be charged to tax accordingly.
64

[(5A) Where any amount credited to the reserve account under clause (b) of subsection (1) has been utilised for subscription to any equity shares referred to in clause
(f) of sub-section (4) and either whole or any part of such equity shares are transferred
or converted into money by the assessee at any time within a period of three years
from the date of their acquisition, the aggregate amount so utilised in respect of such
equity shares shall be deemed to be the profits of the previous year in which the
equity shares are transferred or converted into money.
Explanation.A person shall be treated as having acquired any shares on the date on
which his name is entered in relation to those shares in the register of members of the
public company.]

(6) The deduction under sub-section (1) shall not be admissible unless the assessee
furnishes in the prescribed form65, along with the return of income, the report of an
accountant, as defined in the Explanation below sub-section (2) of section 288,
certifying that the deduction has been correctly claimed on the basis of the 66[67[***]
amount of convertible foreign exchange received by the assessee for services provided
by him to foreign tourists 68[, payments made by him to any assessee referred to in
sub-section (2A)] and the payments received by him in Indian currency as referred to
in the Explanation 69[1] to sub-section (2).]
70
[(7) Where a deduction under sub-section (1) is claimed and allowed in respect of
profits derived from the business of a hotel, such part of profits shall not qualify to
that extent for deduction for any assessment year under any other provisions of this
Chapter under the heading C.Deductions in respect of certain incomes, and shall
in no case exceed the profits and gains of such hotel.]
Explanation.For the purposes of this section,
(a)
travel agent means a travel agent or other person (not being an
airline or a shipping company) who holds a valid licence granted by
the Reserve Bank of India under section 3271 of the Foreign Exchange
Regulation Act, 1973 (46 of 1973);
(b)
convertible foreign exchange shall have the meaning assigned to it in
clause (a) of the Explanation to section 80HHC;
(c)
services provided to foreign tourists shall not include services by
way of sale in any shop owned or managed by the person who carries
on the business of a hotel or of a tour operator or of a travel agent;
72
[(d) 73authorised dealer, 74foreign exchange and 75Indian currency
shall have the meanings respectively assigned to them in clauses (b),
(h) and (k) of section 2 of the Foreign Exchange Regulation Act, 1973
(46 of 1973);]
76
[(e) eligible issue of capital means an issue made by a public company
formed and registered in India and the entire proceeds of the issue is
utilised wholly and exclusively for the purpose of carrying on the
business of
(i)
setting up and running of new hotels approved by the
prescribed authority; or
(ii)
providing such new facility for the growth of tourism in India,
as the Central Government may, by notification in the Official
Gazette, specify.]
77

[Deduction in respect of profits from export of computer software, etc.77a

80HHE. (1) Where an assessee, being an Indian company or a person (other than a
company) resident in India, is engaged in the business of,
(i)
export out of India of computer software or its transmission from India
to a place outside India by any means;
(ii)
providing technical services outside India in connection with the
development or production of computer software,
there shall, in accordance with and subject to the provisions of this section, be
allowed, in computing the total income of the assessee, 78[a deduction to the extent of

the profits, referred to in sub-section (1B),] derived by the assessee from such
business :
79
[***]
80
[Provided that if the assessee, being a company, engaged in the export out of India
of computer software, issues a certificate referred to in clause (b) of sub-section (4A),
that in respect of the amount of the export specified therein, the deduction under this
sub-section is to be allowed to a supporting software developer, then the amount of
deduction in the case of an assessee shall be reduced by such amount which bears to
the total profits derived by the assessee from the export, the same proportion as the
amount of the export turnover specified in such certificate bears to the total export
turnover of the assessee.
81
[Explanation.For the removal of doubts, it is hereby declared that the profits and
gains derived from on site development of computer software (including services for
development of software) outside India shall be deemed to be the profits and gains
derived from the export of computer software outside India.]
(1A) Where the assessee, being a supporting software developer, has during the
previous year, developed and sold computer software to an exporting company in
respect of which the said company has issued a certificate under the proviso to subsection (1), there shall, in accordance with and subject to the provisions of this
section, be allowed in computing the total income of the assessee a deduction of the
profits derived by the assessee from the developing and selling of computer software
to the exporting company in respect of which the certificate has been issued by the
said company 82[to such extent and for such years as specified in sub-section (1B)].]
82
[(1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of
profits shall be an amount equal to
(i)
eighty per cent of such profits for an assessment year beginning on the
1st day of April, 2001;
83
[(ii) seventy per cent thereof for an assessment year beginning on the 1st
day of April, 2002;
(iii)
fifty per cent thereof for an assessment year beginning on the 1st day
of April, 2003;
(iv)
thirty per cent thereof for an assessment year beginning on the 1st day
of April, 2004,]
and no deduction shall be allowed in respect of the assessment year beginning on the
1st day of April, 2005 and any subsequent assessment year.]
(2)The deduction specified in sub-section (1) shall be allowed only if the
consideration in respect of the computer software referred to in that sub-section is
received in, or brought into, India by the assessee in convertible foreign exchange,
within a period of six months from the end of the previous year or, 84[within such
further period as the competent authority may allow in this behalf].
Explanation 85[1].The said consideration shall be deemed to have been received in
India where it is credited to a separate account maintained for the purpose by the
assessee with any bank outside India with the approval of the Reserve Bank of India.
85
[Explanation 2.For the purposes of this sub-section, the expression competent
authority means the Reserve Bank of India or such other authority as is authorised
under any law for the time being in force for regulating payments and dealings in
foreign exchange.]

(3) For the purposes of sub-section (1), profits derived from the
business referred to in that sub-section shall be the amount which
bears to the profits of the business, the same proportion as the
export turnover bears to the total turnover of the business carried
on by the assessee.
86

[(3A) For the purposes of sub-section (1A), profits derived by a supporting software
developer shall be,
(i)
in a case where the business carried on by the supporting software
developer consists exclusively of developing and selling of computer
software to one or more exporting companies solely engaged in
exports, the profits of such business;
(ii)
in a case where the business carried on by a supporting software
developer does not consist exclusively of developing and selling of
computer software to one or more exporting companies, the amount
which bears to the profits of the business, the same proportion as the
turnover in respect of sale to the respective exporting company bears to
the total turnover of the business carried on by the assessee.]
(4) The deduction under sub-section (1) shall not be admissible unless the assessee
furnishes in the prescribed form87, along with the return of income, the report of an
accountant, as defined in the Explanation below sub-section (2) of section 288,
certifying that the deduction has been correctly claimed in accordance with the
provisions of this section.
88
[(4A) The deduction under sub-section (1A) shall not be admissible unless the
supporting software developer furnishes in the prescribed form along with his return
of income,
*(i)
the report of an accountant89, as defined in the Explanation below subsection (2) of section 288, certifying that the deduction has been
correctly claimed on the basis of the profits of the supporting software
developer in respect of sale of computer software to the exporting
company; and
(ii) a certificate90 from the exporting company containing such particulars
as may be prescribed and verified in the manner prescribed that in
respect of the export turnover mentioned in the certificate, the
exporting company has not claimed deduction under this section :
Provided that the certificate specified in clause (b) shall be duly certified by the
auditor auditing the accounts of the exporting assessee under the provisions of this Act
or under any other law.]
(5) Where a deduction under this section is claimed and allowed in respect of profits
of the business referred to in sub-section (1) for any assessment year, no deduction
shall be allowed in relation to such profits under any other provision of this Act for
the same or any other assessment year.
Explanation.For the purposes of this section,
(a)
convertible foreign exchange shall have the meaning assigned to it in
clause (a) of the Explanation to section 80HHC;
91
[(b) computer software means,

(i)

any computer programme recorded on any disc, tape,

perforated media or other information storage device; or
(ii)
any customised electronic data or any product or service of
similar nature as may be notified92 by the Board,
which is transmitted or exported from India to a place outside India by
any means;]
(c)
export turnover means the consideration in respect of computer
software received in, or brought into, India by the assessee in
convertible foreign exchange in accordance with sub-section (2), but
does not include freight, telecommunication charges or insurance
attributable to the delivery of the computer software outside India or
expenses, if any, incurred in foreign exchange in providing the
technical services outside India;
93
[(ca) exporting company means a company referred to in sub-section (1)
making actual export of computer software;]
(d)
profits of the business means the profits of the business as computed
under the head Profits and gains of business or profession as reduced
by
(1)
ninety per cent of any receipts by way of brokerage,
commission, interest, rent, charges or any other receipt of a
similar nature included in such profits; and
(2)
the profits of any branch, office, warehouse or any other
establishment of the assessee situate outside India;
(e)
total turnover shall not include
(i)
any sum referred to in clauses (iiia), (iiib) and (iiic) of section
28;
(ii)
any freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India;
and
(iii)
expenses, if any, incurred in foreign exchange in providing the
technical services outside India;]
94
[(ea) supporting software developer means an Indian company or a person
(other than a company) resident in India, developing and selling
computer software to an exporting company for the purposes of
export.]
95

[Deduction in respect of profits and gains from export or transfer of film

software, etc.
80HHF. (1) Where an assessee, being an Indian company 96[or a person (other than a
company) resident in India], is engaged in the business of export or transfer by any
means out of India, of any film software, television software, music software,
television news software, including telecast rights (hereafter in this section referred to
as the software or software rights), there shall, in accordance with and subject to the
provisions of this section, be allowed, in computing the total income of the assessee,
97
[a deduction to the extent of the profits, referred to in sub-section (1A),] derived by
the assessee from such business.

98

[(1A) For the purposes of sub-section (1), the extent of deduction of profits shall be
an amount equal to
(i)
eighty per cent of such profits for an assessment year beginning on the
1st day of April, 2001;
99
[(ii) seventy per cent thereof for an assessment year beginning on the 1st
day of April, 2002;
(iii)
fifty per cent thereof for an assessment year beginning on the 1st day
of April, 2003;
(iv)
thirty per cent thereof for an assessment year beginning on the 1st day
of April, 2004,]
and no deduction shall be allowed in respect of the assessment year beginning on the
1st day of April, 2005 and any subsequent assessment year.]
(2) The deduction specified in sub-section (1) shall be allowed only if the
consideration in respect of the software or software rights referred to in that subsection is received in, or brought into, India by the assessee in convertible foreign
exchange, within a period of six months from the end of the previous year or within
such further period as the competent authority may allow in this behalf.
(3) For the purposes of sub-section (1), profits derived from the business referred to in
that sub-section shall be the amount which bears to the profits of the business, the
same proportion as the export turnover bears to the total turnover of the business
carried on by the assessee.
(4) The deduction under sub-section (1) shall not be admissible unless the assessee
furnishes in the prescribed form1, along with the return of income, the report of an
accountant, as defined in the Explanation below sub-section (2) of section 288,
certifying that the deduction has been correctly claimed in accordance with the
provisions of this section.
(5) Where a deduction under this section is claimed and allowed in respect of profits
of the business referred to in sub-section (1) for any assessment year, no deduction
shall be allowed in relation to such profits under any other provision of this Act for
the same or any other assessment year.
(6) Notwithstanding anything contained in this section, no deduction shall be allowed
in respect of the software or software rights referred to in sub-section (1), if such
business is prohibited by any law for the time being in force.
Explanation.For the purposes of this section,
(a)
competent authority means the Reserve Bank of India or such other
authority as is authorised under any law for the time being in force for
regulating payments and dealings in foreign exchange;
(b)
convertible foreign exchange shall have the meaning assigned to it
in clause (a) of the Explanation to section 80HHC;
(c)
export turnover means the consideration in respect of the software or
software rights specified in clauses (d), (e), (g), (h) and (i), received in,
or brought into, India by the assessee in convertible foreign exchange
in accordance with sub-section (2), but does not include freight,
telecommunication charges or insurance attributable to the delivery of

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(C)

such software outside India or expenses, if any, incurred in foreign

exchange in providing the technical services outside India;
film software means a copy of a cinematograph film made by any
process analogous to cinematography on acetate polyester or celluloid
film positive, magnetic tape, digital media or other optical or magnetic
devices and certified by the Board of film certification constituted by
the Central Government under section 3 of the Cinematograph Act,
1952 (37 of 1952);
music software includes series of sounds or music recorded on
magnetic tape, cassette, compact discs and digital media which can be
played or reproduced on any appropriate apparatus;
profits of the business means the profits of the business as computed
under the head Profits and gains of business or profession as reduced
by
(A)
ninety per cent of any receipts by way of brokerage,
commission, interest, rent, charges or any other receipt of a
similar nature included in such profits; and
(B)
the profits of any branch, office, warehouse or any other
establishment of the assessee situated outside India;
telecast rights means a licence or contract to exhibit motion pictures
or television programmes over a television network either through
terrestrial transmission or through a satellite broadcast in a specified
territory;
television news software means a collection of sounds and images,
reportage, data and voice of actualities broadcast either through
terrestrial transmission, wire or satellite, live or pre-recorded on video
cassettes or digital media;
television software means any programme or series of sounds and
images recorded on film or tape or digital media or broadcast through
terrestrial transmitter, satellite or any other means of diffusion;
total turnover shall not include
(A)
any sum referred to in clauses (iiia), (iiib) and (iiic) of section
28;
(B)
any freight, telecommunication charges or insurance
attributable to the delivery of the film software, music software,
telecast rights, television news software, or television software
as defined in clause (d), (e), (g), (h) or (i), as the case may be,
outside India;
expenses, if any, incurred in foreign exchange in providing the
technical services outside India.]

[Deduction in respect of profits and gains from industrial undertakings after a

certain date, etc.
3
80-I. (1) Where the gross total income of an assessee includes any profits and gains
derived from an industrial undertaking4 or a ship or the business of a hotel 5[or the
business of repairs to ocean-going vessels or other powered craft], to which this section applies, there shall, in accordance with and subject to the provisions of this

section, be allowed, in computing the total income of the assessee, a deduction from
such profits and gains of an amount equal to twenty per cent thereof :
Provided that in the case of an assessee, being a company, the provisions of this subsection shall have effect 6[in relation to profits and gains derived from an industrial
undertaking or a ship or the business of a hotel] as if for the words twenty per cent,
the words twenty-five per cent had been substituted.
7
[(1A) Notwithstanding anything contained in sub-section (1), in relation to any
profits and gains derived by an assessee from
(i)
an industrial undertaking which begins to manufacture or produce
articles or things or to operate its cold storage plant or plants; or
(ii)
a ship which is first brought into use; or
(iii)
the business of a hotel which starts functioning,
on or after the 1st day of April, 1990, 8[but before the 1st day of April, 1991], there
shall, in accordance with and subject to the provisions of this section, be allowed in
computing the total income of the assessee, a deduction from such profits and gains of
an amount equal to twenty-five per cent thereof :
Provided that in the case of an assessee, being a company, the provisions of this subsection shall have effect in relation to profits and gains derived from an industrial
undertaking or a ship or the business of a hotel as if for the words twenty-five per
cent, the words thirty per cent had been substituted.]
(2) This section applies to any industrial undertaking which fulfils all the following
conditions, namely :
(i)
it is not formed9 by the splitting up9, or the reconstruction9, of a
business already in existence;
(ii)
it is not formed by the transfer 10 to a new business of machinery or
plant previously used for any purpose;
(iii)
it manufactures or produces10 any article10 or thing, not being any
article or thing specified in the list in the Eleventh Schedule, or
operates one or more cold storage plant or plants, in any part of India,
and begins to manufacture or produce articles or things or to operate
such plant or plants, at any time within the period of 11[ten] years next
following the 31st day of March, 1981, or such further period as the
Central Government may, by notification in the Official Gazette,
specify with reference to any particular industrial undertaking;
(iv)
in a case where the industrial undertaking manufactures or produces
articles or things, the undertaking employs ten or more workers 10 in a
manufacturing process carried on with the aid of power, or employs
twenty or more workers in a manufacturing process carried on without
the aid of power :
Provided that the condition in clause (i) shall not apply in respect of any industrial
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 :
Provided further that the condition in clause (iii) shall, in relation to a small-scale
industrial undertaking, apply as if the words not being any article or thing specified
in the list in the Eleventh Schedule had been omitted.

Explanation 1.For the purposes of clause (ii) of this sub-section, any machinery or
plant which was used outside India by any person other than the assessee shall not be
regarded as machinery or plant previously used for any purpose, if the following
conditions are fulfilled, namely :
(a)
such machinery or plant was not, at any time previous to the date of the
installation by the assessee, used in India;
(b)
such machinery or plant is imported into India from any country
outside India; and
(c)
no deduction on account of depreciation in respect of such machi-nery
or plant has been allowed or is allowable under the provisions of this
Act in computing the total income of any person for any period prior to
the date of the installation of the machinery or plant by the assessee.
Explanation 2.Where in the case of an industrial undertaking, any machinery or
plant or any part thereof previously used for any purpose is transferred to a new
business and the total value of the machinery or plant or part so transferred does not
exceed twenty per cent of the total value of the machinery or plant used in the
business, then, for the purposes of clause (ii) of this sub-section, the condition
specified therein shall be deemed to have been complied with.
Explanation 3.For the purposes of this sub-section, small-scale industrial
undertaking shall have the same meaning as in clause (b) of the Explanation below
sub-section (8) of section 80HHA.
(3) This section applies to any ship, where all the following conditions are fulfilled,
namely :
(i)
it is owned by an Indian company and is wholly used for the purposes
of the business carried on by it;
(ii)
it was not, previous to the date of its acquisition by the Indian
company, owned or used in Indian territorial waters by a person
resident in India; and
(iii)
it is brought into use by the Indian company at any time within the
period of 12[ten] years next following the 1st day of April, 1981.
(4) This section applies to the business of any hotel, where all the
following conditions are fulfilled, namely :
(i)

the business of the hotel is not formed by the splitting up, or the
reconstruction, of a business already in existence or by the transfer to a
new business of a building previously used as a hotel or of any
machinery or plant previously used for any purpose;
(ii)
the business of the hotel is owned and carried on by a company
registered in India with a paid-up capital of not less than five hundred
thousand rupees;
(iii)
the hotel is for the time being approved for the purposes of this subsection by the Central Government;
(iv)
the business of the hotel starts functioning after the 31st day of March,
1981, but before the 1st day of April, 13[1991].
14
[(4A) This section applies to the business of repairs to ocean-going vessels or other
powered craft which fulfils all the following conditions, namely :

(i)

the business is not formed by the splitting up, or the reconstruction, of

a business already in existence;
(ii)
it is not formed by the transfer to a new business of machinery or plant
previously used for any purpose;
(iii)
it is carried on by an Indian company and the work by way of repairs to
ocean-going vessels or other powered craft has been commenced by
such company after the 31st day of March, 1983, but before the 1st day
of April, 1988; and
(iv)
it is for the time being approved for the purposes of this sub-section by
the Central Government.]
(5) The deduction specified in sub-section (1) shall be allowed in computing the total
income in respect of the assessment year relevant to the previous year in which the
industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the ship is first brought into use or the business
of the hotel starts functioning 15[or the company commences work by way of repairs
to ocean-going vessels or other powered craft] (such assessment year being hereafter
in this section referred to as the initial assessment year) and each of the seven
assessment years immediately succeeding the initial assessment year :
Provided that in the case of an assessee, being a co-operative society, the provisions
of this sub-section shall have effect as if for the words seven assessment years, the
words nine assessment years had been substituted :
16
[Provided further that in the case of an assessee carrying on the business of repairs
to ocean-going vessels or other powered craft, the provisions of this sub-section shall
have effect as if for the words seven assessment years, the words four assessment
years had been substituted:]
17
[Provided also that in the case of
(i)
an industrial undertaking which begins to manufacture or produce
articles or things or to operate its cold storage plant or plants; or
(ii)
a ship which is first brought into use; or
(iii)
the business of a hotel which starts functioning,
on or after the 1st day of April, 1990 18[but before the 1st day of April, 1991],
provisions of this sub-section shall have effect as if for the words seven assessment
years, the words nine assessment years had been substituted :
Provided also that in the case of an assessee, being a co-operative society, deriving
profits and gains from an industrial undertaking or a ship or a hotel referred to in the
third proviso, the provisions of that proviso shall have effect as if for the words nine
assessment years, the words eleven assessment years had been substituted.]
(6) Notwithstanding anything contained in any other provision of this Act, the profits
and gains of an industrial undertaking or a ship or the business of a hotel 19[or the
business of repairs to ocean-going vessels or other powered craft] to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of
deduction under sub-section (1) for the assessment year immediately succeeding the
initial assessment year or any subsequent assessment year, be computed as if such
industrial undertaking or ship or the business of the hotel 19[or the business of repairs
to ocean-going vessels or other powered craft] were the only source of income of the
assessee during the previous years relevant to the initial assessment year and to every

subsequent assessment year up to and including the assessment year for which the
determination is to be made.
(7) Where the assessee is a person other than a company or a co-operative society, the
deduction under sub-section (1) from profits and gains derived from an industrial
undertaking shall not be admissible unless the accounts of the industrial undertaking
for the previous year relevant to the assessment year for which the deduction is
claimed have been audited by an accountant, as defined in the Explanation below subsection (2) of section 288, and the assessee furnishes, along with his return of income,
the report of such audit in the prescribed form20 duly signed and verified by such
accountant.
(8) Where any goods held for the purposes of the business of the industrial
undertaking or the hotel or the operation of the ship 21[or the business of repairs to
ocean-going vessels or other powered craft] are transferred to any other business
carried on by the assessee, or where any goods held for the purposes of any other
business carried on by the assessee are transferred to the business of the industrial
undertaking or the hotel or the operation of the ship 21[or the business of repairs to
ocean-going vessels or other powered craft] and, in either case, the consideration, if
any, for such transfer as recorded in the accounts of the business of the industrial
undertaking or the hotel or the operation of the ship 21[or the business of repairs to
ocean-going vessels or other powered craft] does not correspond to the market value
of such goods as on the date of the transfer, then, for the purposes of the deduction
under this section, the profits and gains of the industrial undertaking or the business of
the hotel or the operation of the ship 21[or the business of repairs to ocean-going
vessels or other powered craft] shall be computed as if the transfer, in either case, had
been made at the market value of such goods as on that date :
Provided that where, in the opinion of the 22[Assessing] Officer, the computation of
the profits and gains of the industrial undertaking or the business of the hotel or the
operation of the ship 21[or the business of repairs to ocean-going vessels or other
powered craft] in the manner hereinbefore specified presents exceptional difficulties,
the 22[Assessing] Officer may compute such profits and gains on such reasonable basis
as he may deem fit.
Explanation.In this sub-section, market value, in relation to any goods, means the
price that such goods would ordinarily fetch on sale in the open market.
(9) Where it appears to the 22[Assessing] Officer that, owing to the close connection
between the assessee carrying on the business of the industrial undertaking or the
hotel or the operation of the ship 21[or the business of repairs to ocean-going vessels or
other powered craft] to which this section applies and any other person, or for any
other reason, the course of business between them is so arranged that the business
transacted between them produces to the assessee more than the ordinary profits
which might be expected to arise in the business of the industrial undertaking or the
hotel or the operation of the ship 23[or the business of repairs to ocean-going vessels or
other powered craft], the 24[Assessing] Officer shall, in computing the profits and
gains of the industrial undertaking or the hotel or the ship 25[or the business of repairs
to ocean-going vessels or other powered craft] for the purposes of the deduction under
this section, take the amount of profits as may be reasonably deemed to have been
derived therefrom.
(10) The Central Government may, after making such inquiry as it may think fit,
direct, by notification in the Official Gazette, that the exemption conferred by this

section shall not apply to any class of industrial undertakings with effect from such
date as it may specify in the notification.]
26

[Deductions in respect of profits and gains from industrial undertakings or

enterprises engaged in infrastructure development, etc.27
80-IA. 28[(1) Where the gross total income of an assessee includes any profits and
gains derived by an undertaking or an enterprise from any business referred to in subsection (4) (such business being hereinafter referred to as the eligible business), there
shall, in accordance with and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction of an amount equal to
hundred per cent of the profits and gains derived from such business for ten
consecutive assessment years.]
(2) The deduction specified in sub-section (1) may, at the option of the assessee, be
claimed by him for any ten consecutive assessment years out of fifteen years
beginning from the year in which the undertaking or the enterprise develops and
begins to operate any infrastructure facility or starts providing telecommunication
service or develops an industrial park 29[or develops 30[***] a special economic zone
referred to in clause (iii) of sub-section (4)] or generates power or commences
transmission or distribution of power 30a[or undertakes substantial renovation and
modernisation of the existing transmission or distribution lines] :
31
[Provided that where the assessee develops or operates and maintains or develops,
operates and maintains any infrastructure facility referred to in clause (a) or clause (b)
or clause (c) of the Explanation to clause (i) of sub-section (4), the provisions of this
sub-section shall have effect as if for the words fifteen years, the words twenty
years had been substituted.]
32
[(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), the
deduction in computing the total income of an undertaking providing
telecommunication services, specified in clause (ii) of sub-section (4), shall be
hundred per cent of the profits and gains of the eligible business for the first five
assessment years commencing at any time during the periods as specified in subsection (2) and thereafter, thirty per cent of such profits and gains for further five
assessment years.]
(3) This section applies to 33[an 34[undertaking] referred to in 34a[clause (ii) or] clause
(iv) of sub-section (4)] which fulfils all the following conditions, namely :
(i) it is not formed by splitting up, or the reconstruction, of a business already
in existence :
Provided that this condition shall not apply in respect of an 34[undertaking]
which is formed as a result of the re-establishment, re-construction or
revival by the assessee of the business of any such 34[undertaking] as is
referred to in section 33B, in the circumstances and within the period
specified in that section;
(ii) it is not formed by the transfer to a new business of machinery or plant
previously used for any purpose.
The following proviso shall be inserted to sub-section (3) of section 80-IA by the
Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Provided that nothing contained in this sub-section shall apply in the case of transfer,
either in whole or in part, of machinery or plant previously used by a State Electricity
Board referred to in clause (7) of section 2 of the Electricity Act, 2003 (36 of 2003),

whether or not such transfer is in pursuance of the splitting up or reconstruction or

reorganisation of the Board under Part XIII of that Act.
Explanation 1.For the purposes of clause (ii), any machinery or plant which was
used outside India by any person other than the assessee shall not be regarded as
machinery or plant previously used for any purpose, if the following conditions are
fulfilled, namely :
(a) such machinery or plant was not, at any time previous to the date of the
installation by the assessee, used in India;
(b) such machinery or plant is imported into India from any country outside
India; and
(c) no deduction on account of depreciation in respect of such machinery or
plant has been allowed or is allowable under the provisions of this Act in
computing the total income of any person for any period prior to the date of
the installation of machinery or plant by the assessee.
Explanation 2.Where in the case of an 34[undertaking], any machinery or plant or
any part thereof previously used for any purpose is transferred to a new business and
the total value of the machinery or plant or part so transferred does not exceed twenty
per cent of the total value of the machinery or plant used in the business, then, for the
purposes of clause (ii) of this sub-section, the condition specified therein shall be
deemed to have been complied with.
(4) This section applies to
(i) any enterprise carrying on the business 35[of (i) developing or (ii) operating
and maintaining or (iii) developing, operating and maintaining] any
infrastructure facility which fulfils all the following conditions, namely :
(a) it is owned by a company registered in India or by a consortium of such
companies;
36
[(b) it has entered into an agreement with the Central Government or a State
Government or a local authority or any other statutory body for (i)
developing or (ii) operating and maintaining or (iii) developing,
operating and maintaining a new infrastructure facility;]
(c) it has started or starts operating and maintaining the infrastructure
facility on or after the 1st day of April, 1995:
Provided that where an infrastructure facility is transferred on or after
the 1st day of April, 1999 by an enterprise which developed such
infrastructure facility (hereafter referred to in this section as the
transferor enterprise) to another enterprise (hereafter in this section
referred to as the transferee enterprise) for the purpose of operating and
maintaining the infrastructure facility on its behalf in accordance with
the agreement with the Central Government, State Government, local
authority or statutory body, the provisions of this section shall apply to
the transferee enterprise as if it were the enterprise to which this clause
applies and the deduction from profits and gains would be available to
such transferee enterprise for the unexpired period during which the
transferor enterprise would have been entitled to the deduction, if the
transfer had not taken place.
37
[Explanation.For the purposes of this clause, infrastructure facility
means

(a) a road including toll road, a bridge or a rail system;

(b) a highway project including housing or other activities being an integral
part of the highway project;
(c) a water supply project, water treatment system, irrigation project,
sanitation and sewerage system or solid waste management system;
(d) a port38, airport, inland waterway or inland port;]
39
[(ii) any undertaking which has started or starts providing telecommunication
services, whether basic or cellular, including radio paging, domestic satellite
service, network of trunking, broadband network and internet services on or
after the 1st day of April, 1995, but on or before the 31st day of March,
40 40a
[ [2004]].]
Explanation.For the purposes of this clause, domestic satellite means a
satellite owned and operated by an Indian company for providing
telecommunication service;
(iii) any undertaking which develops, develops and operates or maintains and
operates an industrial park 41[or special economic zone] notified42 by the
Central Government in accordance with the scheme framed 42 and notified43
by that Government for the period beginning on the 1st day of April, 1997
and ending on the 31st day of March, 44[2006] :
45
[Provided that in a case where an undertaking develops an industrial park
on or after the 1st day of April, 1999 or a special economic zone on or after
the 1st day of April, 2001 and transfers the operation and maintenance of
such industrial park or such special economic zone, as the case may be, to
another undertaking (hereafter in this section referred to as the transferee
undertaking), the deduction under sub-section (1) shall be allowed to such
transferee undertaking for the remaining period in the ten consecutive
assessment years as if the operation and maintenance were not so
transferred to the transferee undertaking;]
(iv) an 46[undertaking] which,
(a) is set up in any part of India for the generation or generation and
distribution of power if it begins to generate power at any time during
the period beginning on the 1st day of April, 1993 and ending on the
31st day of March, 47[2006];
(b) starts transmission or distribution by laying a network of new
transmission or distribution lines at any time during the period
beginning on the 1st day of April, 1999 and ending on the 31st day of
March, 47[2006] :
Provided that the deduction under this section to an 48[undertaking]
under sub-clause (b) shall be allowed only in relation to the profits
derived from laying of such network of new lines for transmission or
distribution.
The following sub-clause (c) shall be inserted after sub-clause (b) of
clause (iv) of sub-section (4) of section 80-IA by the Finance (No. 2)
Act, 2004, w.e.f. 1-4-2005 :
(c) undertakes substantial renovation and modernisation of the existing
network of transmission or distribution lines at any time during the

period beginning on the 1st day of April, 2004 and ending on the 31st
day of March, 2006.
Explanation.For the purposes of this sub-clause, substantial
renovation and modernisation means an increase in the plant and
machinery in the network of transmission or distribution lines by at
least fifty per cent of the book value of such plant and machinery as on
the 1st day of April, 2004.
(5) Notwithstanding anything contained in any other provision of this Act, the profits
and gains of an eligible business to which the provisions of sub-section (1) apply
shall, for the purposes of determining the quantum of deduction under that sub-section
for the assessment year immediately succeeding the initial assessment year or any
subsequent assessment year, be computed as if such eligible business were the only
source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the
assessment year for which the determination is to be made.
(6) Notwithstanding anything contained in sub-section (4), where housing or other
activities are an integral part of the highway project and the profits of which are
computed on such basis and manner as may be prescribed 49, such profit shall not be
liable to tax where the profit has been transferred to a special reserve account and the
same is actually utilised for the highway project excluding housing and other
activities before the expiry of three years following the year in which such amount
was transferred to the reserve account; and the amount remaining unutilised shall be
chargeable to tax as income of the year in which such transfer to reserve account took
place.
(7) 50[The deduction] under sub-section (1) from profits and gains derived from an
50a
[undertaking] shall not be admissible unless the accounts of the 50a[undertaking] for
the previous year relevant to the assessment year for which the deduction is claimed
have been audited by an accountant, as defined in the Explanation below sub-section
(2) of section 288, and the assessee furnishes, along with his return of income, the
report of such audit in the prescribed form51 duly signed and verified by such
accountant.
(8) Where any goods 52[or services] held for the purposes of the eligible business are
transferred to any other business carried on by the assessee, or where any goods 52[or
services] held for the purposes of any other business carried on by the assessee are
transferred to the eligible business and, in either case, the consideration, if any, for
such transfer as recorded in the accounts of the eligible business does not correspond
to the market value of such goods 52[or services] as on the date of the transfer, then,
for the purposes of the deduction under this section, the profits and gains of such
eligible business shall be computed as if the transfer, in either case, had been made at
the market value of such goods 52[or services] as on that date :
Provided that where, in the opinion of the Assessing Officer, the computation of the
profits and gains of the eligible business in the manner hereinbefore specified presents
exceptional difficulties, the Assessing Officer may compute such profits and gains on
such reasonable basis as he may deem fit.
53
[Explanation.For the purposes of this sub-section, market value, in relation to
any goods or services, means the price that such goods or services would ordinarily
fetch in the open market.]

(9) Where any amount of profits and gains of an 54[undertaking] or of an enterprise in

the case of an assessee is claimed and allowed under this section for any assessment
year, deduction to the extent of such profits and gains shall not be allowed under any
other provisions of this Chapter under the heading C.Deductions in respect of
certain incomes, and shall in no case exceed the profits and gains of such eligible
business of 54[undertaking] or enterprise, as the case may be.
(10) Where it appears to the Assessing Officer that, owing to the close connection
between the assessee carrying on the eligible business to which this section applies
and any other person, or for any other reason, the course of business between them is
so arranged that the business transacted between them produces to the assessee more
than the ordinary profits which might be expected to arise in such eligible business,
the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as
may be reasonably deemed to have been derived therefrom.
(11) The Central Government may, after making such inquiry as it may think fit,
direct, by notification in the Official Gazette, that the exemption conferred by this
section shall not apply to any class of industrial undertaking or enterprise with effect
from such date as it may specify in the notification.
(12) Where any undertaking of an Indian company which is entitled to the deduction
under this section is transferred, before the expiry of the period specified in this
section, to another Indian company in a scheme of amalgamation or demerger
(a) no deduction shall be admissible under this section to the amalgamating or
the demerged company for the previous year in which the amalgamation or
the demerger takes place; and
(b) the provisions of this section shall, as far as may be, apply to the
amalgamated or the resulting company as they would have applied to the
amalgamating or the demerged company if the amalgamation or demerger
had not taken place.
Deduction in respect of profits and gains from certain industrial undertakings
other than infrastructure development undertakings.
80-IB. (1) Where the gross total income of an assessee includes any profits and gains
derived from any business referred to in sub-sections (3) to 54a[(11) 55[and (11A)]]
(such business being hereinafter referred to as the eligible business), there shall, in
accordance with and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction from such profits and gains of
an amount equal to such percentage and for such number of assessment years as
specified in this section.
(2) This section applies to any industrial undertaking which fulfils all the following
conditions, namely :
(i) it is not formed56 by splitting up56, or the reconstruction56, of a business
already in existence :
Provided that this condition shall not apply in respect of an industrial
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;

(ii) it is not formed by the transfer to a new business of machinery or plant

previously used for any purpose;
(iii) it manufactures or produces any article or thing, not being any article or
thing specified in the list in the Eleventh Schedule, or operates one or more
cold storage plant or plants, in any part of India :
Provided that the condition in this clause shall, in relation to a small scale
industrial undertaking or an industrial undertaking referred to in sub-section
(4) shall apply as if the words not being any article or thing specified in the
list in the Eleventh Schedule had been omitted.
Explanation 1.For the purposes of clause (ii), any machinery or plant
which was used outside India by any person other than the assessee shall not
be regarded as machinery or plant previously used for any purpose, if the
following conditions are fulfilled, namely :
(a) such machinery or plant was not, at any time previous to the date of the
installation by the assessee, used in India;
(b) such machinery or plant is imported into India from any country outside
India; and
(c) no deduction on account of depreciation in respect of such machinery or
plant has been allowed or is allowable under the provisions of this Act in
computing the total income of any person for any period prior to the
date of the installation of the machinery or plant by the assessee.
Explanation 2.Where in the case of an industrial undertaking, any
machinery or plant or any part thereof previously used for any purpose is
transferred to a new business and the total value of the machinery or plant
or part so transferred does not exceed twenty per cent of the total value of
the machinery or plant used in the business, then, for the purposes of clause
(ii) of this sub-section, the condition specified therein shall be deemed to
have been complied with;
(iv) in a case where the industrial undertaking manufactures or produces articles
or things, the undertaking employs ten or more workers in a manufacturing
process carried on with the aid of power, or employs twenty or more
workers in a manufacturing process carried on without the aid of power.
(3) The amount of deduction in the case of an industrial undertaking shall be twentyfive per cent (or thirty per cent where the assessee is a company), of the profits and
gains derived from such industrial undertaking for a period of ten consecutive
assessment years (or twelve consecutive assessment years where the assessee is a cooperative society) beginning with the initial assessment year subject to the fulfilment
of the following conditions, namely :
(i) it begins to manufacture or produce, articles or things or to operate such
plant or plants at any time during the period beginning from the 1st day of
April, 1991 and ending on the 31st day of March, 1995 or such further
period as the Central Government may, by notification in the Official
Gazette, specify with reference to any particular undertaking;
(ii) where it is an industrial undertaking being a small scale industrial
undertaking, it begins to manufacture or produce articles or things or to
operate its cold storage plant [not specified in sub-section (4) or sub-section
(5)] at any time during the period beginning on the 1st day of April, 1995
and ending on the 31st day of March, 57[2002].

58

(4) The amount of deduction in the case of an industrial undertaking in an

industrially backward State specified in the Eighth Schedule shall be hundred per cent
of the profits and gains derived from such industrial undertaking for five assessment
years beginning with the initial assessment year and thereafter twenty-five per cent (or
thirty per cent where the assessee is a company) of the profits and gains derived from
such industrial undertaking :
Provided that the total period of deduction does not exceed ten consecutive
assessment years (or twelve consecutive assessment years where the assessee is a cooperative society) subject to fulfilment of the condition that it begins to manufacture
or produce articles or things or to operate its cold storage plant or plants during the
period beginning on the 1st day of April, 1993 and ending on the 31st day of March,
59
[2004] :
Provided further that in the case of such industries in the North-Eastern Region, as
may be notified60 by the Central Government, the amount of deduction shall be
hundred per cent of profits and gains for a period of ten assessment years, and the
total period of deduction shall in such a case not exceed ten assessment years :
61
[Provided also that no deduction under this sub-section shall be allowed for the
assessment year beginning on the 1st day of April, 2004 or any subsequent year to
any undertaking or enterprise referred to in sub-section (2) of section 80-IC.]
The following fourth and fifth provisos shall be inserted after the third proviso to
sub-section (4) of section 80-IB by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Provided also that in the case of an industrial undertaking in the State of Jammu and
Kashmir, the provisions of the first proviso shall have effect as if for the figures,
letters and words 31st day of March, 2004, the figures, letters and words 31st day
of March, 2005 had been substituted:
Provided also that no deduction under this sub-section shall be allowed to an
industrial undertaking in the State of Jammu and Kashmir which is engaged in the
manufacture or production of any article or thing specified in Part C of the Thirteenth
Schedule.
(5) The amount of deduction in the case of an industrial undertaking located in such
industrially backward districts as the Central Government may, having regard to the
prescribed guidelines62, by notification63 in the Official Gazette, specify in this behalf
as industrially backward district of category A or an industrially backward district of
category B shall be,
(i) hundred per cent of the profits and gains derived from an industrial
undertaking located in a backward district of category A for five
assessment years beginning with the initial assessment year and thereafter,
twenty-five per cent (or thirty per cent where the assessee is a company) of
the profits and gains of an industrial undertaking :
Provided that the total period of deduction shall not exceed ten consecutive
assessment years or where the assessee is a co-operative society, twelve
consecutive assessment years :
Provided further that the industrial undertaking begins to manufacture or
produce articles or things or to operate its cold storage plant or plants at any
time during the period beginning on the 1st day of October, 1994 and
ending on the 31st day of March, 64[2004];
(ii) hundred per cent of the profits and gains derived from an industrial
undertaking located in a backward district of category B for three

assessment years beginning with the initial assessment year and thereafter,
twenty-five per cent (or thirty per cent where the assessee is a company) of
the profits and gains of an industrial undertaking :
Provided that the total period of deduction does not exceed eight
consecutive assessment years (or where the assessee is a co-operative
society, twelve consecutive assessment years) :
Provided further that the industrial undertaking begins to manufacture or
produce articles or things or to operate its cold storage plant or plants at any
time during the period beginning on the 1st day of October, 1994 and
ending on the 31st day of March, 64[2004].
(6) The amount of deduction in the case of the business of a ship shall be thirty per
cent of the profits and gains derived from such ship for a period of ten consecutive
assessment years including the initial assessment year provided that the ship
(i) is owned by an Indian company and is wholly used for the purposes of the
business carried on by it;
(ii) was not, previous to the date of its acquisition by the Indian company,
owned or used in Indian territorial waters by a person resident in India; and
(iii) is brought into use by the Indian company at any time during the period
beginning on the 1st day of April, 1991 and ending on the 31st day of
March, 1995.
(7) The amount of deduction in the case of any hotel shall be
(a) fifty per cent of the profits and gains derived from the business of such hotel
for a period of ten consecutive years beginning from the initial assessment
year as is located in a hilly area or a rural area or a place of pilgrimage or
such other place as the Central Government may, having regard to the need
for development of infrastructure for tourism in any place and other relevant
considerations, specify by notification in the Official Gazette and such hotel
starts functioning at any time during the period beginning on the 1st day of
April, 1990 and ending on the 31st day of March, 1994 or beginning on the
1st day of April, 1997 and ending on the 31st day of March, 2001:
Provided that nothing contained in this clause shall apply to a hotel located
at a place within the municipal jurisdiction (whether known as a
municipality, municipal corporation, notified area committee or a
cantonment board or by any other name) of Calcutta, Chennai, Delhi or
Mumbai, which has started or starts functioning on or after the 1st day of
April, 1997 and before the 31st day of March, 2001:
Provided further that the said hotel is approved by the prescribed authority
for the purpose of this clause in accordance with the rules 65 made under this
Act and where the said hotel is approved by the prescribed authority before
the 31st day of March, 1992, shall be deemed to have been approved by the
prescribed authority for the purpose of this section in relation to the
assessment year commencing on the 1st day of April, 1991;
(b) thirty per cent of the profits and gains derived from the business of such
hotel as is located in any place other than those mentioned in sub-clause (a)
for a period of ten consecutive years beginning from the initial assessment
year if such hotel has started or starts functioning at any time during the
period beginning on the 1st day of April, 1991 and ending on the 31st day of

March, 1995 or beginning on the 1st day of April, 1997 and ending on the
31st day of March, 2001:
Provided that nothing contained in this clause shall apply to a hotel located
at a place within the municipal jurisdiction (whether known as a
municipality, municipal corporation, notified area committee, town area
committee or a cantonment board or by any other name) of Calcutta,
Chennai, Delhi or Mumbai, which has started or starts functioning on or
after the 1st day of April, 1997 and before the 31st day of March, 2001;
(c) the deduction under clause (a) or clause (b) shall be available only if
(i) the business of the hotel is not formed by the splitting up, or the
reconstruction, of a business already in existence or by the transfer to a
new business of a building previously used as a hotel or of any
machinery or plant previously used for any purpose;
(ii) the business of the hotel is owned and carried on by a company
registered in India with a paid-up capital of not less than five hundred
thousand rupees;
(iii) the hotel is for the time being approved by the prescribed authority66:
Provided that any hotel approved by the prescribed authority66 before
the 1st day of April, 1999 shall be deemed to have been approved under
this sub-section.
67
[(7A) The amount of deduction in the case of any multiplex theatre shall be
(a) fifty per cent of the profits and gains derived, from the business of building,
owning and operating a multiplex theatre, for a period of five consecutive
years beginning from the initial assessment year in any place :
Provided that nothing contained in this clause shall apply to a multiplex
theatre located at a place within the municipal jurisdiction (whether known
as a municipality, municipal corporation, notified area committee or a
cantonment board or by any other name) of Chennai, Delhi, Mumbai or
Kolkata;
(b) the deduction under clause (a) shall be allowable only if
(i) such multiplex theatre is constructed at any time during the period
beginning on the 1st day of April, 2002 and ending on the 31st day of
March, 2005;
(ii) the business of the multiplex theatre is not formed by the splitting up, or
the reconstruction, of a business already in existence or by the transfer
to a new business of any building or of any machinery or of plant
previously used for any purpose;
(iii) the assessee furnishes alongwith the return of income, the report of an
audit in such form and containing such particulars as may be
prescribed68 and duly signed and verified by an accountant, as defined in
the Explanation below sub-section (2) of section 288, certifying that the
deduction has been correctly claimed.
(7B) The amount of deduction in the case of any convention centre shall be
(a) fifty per cent of the profits and gains derived, by the assessee from the
business of building, owning and operating a convention centre, for a period
of five consecutive years beginning from the initial assessment year;
(b) the deduction under clause (a) shall be allowable only if

(i) such convention centre is constructed at any time during the period
beginning on the 1st day of April, 2002 and ending on the 31st day of
March, 2005;
(ii) the business of the convention centre is not formed by the splitting up,
or the reconstruction, of a business already in existence or by the
transfer to a new business of any building or of any machinery or plant
previously used for any purpose;
(iii) the assessee furnishes alongwith the return of income, the report of an
audit in such form and containing such particulars as may be
prescribed68a, and duly signed and verified by an accountant, as defined
in the Explanation below sub-section (2) of section 288, certifying that
the deduction has been correctly claimed.]
(8) The amount of deduction in the case of any company carrying on scientific
research and development shall be hundred per cent of the profits and gains of such
business for a period of five assessment years beginning from the initial assessment
year if such company
(a) is registered in India;
(b) has the main object of scientific and industrial research and development;
(c) is for the time being approved by the prescribed authority69 at any time
before the 1st day of April, 1999.
70
[(8A) The amount of deduction in the case of any company carrying on scientific
research and development shall be hundred per cent of the profits and gains of such
business for a period of ten consecutive assessment years, beginning from the initial
assessment year, if such company
(i) is registered in India;
(ii) has its main object the scientific and industrial research and development;
(iii) is for the time being approved by the prescribed authority 71 at any time after
the 31st day of March, 2000 but before the 1st day of April, 72[72a[2004]];
(iv) fulfils such other conditions as may be prescribed73.]
(9) The amount of deduction to an undertaking which begins commercial production
or refining of mineral oil shall be hundred per cent of the profits for a period of seven
consecutive assessment years including the initial assessment year :
Provided that where the undertaking is located in North-Eastern Region, it has begun
or begins commercial production of mineral oil before the 1st day of April, 1997 and
where it is located in any part of India, it begins commercial production of mineral oil
on or after the 1st day of April, 1997 :
Provided further that where the undertaking is engaged in refining of mineral oil, it
begins refining on or after the 1st day of October, 1998.
(10) The amount of profits in case of an undertaking developing and building housing
projects approved 74[before the 31st day of March, 75[2005]] by a local authority,
shall be hundred per cent of the profits derived in any previous year relevant to any
assessment year from such housing project if,
(a) such undertaking has commenced or commences development and
construction of the housing project on or after the 1st day of October, 1998
76[***];

(b) the project is on the size of a plot of land which has a minimum area of one
acre; and
(c) the residential unit has a maximum built-up area of one thousand square feet
where such residential unit is situated within the cities of Delhi or Mumbai
or within twenty-five kilometres from the municipal limits of these cities
and one thousand and five hundred square feet at any other place.
The following sub-section (10) shall be substituted for existing sub-section (10) of
section 80-IB by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(10) The amount of deduction in the case of an undertaking developing and
building housing projects approved before the 31st day of March, 2007
by a local authority shall be hundred per cent of the profits derived in
the previous year relevant to any assessment year from such housing
project if,
(a) such undertaking has commenced or commences development and
construction of the housing project on or after the 1st day of October, 1998
and completes such construction,
(i) in a case where a housing project has been approved by the local
authority before the 1st day of April, 2004, on or before the 31st day of
March, 2008;
(ii) in a case where a housing project has been, or, is approved by the local
authority on or after the 1st day of April, 2004, within four years from
the end of the financial year in which the housing project is approved by
the local authority.
Explanation.For the purposes of this clause,
(i) in a case where the approval in respect of the housing project is
obtained more than once, such housing project shall be deemed to have
been approved on the date on which the building plan of such housing
project is first approved by the local authority;
(ii) the date of completion of construction of the housing project shall be
taken to be the date on which the completion certificate in respect of
such housing project is issued by the local authority;
(b) the project is on the size of a plot of land which has a minimum area of one
acre:
Provided that nothing contained in clause (a) or clause (b) shall apply to a
housing project carried out in accordance with a scheme framed by the
Central Government or a State Government for reconstruction or
redevelopment of existing buildings in areas declared to be slum areas
under any law for the time being in force and such scheme is notified by the
Board in this behalf;
(c) the residential unit has a maximum built-up area of one thousand square
feet where such residential unit is situated within the cities of Delhi or
Mumbai or within twenty-five kilometers from the municipal limits of these
cities and one thousand and five hundred square feet at any other place;
and

(d)

the built-up area of the shops and other commercial establishments

included in the housing project does not exceed five per cent of the aggregate built-up
area of the housing project or two thousand square feet, whichever is less.
(11) Notwithstanding anything contained in clause (iii) of sub-section (2) and subsections (3), (4) and (5), the amount of deduction in a case of industrial undertaking
deriving profit from the business of setting up and operating a cold chain facility for
agricultural produce, shall be hundred per cent of the profits and gains derived from
such industrial undertaking for five assessment years beginning with the initial
assessment year and thereafter, twenty-five per cent (or thirty per cent where the
assessee is a company) of the profits and gains derived from the operation of such
facility in a manner that the total period of deduction does not exceed ten consecutive
assessment years (or twelve consecutive assessment years where the assessee is a cooperative society) and subject to fulfilment of the condition that it begins to operate
such facility on or after the 1st day of April, 1999 but before the 77[1st day of April,
2004].
78[(11A) The amount of deduction in a case of 78a[an undertaking deriving profit
from] the integrated business of handling, storage and transportation of foodgrains,
shall be hundred per cent of the profits and gains derived from such undertaking for
five assessment years beginning with the initial assessment year and thereafter,
twenty-five per cent (or thirty per cent where the assessee is a company) of the profits
and gains derived from the operation of such business in a manner that the total period
of deduction does not exceed ten consecutive assessment years and subject to
fulfilment of the condition that it begins to operate such business on or after the 1st
day of April, 2001.]
The following sub-section (11B) shall be inserted after sub-section (11A) of
section 80-IB by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(11B) The amount of deduction in the case of an undertaking deriving profits
from the business of operating and maintaining a hospital in a rural
area shall be hundred per cent of the profits and gains of such business
for a period of five consecutive assessment years, beginning with the
initial assessment year if
(i) such hospital is constructed at any time during the period beginning on the
1st day of October, 2004 and ending on the 31st day of March, 2008;
(ii) the hospital has at least one hundred beds for patients;
(iii) the construction of the hospital is in accordance with the regulations, for
the time being in force, of the local authority; and
(iv) the assessee furnishes along with the return of income, the report of an
audit in such form and containing such particulars as may be prescribed,
and duly signed and verified by an accountant, as defined in the
Explanation below sub-section (2) of section 288, certifying that the
deduction has been correctly claimed.
Explanation.For the purposes of this sub-section, a hospital shall be deemed
to have been constructed on the date on which a completion certificate
in respect of such construction, is issued by the concerned local
authority.

(12) Where any undertaking of an Indian company which is entitled to the deduction
under this section is transferred, before the expiry of the period specified in this
section, to another Indian company in a scheme of amalgamation or demerger
(a) no deduction shall be admissible under this section to the amalgamating or
the demerged company for the previous year in which the amalgamation or
the demerger takes place; and
(b) the provisions of this section shall, as far as may be, apply to the
amalgamated or the resulting company as they would have applied to the
amalgamating or the demerged company if the amalgamation or demerger
had not taken place.
(13) The provisions contained in sub-section (5) and sub-sections (7) to (12) of
section 80-IA shall, so far as may be, apply to the eligible business under this
section79.
(14) For the purposes of this section,
The following clause (a) of sub-section (14) of section 80-IB shall be inserted
by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(a) built-up area means the inner measurements of the residential unit at the
floor level, including the projections and balconies, as increased by the
thickness of the walls but does not include the common areas shared with
other residential units;
79a
[(a)] cold chain facility means a chain of facilities for storage or transportation
of agricultural produce under scientifically controlled conditions including
refrigeration and other facilities necessary for the preservation of such
produce;
80 80a
[ [(aa)] convention centre means a building of a prescribed area comprising of
convention halls to be used for the purpose of holding conferences and
seminars, being of such size and number and having such other facilities
and amenities, as may be prescribed80b;]
(b) hilly area means any area located at a height of one thousand metres or
more above the sea level;
(c) initial assessment year
(i) in the case of an industrial undertaking or cold storage plant or ship or
hotel, means the assessment year relevant to the previous year in which
the industrial undertaking begins to manufacture or produce articles or
things, or to operate its cold storage plant or plants or the cold chain
facility or the ship is first brought into use or the business of the hotel
starts functioning;
(ii) in the case of a company carrying on scientific and industrial research
and development, means the assessment year relevant to the previous
year in which the company is approved by the prescribed authority for
the purposes of sub-section (8);
iii(iii) in the case of an undertaking engaged in the business of commercial
production or refining of mineral oil referred to in sub-section (9),
means the assessment year relevant to the previous year in which the
undertaking commences the commercial production or refining of
mineral oil;

81[(iv) in the case of an undertaking engaged 81a[in the business of processing,

preservation and packaging of fruits or vegetables or] in the integrated
business of handling, storage and transportation of foodgrains, means
the assessment year relevant to the previous year in which the
undertaking begins such business;]
82
[(v) in the case of a multiplex theatre, means the assessment year relevant to
the previous year in which a cinema hall, being a part of the said
multiplex theatre, starts operating on a commercial basis;
(vi) in the case of a convention centre, means the assessment year relevant to
the previous year in which the convention centre starts operating on a
commercial basis;]
The following sub-clause (vii) shall be inserted after sub-clause (vi)
of clause (c) of sub-section (14) of section 80-IB by the Finance (No.
2) Act, 2004, w.e.f. 1-4-2005 :
(vii) in the case of an undertaking engaged in operating and maintaining a
hospital in a rural area, means the assessment year relevant to the
previous year in which the undertaking begins to provide medical
services;
(d) North-Eastern Region means the region comprising the States of
Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland,
Sikkim and Tripura;
83
[(da) multiplex theatre means a building of a prescribed area, comprising of
two or more cinema theatres and commercial shops of such size and number
and having such other facilities and amenities as may be prescribed84;]
(e) place of pilgrimage means a place where any temple, mosque, gurdwara,
church or other place of public worship of renown throughout any State or
States is situated;
(f) rural area means any area other than
(i) an area which is comprised within the jurisdiction of a municipality
(whether known as a municipality, municipal corporation, notified area
committee, town area committee or by any other name) or a cantonment
board and which has a population of not less than ten thousand
according to the preceding census of which relevant figures have been
published before the first day of the previous year; or
(ii) an area within such distance not being more than fifteen kilometres from
the local limits of any municipality or cantonment board referred to in
sub-clause (i), as the Central Government may, having regard to the
stage of development of such area including the extent of, and scope for,
urbanisation of such area and other relevant considerations specify in
this behalf by notification in the Official Gazette85;
(g) small-scale industrial undertaking means an industrial undertaking which
is, as on the last day of the previous year, regarded as a small-scale
industrial undertaking under section 11B86 of the Industries (Development
and Regulation) Act, 1951 (65 of 1951).]
87

[Special provisions in respect of certain undertakings or enterprises in certain

special category States87a.

80-IC. (1) Where the gross total income of an assessee includes any profits and
gains derived by an undertaking or an enterprise from any business referred to in
sub-section (2), there shall, in accordance with and subject to the provisions of this
section, be allowed, in computing the total income of the assessee, a deduction from
such profits and gains, as specified in sub-section (3).
(2) This section applies to any undertaking or enterprise,
(a) which has begun or begins to manufacture or produce any article or thing,
not being any article or thing specified in the Thirteenth Schedule, or which
manufactures or produces any article or thing, not being any article or
thing specified in the Thirteenth Schedule and undertakes substantial
expansion during the period beginning
(i) on the 23rd day of December, 2002 and ending before the 1st day of
April, 2012, in any Export Processing Zone or Integrated Infrastructure
Development Centre or Industrial Growth Centre or Industrial Estate or
Industrial Park or Software Technology Park or Industrial Area or
Theme Park, as notified by the Board in accordance with the scheme
framed and notified87b by the Central Government in this regard, in the
State of Sikkim; or
(ii) on the 7th day of January, 2003 and ending before the 1st day of April,
2012, in any Export Processing Zone or Integrated Infrastructure
Development Centre or Industrial Growth Centre or Industrial Estate or
Industrial Park or Software Technology Park or Industrial Area or
Theme Park, as notified87b by the Board in accordance with the scheme
framed and notified by the Central Government in this regard, in the
State of Himachal Pradesh or the State of Uttaranchal; or
(iii) on the 24th day of December, 1997 and ending before the 1st day of
April, 2007, in any Export Processing Zone or Integrated Infrastructure
Development Centre or Industrial Growth Centre or Industrial Estate or
Industrial Park or Software Technology Park or Industrial Area or
Theme Park, as notified87b by the Board in accordance with the scheme
framed and notified by the Central Government in this regard, in any of
the North-Eastern States;
(b) which has begun or begins to manufacture or produce any article or thing,
specified in the Fourteenth Schedule or commences any operation specified
in that Schedule, or which manufactures or produces any article or thing,
specified in the Fourteenth Schedule or commences any operation specified
in that Schedule and undertakes substantial expansion during the period
beginning
(i) on the 23rd day of December, 2002 and ending before the 1st day of
April, 2012, in the State of Sikkim; or
(ii) on the 7th day of January, 2003 and ending before the 1st day of April,
2012, in the State of Himachal Pradesh or the State of Uttaranchal; or
(iii) on the 24th day of December, 1997 and ending before the 1st day of
April, 2007, in any of the North-Eastern States.
(3) The deduction referred to in sub-section (1) shall be
(i) in the case of any undertaking or enterprise referred to in sub-clauses (i)
and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub-section

(2), one hundred per cent of such profits and gains for ten assessment years
commencing with the initial assessment year;
(ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of
clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred
per cent of such profits and gains for five assessment years commencing
with the initial assessment year and thereafter, twenty-five per cent (or
thirty per cent where the assessee is a company) of the profits and gains.
(4) This section applies to any undertaking or enterprise which fulfils all the
following conditions, namely:
(i) it is not formed by splitting up, or the reconstruction, of a business already
in existence :
Provided that this condition shall not apply in respect of an undertaking
which is formed as a result of the re-establishment, reconstruction or
revival by the assessee of the business of any such undertaking as is
referred to in section 33B, in the circumstances and within the period
specified in that section;
(ii) it is not formed by the transfer to a new business of machinery or plant
previously used for any purpose.
Explanation.The provisions of Explanations 1 and 2 to sub-section (3) of section
80-IA shall apply for the purposes of clause (ii) of this sub-section as they apply for
the purposes of clause (ii) of that sub-section.
(5) Notwithstanding anything contained in any other provision of this Act, in
computing the total income of the assessee, no deduction shall be allowed under any
other section contained in Chapter VIA or in section 10A or section 10B, in relation
to the profits and gains of the undertaking or enterprise.
(6) Notwithstanding anything contained in this Act, no deduction shall be allowed to
any undertaking or enterprise under this section, where the total period of deduction
inclusive of the period of deduction under this section, or under the second proviso to
sub-section (4) of section 80-IB or under section 10C, as the case may be, exceeds ten
assessment years.
(7) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section
80-IA shall, so far as may be, apply to the eligible undertaking or enterprise under
this section.
(8) For the purposes of this section,
(i) Industrial Area means such areas, which the Board, may, by notification
in the Official Gazette, specify in accordance with the scheme framed and
notified by the Central Government;
(ii) Industrial Estate means such estates, which the Board, may, by
notification in the Official Gazette, specify in accordance with the scheme
framed and notified by the Central Government;
(iii) Industrial Growth Centre means such centres, which the Board, may, by
notification in the Official Gazette, specify in accordance with the scheme
framed and notified by the Central Government;
(iv) Industrial Park means such parks, which the Board, may, by notification
in the Official Gazette, specify in accordance with the scheme framed and
notified by the Central Government;

(v) Initial assessment year means the assessment year relevant to the
previous year in which the undertaking or the enterprise begins to
manufacture or produce articles or things, or commences operation or
completes substantial expansion;
(vi) Integrated Infrastructure Development Centre means such centres, which
the Board, may, by notification in the Official Gazette, specify in
accordance with the scheme framed and notified by the Central
Government;
(vii) North-Eastern States means the States of Arunachal Pradesh, Assam,
Manipur, Meghalaya, Mizoram, Nagaland and Tripura;
(viii) Software Technology Park means any park set up in accordance with the
Software Technology Park Scheme notified by the Government of India in
the Ministry of Commerce and Industry;
(ix) substantial expansion means increase in the investment in the plant and
machinery by at least fifty per cent of the book value of plant and
machinery (before taking depreciation in any year), as on the first day of
the previous year in which the substantial expansion is undertaken;
(x) Theme Park means such parks, which the Board, may, by notification in
the Official Gazette, specify in accordance with the scheme framed and
notified by the Central Government.]

90

[Deduction in respect of profits and gains from business of collecting and

processing of bio-degradable waste.
80JJA. Where the gross total income of an assessee includes any profits and gains
derived from the business of collecting and processing or treating of bio-degradable
waste for generating power 91[or producing bio-fertilizers, bio-pesticides or other
biological agents or for producing bio-gas or] making pellets or briquettes for fuel or
organic manure, there shall be allowed, in computing the total income of the assessee,
92
[a deduction of an amount equal to the whole of such profits and gains for a period
of five consecutive assessment years beginning with the assessment year relevant to
the previous year in which such business commences].]
93

[Deduction in respect of employment of new workmen.

80JJAA. (1) Where the gross total income of an assessee, being an Indian company,
includes any profits and gains derived from any industrial undertaking engaged in the
manufacture or production of article or thing, there shall, subject to the conditions
specified in sub-section (2), be allowed a deduction of an amount equal to thirty per
cent of additional wages paid to the new regular workmen employed by the assessee
in the previous year for three assessment years including the assessment year relevant
to the previous year in which such employment is provided.
(2) No deduction under sub-section (1) shall be allowed
(a) if the industrial undertaking is formed by splitting up or reconstruction of an
existing undertaking or amalgamation with another industrial undertaking;

(b) unless the assessee furnishes along with the return of income the report of
the accountant, as defined in the Explanation below sub-section (2) of
section 288 giving such particulars in the report as may be prescribed94.
Explanation.For the purposes of this section, the expressions,
(i) additional wages means the wages paid to the new regular workmen in
excess of one hundred workmen employed during the previous year :
Provided that in the case of an existing undertaking, the additional wages
shall be nil if the increase in the number of regular workmen employed
during the year is less than ten per cent of existing number of workmen
employed in such undertaking as on the last day of the preceding year;
(ii) regular workman, does not include
(a) a casual workman; or
(b) a workman employed through contract labour; or
(c) any other workman employed for a period of less than three hundred
days during the previous year;
(iii) workman shall have the meaning assigned to it in clause (s) of section 295
of the Industrial Disputes Act, 1947 (14 of 1947).]

97

Deductions in respect of interest on certain securities, dividends, etc.

80L. (1) 99[Where the gross total income of an assessee, being
(a) an individual1, or
(b) a Hindu undivided family, 2[***]
(c) 3[***]
includes any income by way of]
(i) interest on any security of the Central Government or a State Government
4
[***];
5
[(ia) interest on National Savings Certificates (VI Issue) or National Savings
Certificates (VII Issue) or National Savings Certificates (VIII Issue) issued
under the Government Savings Certificates Act, 1959 (46 of 1959);]
6
[(ii) interest on such debentures, issued by any institution or authority or any
public sector company, or any co-operative society (including a cooperative land mortgage bank or a co-operative land development bank), as
the Central Government may, by notification7 in the Official Gazette,
specify in this behalf;
8
[***]]
9
[(iia) interest on deposits under such National Deposit Scheme as may be framed
by the Central Government and notified by it in this behalf in the Official
Gazette;]
(iii) interest on deposits under any 10[other] scheme framed by the Central
Government and notified11 by it in this behalf in the Official Gazette;
12
[(iiia) interest on deposits under the Post Office (Monthly Income Account) Rules,
1987;]
98

(iv) 13[***]
(v) 13[***]
(va) 13[***]
(vi) interest on deposits with 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) 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); 14[***]
15
[(via) interest on deposits with any such bank, not being a banking company or a
co-operative society referred to in clause (vi) but being a bank established
by or under any law made by Parliament, as may be approved by the Central
Government for the purposes of this clause;]
16
[(vii) interest on deposits with a financial corporation which is engaged in
providing long-term finance for industrial development in India 17[and
which is eligible for deduction under clause (viii) of sub-section (1) of
section 36] 18[***];
19
[* * *]]
20
[(viia) interest on deposits with any 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;]
21
[(viii) interest on deposits with a co-operative society, not being a co-operative
society referred to in clause (vi), made by a member of the society;
22
[(ix) dividends from any co-operative society;] 23[or]
24
[(x) interest on deposits with 25[* * *] any public company formed and registered
in India with the main object of carrying on the business of providing longterm finance for construction or purchase of houses in India for residential
purposes 26[and which is eligible for deduction under clause (viii) of subsection (1) of section 36],
27
[* * *]]
there shall, in accordance with and subject to the provisions of this section, be
allowed, in computing the total income of the assessee, a deduction as specified
hereunder, namely :
28
[(1)] in a case where the amount of such income does not exceed in the aggregate
29
[twelve] thousand rupees, the whole of such amount; and
28
[(2)] in any other case, 29[twelve] thousand rupees :
30
[Provided that where any income referred to in 31[clause (i)] 32[* * *] remains
unallowed after the deduction under the foregoing provision of this section, there shall
be allowed in computing the total income of the assessee, an additional deduction of
an amount equal to so much of such income as has remained unallowed; so, however,
that the amount of such additional deduction shall not exceed three thousand rupees.]
33
[***]
34
[***]
35
[Explanation.For the purposes of this sub-section, the expression security
means a Government security36 as defined in clause (2) of section 2 of the Public Debt
Act, 1944 (18 of 1944).]

(2) 37[***]
38
[(3) For the removal of doubts, it is hereby declared that where the income referred
to in sub-section (1) is derived from any asset held by, or on behalf of, a firm, an
association of persons or a body of individuals, no deduction shall be allowed under
the said sub-section in respect of such income in computing the total income of any
partner of the firm or any member of the association or body.]
39

[Deduction in respect of certain incomes of Offshore Banking Units.

80LA. (1) Where the gross total income of an assessee,
(i) being a scheduled bank (not being a bank incorporated by or under the
laws of a country outside India);
(ii) owning an offshore banking unit in a special economic zone,
includes any income referred to in sub-section (2), there shall be allowed, in
accordance with and subject to the provisions of this section, a deduction from such
income, of an amount equal to
(a) one hundred per cent of such income for three consecutive assessment
years beginning with the assessment year relevant to the previous year
in which the permission, under clause (a) of sub-section (1) of section
23 of the Banking Regulation Act, 1949 (10 of 1949), was obtained, and
thereafter;
(b) fifty per cent of such income for two consecutive assessment years.
(2) The income referred to in sub-section (1) shall be the income
(a) from an offshore banking unit in a special economic zone;
(b) from the business, referred to in sub-section (1) of section 6 of the Banking
Regulation Act, 1949 (10 of 1949), with an undertaking located in a special
economic zone or any other undertaking which develops, develops and
operates or operates and maintains a special economic zone;
(c) received in convertible foreign exchange, in accordance with the
regulations made under the Foreign Exchange Management Act, 1999 (42
of 1999).
(3) No deduction under this section shall be allowed unless the assessee furnishes
along with the return of income,
(i) in the prescribed form39a, the report of an accountant as defined in the
Explanation below sub-section (2) of section 288, certifying that the
deduction has been correctly claimed in accordance with the provisions of
this section; and
(ii) a copy of the permission obtained under clause (a) of sub-section (1) of
section 23 of the Banking Regulation Act, 1949 (10 of 1949).
Explanation.For the purposes of this section,
(a) convertible foreign exchange shall have the same meaning assigned to it
in clause (a) of the Explanation below sub-section (4C) of section 80HHC;
(b) Offshore Banking Unit means a branch of a bank in India located in the
special economic zone and has obtained the permission under clause (a) of
sub-section (1) of section 23 of the Banking Regulation Act, 1949 (10 of
1949);

(c) scheduled bank shall have the same meaning assigned to it in clause (e)
of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934);
(d) special economic zone shall have the same meaning assigned to it in
clause (viii) of the Explanation 2 to section 10A.]

43 44

[ Deduction in respect of royalties, etc., from certain foreign enterprises.

80-O. 46[Where the gross total income of an assessee, being an Indian company 47[or
a person (other than a company) who is resident in India]], includes 48[any income
received by the assessee from the Government of a foreign State or foreign
enterprise49 in consideration for the use 49outside India of any patent, invention, design
or registered trade mark] 50[***] 51[and such income is received in convertible foreign
exchange in India, or having been received in convertible foreign exchange outside
India, or having been converted into convertible foreign exchange outside India, is
brought into India, by or on behalf of the assessee in accordance with any law for the
time being in force for regulating payments and dealings in foreign exchange, there
shall be allowed, in accordance with and subject to the provisions of this section, 52[a
deduction of an amount equal to
(i) forty per cent for an assessment year beginning on the 1st day of April,
2001;
(ii) thirty per cent for an assessment year beginning on the 1st day of April,
2002;
(iii) twenty per cent for an assessment year beginning on the 1st day of April,
2003;
(iv) ten per cent for an assessment year beginning on the 1st day of April, 2004,
of the income so received in, or brought into, India, in computing the total income of
the assessee and no deduction shall be allowed in respect of the assessment year
beginning on the 1st day of April, 2005 and any subsequent assessment year]] :
53
[***]
54
[Provided 55[***] that such income is received in India within a period of six
months from the end of the previous year, or 56[within such further period as the
competent authority may allow in this behalf]:]
57
[Provided further that no deduction under this section shall be allowed unless the
assessee furnishes a certificate, in the prescribed form58, along with the return of
income, certifying that the deduction has been correctly claimed in accordance with
the provisions of this section.]
59
[Explanation.For the purposes of this section,
(i) 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 law for the time being in force for
regulating payments and dealings in foreign exchange;
60
[(ii) foreign enterprise means a person who is a non-resident;]]
61
[(iii) services rendered or agreed to be rendered outside India shall include
services rendered from India but shall not include services rendered in
India;]
45

62

[(iv) competent authority means the Reserve Bank of India or such other
authority as is authorised under any law for the time being in force for
regulating payments and dealings in foreign exchange.]
63
(2) [***]]
64

[Deduction in respect of income of co-operative societies.

80P. (1) Where, in the case of an assessee being a co-operative society, the gross
total income includes any income referred to in sub-section (2), there shall be
deducted, in accordance with and subject to the provisions of this section, the sums
specified in sub-section (2), in computing the total income of the assessee.
(2) The sums referred to in sub-section (1) shall be the following, namely :
(a) in the case of a co-operative society engaged in
(i) carrying on the business of banking or providing credit facilities 66 to its
members66, or
(ii) a cottage industry67, or
68
[(iii) the marketing67 of agricultural produce grown by its members, or]
(iv) the purchase of agricultural implements, seeds, livestock or other
articles intended for agriculture for the purpose of supplying them to its
members, or
(v) the processing, without the aid of power, of the agricultural produce of
its members, 69[or]
69
[(vi) the collective disposal of the labour of its members, or
(vii) fishing or allied activities, that is to say, the catching, curing, processing,
preserving, storing or marketing of fish or the purchase of materials and
equipment in connection therewith for the purpose of supplying them to
its members,]
the whole of the amount of profits and gains of business attributable to any
one or more of such activities70 :
71
[Provided that in the case of a co-operative society falling under subclause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict
the voting rights to the following classes of its members, namely:
(1) the individuals who contribute their labour or, as the case may be, carry
on the fishing or allied activities;
(2) the co-operative credit societies which provide financial assistance to
the society;
(3) the State Government;]
72
[(b) in the case of a co-operative society, being a primary society engaged in
supplying milk, oilseeds, fruits or vegetables raised or grown by its
members to
(i) a federal co-operative society, being a society engaged in the business of
supplying milk, oilseeds, fruits, or vegetables, as the case may be; or
(ii) the Government or a local authority; or
(iii) a Government company73 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 (being a company or corporation
65

engaged in supplying milk, oilseeds, fruits or vegetables, as the case

may be, to the public),
the whole of the amount of profits and gains of such business;]
(c) in the case of a co-operative society engaged in activities74 other than those
specified in clause (a) or clause (b) (either independently of, or in addition
to, all or any of the activities so specified), so much of its profits and gains
attributable75 to such activities as 76[does not exceed,
(i) where such co-operative society is a consumers co-operative society,
77
[one hundred] thousand rupees; and
(ii) in any other case, 78[fifty] thousand rupees.
Explanation.In this clause, consumers co-operative society means a
society for the benefit of the consumers;]
(d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society,
the whole of such income;
(e) in respect of any income derived by the co-operative society from the letting
of godowns or warehouses79 for storage, processing or facilitating the
marketing of commodities79, the whole of such income;
(f) in the case of a co-operative society, not being a housing society or an urban
consumers society or a society carrying on transport business or a society
engaged in the performance of any manufacturing operations with the aid of
power, where the gross total income does not exceed twenty thousand
rupees, the amount of any income by way of interest on securities 80[***] or
any income from house property chargeable under section 22.
Explanation.For the purposes of this section, an urban consumers co-operative
society means a society for the benefit of the consumers within the limits of a
municipal corporation, municipality, municipal committee, notified area committee,
town area or cantonment.
(3) In a case where the assessee is entitled also to the deduction under 81[***]
82
[section 80HH] 83[or section 80HHA] 84[or section 80HHB] 85[or section 80HHC]
86
[or section 80HHD] 87[or section 80-I] 88[or section 80-IA] or section 8980J 90[***]
91
[***], the deduction under sub-section (1) of this section, in relation to the sums
specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed
with reference to the income, if any, as referred to in those clauses included in the
gross total income as reduced by the deductions under 92[***] 93[section 80HH,]
94
[section 80HHA,] 95[section 80HHB,] 96[section 80HHC,] 97[section 80HHD,]
98
[section 80-I,] 99[section 80-IA,] 1[2[section 80J 3 and section 80JJ]].]
(4) 4[***]
5

[Deduction in respect of profits and gains from the business of publication of

books.
6
80Q. (1) Where in the case of an assessee the gross total income of the previous
year relevant to the assessment year commencing on the 1st day of April, 1992, or to
any one of the four assessment years next following that assessment year, includes
any profits and gains derived from a business carried on in India of printing and
publication of books or publication of books, there shall, in accordance with and
subject to the provisions of this section, be allowed, in computing the total income of

the assessee, a deduction from such profits and gains of an amount equal to twenty per
cent thereof.
(2) In a case where the assessee is entitled also to the deduction under section 80HH
or section 80HHA or section 80HHC or section 80-I or section 80-IA or section 80J7
or section 80P, in relation to any part of the profits and gains referred to in sub-section
(1), the deduction under sub-section (1) shall be allowed with reference to such profits
and gains included in the gross total income as reduced by the deductions under
section 80HH, section 80HHA, section 80HHC, section 80-I, section 80-IA, section
80J7 and section 80P.
(3) For the purposes of this section, books shall not include newspapers, journals,
magazines, diaries, brochures, tracts, pamphlets and other publications of a similar
nature by whatever name called.]

[Deduction in respect of professional income of authors of text books in Indian

languages.
80QQA. (1) Where, in the case of an individual resident in India, being an author, the
gross total income of the previous year relevant to the assessment year 10[commencing
on
(a) the 1st day of April, 1980, or to any one of the nine assessment years next
following that assessment year; or
(b) the 1st day of April, 1992, or to any one of the four assessment years next
following that assessment year,
includes] any income derived by him in the exercise of his profession on account of
any lump sum consideration for the assignment or grant of any of his interests in the
copyright of any book, or of royalties or copyright fees (whether receivable in lump
sum or otherwise) in respect of such book, there shall, in accordance with and subject
to the provisions of this section, be allowed, in computing the total income of the
assessee, a deduction from such income of an amount equal to twenty-five per cent
thereof.
(2) No deduction under sub-section (1) shall be allowed unless
(a) the book is either in the nature of a dictionary, thesaurus or encyclopaedia or
is one that has been prescribed or recommended as a text book, or included
in the curriculum, by any University, for a degree or post-graduate course of
that University; and
(b) the book is written in any language specified in the Eighth Schedule to the
Constitution11 or in any such other language as the Central Government may,
by notification in the Official Gazette, specify in this behalf having regard
to the need for promotion of publication of books of the nature referred to in
clause (a) in that language and other relevant factors.
Explanation.For the purposes of this section,
(i) author includes a joint author;
(ii) lump sum, in regard to royalties or copyright fees, includes an advance
payment on account of such royalties or copyright fees which is not
returnable;

(iii) University shall have the same meaning as in the Explanation to clause
(ix) of section 47.]
12

[Deduction in respect of royalty income, etc., of authors of certain books other

than text-books.
80QQB. (1) Where, in the case of an individual resident in India, being an author,
the gross total income includes any income, derived by him in the exercise of his
profession, on account of any lump sum consideration for the assignment or grant of
any of his interests in the copyright of any book being a work of literary, artistic or
scientific nature, or of royalty or copyright fees (whether receivable in lump sum or
otherwise) in respect of such book, there shall, in accordance with and subject to the
provisions of this section, be allowed, in computing the total income of the assessee, a
deduction from such income, computed in the manner specified in sub-section (2).
(2) The deduction under this section shall be equal to the whole of such income
referred to in sub-section (1), or an amount of three lakh rupees, whichever is less :
Provided that where the income by way of such royalty or the copyright fee, is not a
lump sum consideration in lieu of all rights of the assessee in the book, so much of the
income, before allowing expenses attributable to such income, as is in excess of
fifteen per cent of the value of such books sold during the previous year shall be
ignored :
Provided further that in respect of any income earned from any source outside India,
so much of the income shall be taken into account for the purpose of this section as is
brought into India by, or on behalf of, the assessee in convertible foreign exchange
within a period of six months from the end of the previous year in which such income
is earned or within such further period as the competent authority may allow in this
behalf.
(3) No deduction under this section shall be allowed unless the assessee furnishes a
certificate in the prescribed form13 and in the prescribed manner, duly verified by any
person responsible for making such payment to the assessee as referred to in subsection (1), along with the return of income, setting forth such particulars as may be
prescribed13.
(4) No deduction under this section shall be allowed in respect of any income earned
from any source outside India, unless the assessee furnishes a certificate, in the
prescribed form14 from the prescribed authority15, along with the return of income in
the prescribed manner.
(5) Where a deduction for any previous year has been claimed and allowed in respect
of any income referred to in this section, no deduction in respect of such income shall
be allowed under any other provision of this Act in any assessment year.
Explanation.For the purposes of this section,
(a) author includes a joint author;
(b) books shall not include brochures, commentaries, diaries, guides,
journals, magazines, newspapers, pamphlets, text-books for schools, tracts
and other publications of similar nature, by whatever name called;
(c) competent authority means the Reserve Bank of India or such other
authority as is authorised under any law for the time being in force for
regulating payments and dealings in foreign exchange;

(d) lump sum, in regard to royalties or copyright fees, includes an advance

payment on account of such royalties or copyright fees which is not
returnable.]
16

[Deduction in respect of remuneration from certain foreign sources in the case

of professors, teachers, etc.17
80R. Where the gross total income of an individual who is a citizen of India
includes any remuneration received by him outside India from any University or other
educational institution established outside India or 18[any other association or body
established outside India], for any service rendered by him during his stay outside
India in his capacity as a professor, teacher or research worker in such University,
institution, association or body, there shall be 19[allowed, in computing the total
income of the individual, 20[a deduction from such remuneration of an amount equal
to
(i) sixty per cent of such remuneration for an assessment year beginning on the
1st day of April, 2001;
(ii) forty-five per cent of such remuneration for an assessment year beginning
on the 1st day of April, 2002;
(iii) thirty per cent of such remuneration for an assessment year beginning on the
1st day of April, 2003;
(iv) fifteen per cent of such remuneration for an assessment year beginning on
the 1st day of April, 2004,
as is brought into India by, or on behalf of, the assessee in convertible foreign
exchange within a period of six months from the end of the previous year or within
such further period as the competent authority may allow in this behalf and no
deduction shall be allowed in respect of the assessment year beginning on the 1st day
of April, 2005 and any subsequent assessment year] :
21
[Provided that no deduction under this section shall be allowed unless the assessee
furnishes a certificate, in the prescribed form22, along with the return of income,
certifying that the deduction has been correctly claimed in accordance with the
provisions of this section.]]
23
[***]
24
[Explanation.For the purposes of this section, the expression competent
authority means the Reserve Bank of India or such other authority as is authorised
under any law for the time being in force for regulating payments and dealings in
foreign exchange.]
25

[Deduction in respect of professional income from foreign sources in certain

cases.
26
80RR. Where the gross total income of an individual resident in India, being an
author, playwright, artist, 27[musician, actor or sportsman (including an athlete)],
includes any income derived by him in the exercise of his profession from the
Government of a foreign State or any person not resident in India, 28[there shall be
allowed, in computing the total income of the individual, 29[a deduction from such
income of an amount equal to
(i) sixty per cent of such income for an assessment year beginning on the 1st
day of April, 2001;

(ii) forty-five per cent of such income for an assessment year beginning on the
1st day of April, 2002;
(iii) thirty per cent of such income for an assessment year beginning on the 1st
day of April, 2003;
(iv) fifteen per cent of such income for an assessment year beginning on the 1st
day of April, 2004,
as is brought into India by, or on behalf of, the assessee in convertible foreign
exchange within a period of six months from the end of the previous year or within
such further period as the competent authority may allow in this behalf and no
deduction shall be allowed in respect of the assessment year beginning on the 1st day
of April, 2005 and any subsequent assessment year]] :
30
[Provided that no deduction under this section shall be allowed unless the assessee
furnishes a certificate, in the prescribed form31, along with the return of income,
certifying that the deduction has been correctly claimed in accordance with the
provisions of this section.]]
32
[Explanation.For the purposes of this section, the expression competent
authority means the Reserve Bank of India or such other authority as is authorised
under any law for the time being in force for regulating payments and dealings in
foreign exchange.]
33

[Deduction in respect of remuneration received for services rendered outside

India.
34
80RRA. (1) Where the gross total income of an individual who is a citizen of India
includes any remuneration35 received by him in foreign currency from any employer 35
(being a foreign employer or an Indian concern) for any service rendered by him
outside India, there shall, in accordance with and subject to the provisions of this
section, be allowed, in computing the total income of the individual, 36[a deduction
from such remuneration of an amount equal to
(i) sixty per cent of such remuneration for an assessment year beginning on the
1st day of April, 2001;
(ii) forty-five per cent of such remuneration for an assessment year beginning
on the 1st day of April, 2002;
(iii) thirty per cent of such remuneration for an assessment year beginning on the
1st day of April, 2003;
(iv) fifteen per cent of such remuneration for an assessment year beginning on
the 1st day of April, 2004,
as is brought into India by, or on behalf of, the assessee in convertible foreign
exchange within a period of six months from the end of the previous year or within
such further period as the competent authority may allow in this behalf and no
deduction shall be allowed in respect of the assessment year beginning on the 1st day
of April, 2005 and any subsequent assessment year] :
37
[Provided that no deduction under this sub-section shall be allowed unless the
assessee furnishes a certificate, in the prescribed form38, along with the return of
income, certifying that the deduction has been correctly claimed in accordance with
the provisions of this section.]]
39
[***]
(2) The deduction under this section shall be allowed

(i) in the case of an individual who is or was, immediately before undertaking

such service, in the employment of the Central Government or any State
Government, only if such service is sponsored by the Central Government;
(ii) in the case of any other individual, only if he is a technician and the terms
and conditions of his service outside India are approved in this behalf by the
Central Government or the prescribed authority.
Explanation.For the purposes of this section,
(a) foreign currency40 shall have the meaning assigned to it in the Foreign
Exchange Regulation Act, 1973 (46 of 1973);
(b) foreign employer means,
(i) the Government of a foreign State; or
(ii) a foreign enterprise; or
(iii) any association or body established outside India;
(c) technician means a person having specialised knowledge and experience
in
(i) constructional or manufacturing operations or mining or the generation
or distribution of electricity or any other form of power; or
(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship
building; or
(iii) public administration or industrial or business management; or
(iv) accountancy; or
(v) any field of natural or applied science (including medical science) or
social science; or
(vi) any other field which the Board may prescribe41 in this behalf,
who is employed in a capacity in which such specialised knowledge and
experience are actually utilised;]
42
[(d) competent authority means the Reserve Bank of India or such other
authority as is authorised under any law for the time being in force for
regulating payments and dealings in foreign exchange.]
43

[Deduction in respect of royalty on patents.

80RRB. (1) Where in the case of an assessee, being an individual, who is
(a) resident in India;
(b) a patentee;
(c) in receipt of any income by way of royalty in respect of a patent registered
on or after the 1st day of April, 2003 under the Patents Act, 1970 (39 of
1970), and
his gross total income of the previous year includes royalty, there shall, in accordance
with and subject to the provisions of this section, be allowed a deduction, from such
income, of an amount equal to the whole of such income or three lakh rupees,
whichever is less:
Provided that where a compulsory licence is granted in respect of any patent under
the Patents Act, 1970 (39 of 1970), the income by way of royalty for the purpose of
allowing deduction under this section shall not exceed the amount of royalty under
the terms and conditions of a licence settled by the Controller under that Act :

Provided further that in respect of any income earned from any source outside India,
so much of the income, shall be taken into account for the purpose of this section as is
brought into India by, or on behalf of, the assessee in convertible foreign exchange
within a period of six months from the end of the previous year in which such income
is earned or within such further period as the competent authority referred to in
clause (c) of the Explanation to section 80QQB may allow in this behalf.
(2) No deduction under this section shall be allowed unless the assessee furnishes a
certificate in the prescribed form 44, duly signed by the prescribed authority 45, along
with the return of income setting forth such particulars as may be prescribed.
(3) No deduction under this section shall be allowed in respect of any income earned
from any source outside India, unless the assessee furnishes a certificate in the
prescribed form46, from the authority or authorities, as may be prescribed 47, along
with the return of income.
(4) Where a deduction for any previous year has been claimed and allowed in respect
of any income referred to in this section, no deduction in respect of such income shall
be allowed, under any other provision of this Act in any assessment year.
Explanation.For the purposes of this section,
(a) Controller shall have the meaning assigned to it in clause (b) of subsection (1) of section 2 of the Patents Act, 1970 (39 of 1970)48;
(b) lump sum includes an advance payment on account of such royalties
which is not returnable;
(c) patent means a patent (including a patent of addition) granted under the
Patents Act, 1970 (39 of 1970);
(d) patentee means the person, being the true and first inventor of the
invention, whose name is entered on the patent register as the patentee, in
accordance with the Patents Act, 1970 (39 of 1970), and includes every
such person, being the true and first inventor of the invention, where more
than one person is registered as patentee under that Act in respect of that
patent;
(e) patent of addition shall have the meaning assigned to it in clause (q) of
sub-section (1) of section 2 of the Patents Act, 1970 (39 of 1970)49;
(f) patented article and patented process shall have the meanings
respectively assigned to them in clause (o) of sub-section (1) of section 2 of
the Patents Act, 1970 (39 of 1970)49;
(g) royalty, in respect of a patent, 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 or
consideration for sale of product manufactured with the use of patented
process or of the patented article for commercial use) for
(i) the transfer of all or any rights (including the granting of a licence) in
respect of a patent; or
(ii) the imparting of any information concerning the working of, or the use
of, a patent; or
(iii) the use of any patent; or
(iv) the rendering of any services in connection with the activities referred to
in sub-clauses (i) to (iii);

(h) true and first inventor shall have the meaning assigned to it in clause (y)
of sub-section (1) of section 2 of the Patents Act, 1970 (39 of 1970)49.]

52

[D.Other deductions
[Deduction in case of a person with disability.
80U.(1) In computing the total income of an individual, being a resident, who, at any
time during the previous year, is certified by the medical authority to be a person with
disability, there shall be allowed a deduction of a sum of fifty thousand rupees :
Provided that where such individual is a person with severe disability, the provisions
of this sub-section shall have effect as if for the words fifty thousand rupees, the
words seventy-five thousand rupees had been substituted.
(2) Every individual claiming a deduction under this section shall furnish a copy of
the certificate issued by the medical authority in the form and manner, as may be
prescribed53a, along with the return of income under section 139, in respect of the
assessment year for which the deduction is claimed :
Provided that where the condition of disability requires reassessment of its extent
after a period stipulated in the aforesaid certificate, no deduction under this section
shall be allowed for any assessment year relating to any previous year beginning
after the expiry of the previous year during which the aforesaid certificate of
disability had expired, unless a new certificate is obtained from the medical authority
in the form and manner, as may be prescribed53a, and a copy thereof is furnished
along with the return of income under section 139.
Explanation.For the purposes of this section,
(a) disability shall have the meaning assigned to it in clause (i) of section 2
of the Persons with Disabilities (Equal Opportunities, Protection of Rights
and Full Participation) Act, 1995 (1 of 1996)54;
(b) medical authority means the medical authority as referred to in clause
(p) of section 2 of the Persons with Disabilities (Equal Opportunities,
Protection of Rights and Full Participation) Act, 1995 (1 of 1996)55;
(c) person with disability means a person referred to in clause (t) of section
2 of the Persons with Disabilities (Equal Opportunities, Protection of
Rights and Full Participation) Act, 1995 (1 of 1996)55;
(d) person with severe disability means a person with eighty per cent or
more of one or more disabilities, as referred to in sub-section (4) of section
56 of the Persons with Disabilities (Equal Opportunities, Protection of
Rights and Full Participation) Act, 1995 (1 of 1996)55.]
The following Explanation shall be substituted for the existing Explanation to
section 80U by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Explanation.For the purposes of this section,
(a) disability shall have the meaning assigned to it in clause (i) of section 2
of the Persons with Disabilities (Equal Opportunities, Protection of Rights
and Full Participation) Act, 1995 (1 of 1996), and includes autism,
cerebral palsy and multiple disabilities referred to in clauses (a), (c)
and (h) of section 255a of the National Trust for Welfare of Persons with
53

Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act,

1999 (44 of 1999);
(b) medical authority means the medical authority as referred to in clause
(p) of section 2 of the Persons with Disabilities (Equal Opportunities,
Protection of Rights and Full Participation) Act, 1995 (1 of 1996), or such
other medical authority as may, by notification, be specified by the Central
Government for certifying autism, cerebral palsy, multiple
disabilities, person with disability and severe disability referred to in
clauses (a), (c), (h), (j) and (o) of section 2 of the National Trust for Welfare
of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities Act, 1999 (44 of 1999);
(c) person with disability means a person referred to in clause (t) of section
2 of the Persons with Disabilities (Equal Opportunities, Pro-tection of
Rights and Full Participation) Act, 1995 (1 of 1996), or clause (j) of section
2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy,
Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);
(d) person with severe disability means
(i) a person with eighty per cent or more of one or more disabilities, as
referred to in sub-section (4) of section 56 of the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 (1 of 1996); or
(ii) a person with severe disability referred to in clause (o) of section 2 of
the National Trust for Welfare of Persons with Autism, Cerebral Palsy,
Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999).

57

[Share of member of an association of persons or body of individuals in the

income of the association or body.
86. Where the assessee is a member of an association of persons or body of
individuals (other than a company or a co-operative society or a society 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), income-tax shall not be
payable by the assessee in respect of his share in the income of the association or
body computed in the manner provided in section 67A :
Provided that,
(a) where the association or body is chargeable to tax on its total income at the
maximum marginal rate or any higher rate under any of the provisions of
this Act, the share of a member computed as aforesaid shall not be included
in his total income;
(b) in any other case, the share of a member computed as aforesaid shall form
part of his total income :
Provided further that where no income-tax is chargeable on the total income of the
association or body, the share of a member computed as aforesaid shall be chargeable

to tax as part of his total income and nothing contained in this section shall apply to
the case.]

CHAPTER VIII
59[REBATES AND RELIEFS]
60[A.Rebate of income-tax
Rebate to be allowed in computing income-tax.
87. (1) In computing the amount of income-tax on the total income of an assessee
with which he is chargeable for any assessment year, there shall be allowed from the
amount of income-tax (as computed before allowing the deductions under this
Chapter), in accordance with and subject to the provisions of 60a[, 61[sections 88,
88A 62[, 88B and 88C]]], the deductions specified in those sections.
(2) The aggregate amount of the deductions under section 88 or section 88A 63[or
section 88B] 64[or section 88C] 64a[or section 88D or section 88E] shall not, in any
case, exceed the amount of income-tax (as computed before allowing the deductions
under this Chapter) on the total income of the assessee with which he is chargeable for
any assessment year.
Rebate on life insurance premia, contribution to provident fund, etc.
65
88. 66[(1) Subject to the provisions of this section, an assessee, being an individual,
or a Hindu undivided family, shall be entitled to a deduction, from the amount of
income-tax (as computed before allowing the deductions under this Chapter) on his
total income with which he is chargeable for any assessment year, of an amount equal
to
(i) in the case of an individual or a Hindu undivided family, whose gross total
income before giving effect to deductions under Chapter VI-A, is one lakh
fifty thousand rupees or less, twenty per cent of the aggregate of the sums
referred to in sub-section (2):
Provided that an individual shall be entitled to a deduction of an amount
equal to thirty per cent of the aggregate of the sums referred to in subsection (2) if his income under the head Salaries
(a) does not exceed one lakh rupees during the previous year before
allowing the deduction under section 16; and
(b) is not less than ninety per cent of his gross total income, as defined in
sub-section (5) of section 80B;
(ii) in the case of an individual or a Hindu undivided family, whose gross total
income before giving effect to deductions under Chapter VI-A, is more than
one lakh fifty thousand rupees but does not exceed five lakh rupees, fifteen
per cent of the aggregate of the sums referred to in sub-section (2);

(iii) in the case of an individual or a Hindu undivided family, whose gross total
income before giving effect to deductions under Chapter VI-A, exceeds five
lakh rupees, nil.]
(2) The sums referred to in sub-section (1) shall be any sums paid or deposited in the
previous year by the assessee 67[***]
(i) to effect or to keep in force an insurance on the life of persons specified in
sub-section (4);
(ii) to effect or to keep in force a contract for a deferred annuity, 68[not being an
annuity plan referred to in clause (xiiia)], on the life of persons specified in
sub-section (4) :
Provided that such contract does not contain a provision for the exercise by
the insured of an option to receive a cash payment in lieu of the payment of
the annuity;
(iii) by way of deduction from the salary payable by or on behalf of the
Government to any individual being a sum deducted in accordance with the
conditions of his service, for the purpose of securing to him a deferred
annuity or making provision for his wife or children, in so far as the sum so
deducted does not exceed one-fifth of the salary;
(iv) as a contribution by an individual to any provident fund to which the
Provident Funds Act, 1925 (19 of 1925), applies;
(v) as a contribution to any provident fund set up by the Central Government
and notified69 by it in this behalf in the Official Gazette, where such
contribution is to an account standing in the name of any person specified in
sub-section (4);
(vi) as a contribution by an employee to a recognised provident fund;
(vii) as a contribution by an employee to an approved superannuation fund;
(viii) in a ten-year account or a fifteen-year account under the Post Office Savings
Bank (Cumulative Time Deposits) Rules, 1959, as amended from time to
time, where such sums are deposited in an account standing in the name of
the persons specified in sub-section (4);
(ix) as subscription to any such security of the Central Government 70[or any
such deposit scheme] as that Government may, by notification 71 in the
Official Gazette, specify in this behalf;
(x) as subscription to the National Savings Certificates (VI Issue) and National
Savings Certificates (VII Issue) issued under the Government Savings
Certificates Act, 1959 (46 of 1959);
(xi) as subscription to any such savings certificate72 as defined in clause (c) of
section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), as
the Central Government may, by notification 73 in the Official Gazette,
specify in this behalf;
(xii) as a contribution, 74[in the name of any person] specified in sub-section (4),
for participation in the Unit-linked Insurance Plan, 1971 (hereafter in this
section referred to as the Unit-linked Insurance Plan) deemed to have been
made under sub-clause (a) of clause (8) of section 19 of the Unit Trust of
India Act, 1963 (52 of 1963);
(xiii) as a contribution 75[in the name of any person specified in sub-section (4)]
for participation in any such unit-linked insurance plan of the LIC Mutual

77

[(xiiia)

(xiiib)

(xiiic)

(xiv)

84

[(xiva)

85

[(xivb)

(xv)

Fund notified under clause (23D) of section 10, as the Central Government
may, by notification76 in the Official Gazette, specify in this behalf;
to effect or to keep in force a contract for such annuity plan of the Life
Insurance Corporation 78[or any other insurer] as the Central Government
may, by notification79 in the Official Gazette, specify;
as subscription, not exceeding ten thousand rupees, to any units of any
Mutual Fund notified under clause (23D) of section 10 or the Unit Trust of
India established under the Unit Trust of India Act, 1963 (52 of 1963), under
any plan formulated in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf;
as a contribution by an individual to any pension fund set up by any Mutual
Fund notified under clause (23D) of section 10 80[or by the Unit Trust of
India established under the Unit Trust of India Act, 1963 (52 of 1963)], as
the Central Government may, by notification81 in the Official Gazette, specify in this behalf;]
as subscription to any such deposit scheme of 82[, or as a contribution to any
such pension fund set up by,] the National Housing Bank established under
section 3 of the National Housing Bank Act, 1987 (53 of 1987) (hereafter in
this section referred to as the National Housing Bank), as the Central
Government may, by notification83 in the Official Gazette, specify in this
behalf;
as subscription to any such deposit scheme of
(a) a public sector company which is engaged in providing long-term
finance for construction or purchase of houses in India for residential
purposes; or
(b) any 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,
not being a scheme the interest on deposits whereunder qualifies for the
purposes of computing the deduction under section 80L, as the Central
Government may, by notification in the Official Gazette, specify in this
behalf;]
as tuition fees (excluding any payment towards any development fees or
donation or payment of similar nature), whether at the time of admission or
thereafter,
(a) to any university, college, school or other educational institution
situated within India;
(b) for the purpose of full-time education of any of the persons specified in
sub-section (4);]
for the purposes of purchase or construction of a residential house property
the 86[* * *] income from which is chargeable to tax under the head Income
from house property (or which would, if it had not been used for the
assessees own residence, have been chargeable to tax under that head),
where such payments are made towards or by way of
(a) any instalment or part payment of the amount due under any selffinancing or other scheme of any development authority, housing board

or other authority engaged in the construction and sale of house property

on ownership basis; or
(b) any instalment or part payment of the amount due to any company or
co-operative society of which the assessee is a shareholder or member
towards the cost of the house property allotted to him; or
(c) repayment of the amount borrowed by the assessee from
(1) the Central Government or any State Government, or
(2) any bank, including a co-operative bank, or
(3) the Life Insurance Corporation, or
(4) the National Housing Bank, or
(5) any 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
87
[which is eligible for deduction under clause (viii) of sub-section
(1) of section 36], or
(6) any company in which the public are substantially interested or any
co-operative society, where such company or co-operative society is
engaged in the business of financing the construction of houses, or
The following item (6A) shall be inserted after item (6) of subclause (c) of clause (xv) of sub-section (2) of section 88 by the
Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(6A) the assessees employer where such employer is an authority or a
board or a corporation or any other body established or constituted
under a Central or State Act, or
(7) the assessees employer where such employer is a public company
or a public sector company or a University esta-blished by law or a
college affiliated to such University or a local authority 88[or a cooperative society];
(d) stamp duty, registration fee and other expenses for the purpose of
transfer of such house property to the assessee,
but shall not include any payment towards or by way of
(A) the admission fee, cost of share and initial deposit which a shareholder
of a company or a member of a co-operative society has to pay for
becoming such shareholder or member; or
(B) [Omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992;]
(C) the cost of any addition or alteration to, or renovation or repair of, the
house property which is carried out after the issue of the completion
certificate in respect of the house property by the authority competent to
issue such certificate or after the house property or any part thereof has
either been occupied by the assessee or any other person on his behalf or
been let out; or
(D) any expenditure in respect of which deduction is allowable under the
provisions of section 24;
89
[(xvi) as subscription to equity shares or debentures forming part of any eligible
issue of capital approved by the Board on an application made by a public

company 90[or as subscription to any eligible issue of capital by any public

financial institution] in the prescribed form91 :
Provided that where a deduction is claimed and allowed under this clause
with reference to the cost of any equity shares or debentures, the cost of
such shares or debentures shall not be taken into account for the purposes of
sections 54EA and 54EB.
92
[Explanation.For the purposes of this clause,
(i) eligible issue of capital means an issue made by a public company
formed and registered in India or a public financial institution and the
entire proceeds of the issue are utilised wholly and exclusively for the
purposes of any business referred to in sub-section (4) of section 80-IA;
(ii) public company93 shall have the meaning assigned to it in section 3 of
the Companies Act, 1956 (1 of 1956);
(iii) public financial institution 94 shall have the meaning assigned to it in
section 4A of the Companies Act, 1956 (1 of 1956);]
(xvii) as subscription to any units of any mutual fund referred to in clause (23D)
of section 10 and approved by the Board on an application made by such
mutual fund in the prescribed form95 :
Provided that where a deduction is claimed and allowed under this clause
with reference to the cost of units, the cost of such units shall not be taken
into account for the purposes of sections 54EA and 54EB :
Provided further that this clause shall apply if the amount of subscription
to such units is subscribed only in the eligible issue of capital of any
company.
Explanation.For the purposes of this clause eligible issue of capital
means an issue referred to in clause (i) of the Explanation to clause (xvi) of
sub-section (2) of section 88.]
96
[(2A) The provisions of sub-section (2) shall apply only to so much of any premium
or other payment made on an insurance policy other than a contract for a deferred
annuity as is not in excess of twenty per cent of the actual capital sum assured.
Explanation.In calculating any such actual capital sum, no account shall be taken

(i) of the value of any premiums agreed to be returned, or

(ii) of any benefit by way of bonus, or otherwise over and above the sum
actually assured, which is to be or, may be, received under the policy by any
person.]
97
[(3) The sums referred to in sub-section (2) shall be paid or deposited at any time
during the previous year, and the assessee, being an individual or a Hindu undivided
family, shall be entitled to a deduction under sub-section (1) on so much of the
aggregate of such sums paid or deposited as does not exceed the total income of the
assessee, chargeable to tax during the relevant previous year.]
(4) The persons referred to in sub-section (2) shall be the following, namely :
98
[(a) for the purposes of clauses (i), (v), (xii) and (xiii) of that sub-section,
(i) in the case of an individual, the individual, the wife or husband and any
child of such individual, and
(ii) in the case of a Hindu undivided family, any member thereof;]

(b) for the purposes of clause (ii) of that sub-section,

(i) in the case of an individual, the individual, the wife or husband and any
child of such individual, and
(ii) 99[***]
(c) for the purposes of 1[clause (viii)] of that sub-section,
(i) in the case of an individual, such individual or a minor of whom he is
the guardian;
(ii) in the case of a Hindu undivided family, any member of the family;
(iii) 2[***]
3
[(d) for the purpose of clause (xivb) of that sub-section, in the case of an
individual, any two children of such individual.]
4
[(5) Where the aggregate of any sums specified in clause (i) to clause (xvii) of subsection (2) exceeds an amount of one hundred thousand rupees, a deduction under
sub-section (1) shall be allowed with reference to so much of the aggregate as does
not exceed an amount of one hundred thousand rupees:
Provided that where the aggregate of any sums specified in clause (i) to clause (xv) of
sub-section (2) exceeds an amount of seventy thousand rupees, a deduction under subsection (1) in respect of such sums shall be allowed with reference to so much of the
aggregate as does not exceed an amount of seventy thousand rupees:
Provided further that where the aggregate of any sums specified in clause (xv) of
sub-section (2) exceeds an amount of twenty thousand rupees, a deduction under subsection (1) in respect of such sums shall be allowed with reference to so much of the
aggregate as does not exceed an amount of twenty thousand rupees:
5-6
[Provided also that where the aggregate of any sum specified in clause (xivb) of
sub-section (2) exceeds an amount of twelve thousand rupees in respect of a child, a
deduction under sub-section (1) in respect of such sum shall be allowed with
reference to so much of the aggregate as does not exceed an amount of twelve
thousand rupees in respect of such child.]
7
[(5A) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003.]
8
[(6) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003.]
(7) Where, in any previous year, an assessee
(i) terminates his contract of insurance referred to in clause (i) of sub-section
(2), by notice to that effect or where the contract ceases to be in force by
reason of failure to pay any premium, by not reviving 9[contract of
insurance,
(a) in case of any single premium policy, within two years after the date of
commencement of insurance; or
(b) in any other case, before premiums have been paid for two years; or]
(ii) terminates his participation in any unit-linked insurance plan referred to in
clause (xii) or clause (xiii) of sub-section (2), by notice to that effect or
where he ceases to participate by reason of failure to pay any contribution,
by not reviving his participation, before contributions in respect of such
participation have been paid for five years; or
(iii) transfers the house property referred to in clause (xv) of sub-section (2)
before the expiry of five years from the end of the financial year in which

possession of such property is obtained by him, or receives back, whether

by way of refund or otherwise, any sum specified in that clause,
then,
(a) no deduction shall be allowed to the assessee under sub-section (1) with
reference to any of the sums, referred to in clauses (i), (xii), (xiii) and (xv) of
sub-section (2), paid in such previous year; and
(b) the aggregate amount of the deductions of income-tax so allowed in respect
of the previous year or years preceding such previous year, shall be deemed
to be tax payable by the assessee in the assessment year relevant to such
previous year and shall be added to the tax on the total income of the
assessee with which he is chargeable for such assessment year.
10
[(7A) If any equity shares or debentures, with reference to the cost of which a
deduction is allowed under sub-section (1), are sold or otherwise transferred by the
assessee to any person at any time within a period of three years from the date of their
acquisition, the aggregate amount of the deductions of income-tax so allowed in
respect of such equity shares or debentures in the previous year or years preceding the
previous year in which such sale or transfer has taken place shall be deemed to be tax
payable by the assessee for the assessment year relevant to such previous year and
shall be added to the amount of income-tax on the total income of the assessee with
which he is chargeable for such assessment year.
Explanation.A person shall be treated as having acquired any shares or debentures
on the date on which his name is entered in relation to those shares or debentures in
the register of members or of debenture-holders, as the case may be, of the public
company.]
(8) In this section,
(i) contribution to any fund shall not include any sums in repayment of loan;
(ii) insurance shall include
(a) a policy of insurance on the life of an individual or the spouse or the
child of such individual or a member of a Hindu undivided family
securing the payment of specified sum on the stipulated date of maturity,
if such person is alive on such date notwithstanding that the policy of
insurance provides only for the return of premiums paid (with or without
any interest thereon) in the event of such person dying before the said
stipulated date;
(b) a policy of insurance effected by an individual or a member of a Hindu
undivided family for the benefit of a minor with the object of enabling
the minor, after he has attained majority to secure insurance on his own
life by adopting the policy and on his being alive on a date (after such
adoption) specified in the policy in this behalf;
(iii) Life Insurance Corporation means the Life Insurance Corporation of India
established under the Life Insurance Corporation Act, 1956 (31 of 1956);
(iv) public company11 shall have the same meaning as in section 3 of the
Companies Act, 1956 (1 of 1956);
(v) security means a Government security12 as defined in clause (2) of section
2 of the Public Debt Act, 1944 (18 of 1944);
(vi) transfer shall be deemed to include also the transactions referred to in
clause (f) of section 269UA.

14

[Rebate of income-tax in case of individuals of sixty-five years or above.

88B. An assessee, being an individual resident in India, who is of the age of sixtyfive years or more at any time during the previous year shall be entitled to a deduction
from the amount of income-tax (as computed before allowing the deductions under
this Chapter) on his total income, with which he is chargeable for any assessment
year, of an amount equal to hundred per cent of such income-tax or an amount of
15
[twenty] thousand rupees, whichever is less.]
16

[Rebate of income-tax in case of women below sixty-five years.

88C.An assessee,
(a) being a woman resident in India; and
(b) below the age of sixty-five years, at any time during the previous year,
shall be entitled to a deduction from the amount of income-tax (as computed before
allowing the deductions under this Chapter) on her total income, with which she is
chargeable for any assessment year, of an amount equal to hundred per cent of such
income-tax or an amount of five thousand rupees, whichever is less.]
The following sections 88D and 88E shall be inserted after section 88C by the
Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Rebate of income-tax in case of certain individuals.
88D. An assessee, being an individual resident in India,
(a) whose total income does not exceed one hundred thousand rupees, shall be
entitled to a deduction from the amount of income-tax (as computed before
allowing the deductions under this Chapter) on his total income with which
he is chargeable for any assessment year, of an amount equal to hundred
per cent of such income-tax;
(b) whose total income exceeds one hundred thousand rupees and the incometax payable on such total income (as computed before allowing the
deductions under this Chapter) exceeds the amount by which such total
income is in excess of one hundred thousand rupees, shall be entitled to a
deduction from the amount of income-tax on his total income, of an amount
equal to the amount by which the income-tax payable on such total income
is in excess of the amount by which the total income exceeds one hundred
thousand rupees.
Rebate in respect of securities transaction tax.
88E. (1) Where the total income of an assessee in a previous year includes any
income chargeable under the head Profits and gains of business or profession,
arising from taxable securities transactions, he shall be entitled to a deduction, from
the amount of income-tax on such income arising from such transactions, computed
in the manner provided in sub-section (2), of an amount equal to the securities
transaction tax paid by him in respect of the taxable securities transactions entered
into in the course of his business during that previous year:

Provided that no deduction under this sub-section shall be allowed unless the
assessee furnishes alongwith the return of income evidence of payment of securities
transaction tax in the prescribed form:
Provided further that the amount of deduction under this sub-section shall not
exceed the amount of income-tax on such income computed in the manner provided in
sub-section (2).
(2) For the purposes of sub-section (1), the amount of income-tax on the income
arising from the taxable securities transactions, referred to in that sub-section, shall
be equal to the amount calculated by applying the average rate of income-tax on such
income.
Explanation.For the purposes of this section, the expressions taxable securities
transaction and securities transaction tax shall have the same meanings
respectively assigned to them under Chapter VII of the Finance (No. 2) Act, 2004.
B.Relief for income-tax]
[Relief when salary, etc., is paid in arrears or in advance.
89. Where an assessee is in receipt of a sum in the nature of salary, being paid in
arrears or in advance or is in receipt, in any one financial year, of salary for more than
twelve months or a payment which under the provisions of clause (3) of section 17 is
a profit in lieu of salary, or is in receipt of a sum in the nature of family pension as
defined in the Explanation to clause (iia) of section 57, being paid in arrears, due to
which his total income is assessed at a rate higher than that at which it would
otherwise have been assessed, the Assessing Officer shall, on an application made to
him in this behalf, grant such relief as may be prescribed18.]
17

CHAPTER IX
DOUBLE TAXATION RELIEF
19
[Agreement with foreign countries.
20
90. 21[(1)] The Central Government may enter into an agreement with the
Government of any country outside India
22
[(a) for the granting of relief in respect of
(i) income on which have been paid both income-tax under this Act and
income-tax in that country; or
(ii) income-tax chargeable under this Act and under the corresponding law
in force in that country to promote mutual economic relations, trade and
investment, or]
(b) for the avoidance of double taxation of income under this Act and under the
corresponding law in force in that country, or
(c) for exchange of information for the prevention of evasion or avoidance of
income-tax chargeable under this Act or under the corres-ponding law in
force in that country, or investigation of cases of such evasion or avoidance,
or
(d) for recovery of income-tax under this Act and under the corresponding law
in force in that country,

and may, by notification in the Official Gazette, make such provisions as may be
necessary for implementing the agreement.]
23
[(2) Where the Central Government has entered into an agreement with the
Government of any country outside India under sub-section (1) for granting relief of
tax, or as the case may be, avoidance of double taxation, then, in relation to the
assessee to whom such agreement applies, the provisions of this Act shall apply to the
extent they are more beneficial to that assessee.]
24
[(3) Any term used but not defined in this Act or in the agreement referred to in subsection (1) shall, unless the context otherwise requires, and is not inconsistent with
the provisions of this Act or the agreement, have the same meaning as assigned to it
in the notification issued by the Central Government in the Official Gazette in this
behalf.]
25
[Explanation.For the removal of doubts, it is hereby declared that the charge of tax
in respect of a foreign company at a rate higher than the rate at which a domestic
company is chargeable, shall not be regarded as less favourable charge or levy of tax
in respect of such foreign company 25a[***].]
Countries with which no agreement exists.
26
91. (1) If any person who is resident in India in any previous year proves that, in
respect of his income which accrued or arose during that previous year outside India
(and which is not deemed to accrue or arise in India), he has paid in any country with
which there is no agreement under section 90 for the relief or avoidance of double
taxation, income-tax, by deduction or otherwise, under the law in force in that
country, he shall be entitled to the deduction from the Indian income-tax payable by
him of a sum calculated on such doubly taxed income27 at the Indian rate of tax or the
rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if
both the rates are equal.
(2) If any person who is resident in India in any previous year proves that in respect of
his income which accrued or arose to him during that previous year in Pakistan he has
paid in that country, by deduction or otherwise, tax payable to the Government under
any law for the time being in force in that country relating to taxation of agricultural
income, he shall be entitled to a deduction from the Indian income-tax payable by him

(a) of the amount of the tax paid in Pakistan under any law aforesaid on such
income which is liable to tax under this Act also; or
(b) of a sum calculated on that income at the Indian rate of tax;
whichever is less.
(3) If any non-resident person is assessed on his share in the income of a registered
firm assessed as resident in India in any previous year and such share includes any
income accruing or arising outside India during that previous year (and which is not
deemed to accrue or arise in India) in a country with which there is no agreement
under section 90 for the relief or avoidance of double taxation and he proves that he
has paid income-tax by deduction or otherwise under the law in force in that country
in respect of the income so included he shall be entitled to a deduction from the Indian
income-tax payable by him of a sum calculated on such doubly taxed income so
included at the Indian rate of tax or the rate of tax of the said country, whichever is the
lower, or at the Indian rate of tax if both the rates are equal.
Explanation.In this section,

(i) the expression Indian income-tax means income-tax 28[***] charged in

accordance with the provisions of this Act;
(ii) the expression Indian rate of tax means the rate determined by dividing
the amount of Indian income-tax after deduction of any relief due under the
provisions of this Act but before deduction of any relief due under this
29
[Chapter], by the total income;
(iii) the expression rate of tax of the said country means income-tax and supertax actually paid in the said country in accordance with the corresponding
laws in force in the said country after deduction of all relief due, but before
deduction of any relief due in the said country in respect of double taxation,
divided by the whole amount of the income as assessed in the said country;
(iv) the expression income-tax in relation to any country includes any excess
profits tax or business profits tax charged on the profits by the Government
of any part of that country or a local authority in that country.
CHAPTER X
SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX
30 31
[ [Computation of income from international transaction having regard to
arms length price.
92. (1) Any income arising from an international transaction shall be computed having
regard to the arms length price.
Explanation.For the removal of doubts, it is hereby clarified that the allowance for
any expense or interest arising from an international transaction shall also be
determined having regard to the arms length price.
(2) Where in an international transaction, two or more associated enterprises enter into
a mutual agreement or arrangement for the allocation or apportionment of, or any
contribution to, any cost or expense incurred or to be incurred in connection with a
benefit, service or facility provided or to be provided to any one or more of such
enterprises, the cost or expense allocated or apportioned to, or, as the case may be,
contributed by, any such enterprise shall be determined having regard to the arms
length price of such benefit, service or facility, as the case may be.
(3) The provisions of this section shall not apply in a case where the computation of
income under sub-section (1) or the determination of the allowance for any expense or
interest under that sub-section, or the determination of any cost or expense allocated
or apportioned, or, as the case may be, contributed under sub-section (2), has the
effect of reducing the income chargeable to tax or increasing the loss, as the case may
be, computed on the basis of entries made in the books of account in respect of the
previous year in which the international transaction was entered into.]
Meaning of associated enterprise.
92A.(1) For the purposes of this section and sections 92, 92B, 92C, 92D, 92E and
92F, associated enterprise, in relation to another enterprise, means an enterprise
(a) which participates, directly or indirectly, or through one or more
intermediaries, in the management or control or capital of the other
enterprise; or
(b) in respect of which one or more persons who participate, directly or
indirectly, or through one or more intermediaries, in its management or

control or capital, are the same persons who participate, directly or

indirectly, or through one or more intermediaries, in the management or
control or capital of the other enterprise.
32
(2) [For the purposes of sub-section (1), two enterprises shall be deemed to be
associated enterprises if, at any time during the previous year,]
(a) one enterprise holds, directly or indirectly, shares carrying not less than
twenty-six per cent of the voting power in the other enterprise; or
(b) any person or enterprise holds, directly or indirectly, shares carrying not less
than twenty-six per cent of the voting power in each of such enterprises; or
(c) a loan advanced by one enterprise to the other enterprise constitutes not less
than fifty-one per cent of the book value of the total assets of the other
enterprise; or
(d) one enterprise guarantees not less than ten per cent of the total borrowings
of the other enterprise; or
(e) more than half of the board of directors or members of the governing board,
or one or more executive directors or executive members of the governing
board of one enterprise, are appointed by the other enterprise; or
(f) more than half of the directors or members of the governing board, or one or
more of the executive directors or members of the governing board, of each
of the two enterprises are appointed by the same person or persons; or
(g) the manufacture or processing of goods or articles or business carried out by
one enterprise is wholly dependent on the use of know-how, patents,
copyrights, trade-marks, licences, franchises or any other business or
commercial rights of similar nature, or any data, documentation, drawing or
specification relating to any patent, invention, model, design, secret formula
or process, of which the other enterprise is the owner or in respect of which
the other enterprise has exclusive rights; or
(h) ninety per cent or more of the raw materials and consumables required for
the manufacture or processing of goods or articles carried out by one
enterprise, are supplied by the other enterprise, or by persons specified by
the other enterprise, and the prices and other conditions relating to the
supply are influenced by such other enterprise; or
(i) the goods or articles manufactured or processed by one enterprise, are sold
to the other enterprise or to persons specified by the other enterprise, and
the prices and other conditions relating thereto are influenced by such other
enterprise; or
(j) where one enterprise is controlled by an individual, the other enterprise is
also controlled by such individual or his relative or jointly by such
individual and relative of such individual; or
(k) where one enterprise is controlled by a Hindu undivided family, the other
enterprise is controlled by a member of such Hindu undivided family or by
a relative of a member of such Hindu undivided family or jointly by such
member and his relative; or
(l) where one enterprise is a firm, association of persons or body of individuals,
the other enterprise holds not less than ten per cent interest in such firm,
association of persons or body of individuals; or

(m) there exists between the two enterprises, any relationship of mutual interest,
as may be prescribed.
Meaning of international transaction.
92B. (1) For the purposes of this section and sections 92, 92C, 92D and 92E,
international transaction means a transaction between two or more associated
enterprises, either or both of whom are non-residents, in the nature of purchase, sale
or lease of tangible or intangible property, or provision of services, or lending or
borrowing money, or any other transaction having a bearing on the profits, income,
losses or assets of such enterprises, and shall include a mutual agreement or
arrangement between two or more associated enterprises for the allocation or
apportionment of, or any contribution to, any cost or expense incurred or to be
incurred in connection with a benefit, service or facility provided or to be provided to
any one or more of such enterprises.
(2) A transaction entered into by an enterprise with a person other than an associated
enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction
entered into between two associated enterprises, if there exists a prior agreement in
relation to the relevant transaction between such other person and the associated
enterprise, or the terms of the relevant transaction are determined in substance
between such other person and the associated enterprise.
Computation of arms length price.
92C. (1) The arms length price in relation to an international transaction shall be
determined by any of the following methods, being the most appropriate method,
having regard to the nature of transaction or class of transaction or class of associated
persons or functions performed by such persons or such other relevant factors as the
Board may prescribe33, namely :
(a) comparable uncontrolled price method;
(b) resale price method;
(c) cost plus method;
(d) profit split method;
(e) transactional net margin method;
(f) such other method as may be prescribed34 by the Board.
(2) The most appropriate method referred to in sub-section (1) shall be applied, for
determination of arms length price, in the manner as may be prescribed35 :
36
[Provided that where more than one price is determined by the most appropriate
method, the arms length price shall be taken to be the arithmetical mean of such
prices, or, at the option of the assessee, a price which may vary from the arithmetical
mean by an amount not exceeding five per cent of such arithmetical mean.]
(3) Where during the course of any proceeding for the assessment of income, the
Assessing Officer is, on the basis of material or information or document in his
possession, of the opinion that
(a) the price charged or paid in an international transaction has not been
determined in accordance with sub-sections (1) and (2); or
(b) any information and document relating to an international transaction have
not been kept and maintained by the assessee in accordance with the

provisions contained in sub-section (1) of section 92D and the rules made in
this behalf; or
(c) the information or data used in computation of the arms length price is not
reliable or correct; or
(d) the assessee has failed to furnish, within the specified time, any information
or document which he was required to furnish by a notice issued under subsection (3) of section 92D,
the Assessing Officer may proceed to determine the arms length price in relation
to the said international transaction in accordance with sub-sections (1) and (2),
on the basis of such material or information or document available with him:
Provided that an opportunity shall be given by the Assessing Officer by serving a
notice calling upon the assessee to show cause, on a date and time to be specified in
the notice, why the arms length price should not be so determined on the basis of
material or information or document in the possession of the Assessing Officer.
(4) Where an arms length price is determined by the Assessing Officer under subsection (3), the Assessing Officer may compute the total income of the assessee
having regard to the arms length price so determined :
Provided that no deduction under section 10A or section 10B or under Chapter VI-A
shall be allowed in respect of the amount of income by which the total income of the
assessee is enhanced after computation of income under this sub-section :
Provided further that where the total income of an associated enterprise is computed
under this sub-section on determination of the arms length price paid to another
associated enterprise from which tax has been deducted 37[or was deductible] under
the provisions of Chapter XVIIB, the income of the other associated enterprise shall
not be recomputed by reason of such determination of arms length price in the case of
the first mentioned enterprise.
38

[Reference to Transfer Pricing Officer.

92CA. (1) Where any person, being the assessee, has entered into an international
transaction in any previous year, and the Assessing Officer considers it necessary or
expedient so to do, he may, with the previous approval of the Commissioner, refer the
computation of the arms length price in relation to the said international transaction
under section 92C to the Transfer Pricing Officer.
(2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall
serve a notice on the assessee requiring him to produce or cause to be produced on a
date to be specified therein, any evidence on which the assessee may rely in support
of the computation made by him of the arms length price in relation to the
international transaction referred to in sub-section (1).
(3) On the date specified in the notice under sub-section (2), or as soon thereafter as
may be, after hearing such evidence as the assessee may produce, including any
information or documents referred to in sub-section (3) of section 92D and after
considering such evidence as the Transfer Pricing Officer may require on any
specified points and after taking into account all relevant materials which he has
gathered, the Transfer Pricing Officer shall, by order in writing, determine the arms
length price in relation to the international transaction in accordance with sub-section
(3) of section 92C and send a copy of his order to the Assessing Officer and to the
assessee.

(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed
to compute the total income of the assessee under sub-section (4) of section 92C
having regard to the arms length price determined under sub-section (3) by the
Transfer Pricing Officer.
(5) With a view to rectifying any mistake apparent from the record, the Transfer
Pricing Officer may amend any order passed by him under sub-section (3), and the
provisions of section 154 shall, so far as may be, apply accordingly.
(6) Where any amendment is made by the Transfer Pricing Officer under sub-section
(5), he shall send a copy of his order to the Assessing Officer who shall thereafter
proceed to amend the order of assessment in conformity with such order of the
Transfer Pricing Officer.
(7) The Transfer Pricing Officer may, for the purposes of determining the arms length
price under this section, exercise all or any of the powers specified in clauses (a) to
(d) of sub-section (1) of section 131 or sub-section (6) of section 133.
Explanation.For the purposes of this section, Transfer Pricing Officer means a
Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised
by the Board38a to perform all or any of the functions of an Assessing Officer specified
in sections 92C and 92D in respect of any person or class of persons.]
Maintenance and keeping of information and document by persons entering into
an international transaction.
92D. (1) Every person who has entered into an international transaction shall keep
and maintain such information and document in respect thereof, as may be
prescribed39.
(2) Without prejudice to the provisions contained in sub-section (1), the Board may
prescribe the period for which the information and document shall be kept and
maintained under that sub-section.
(3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any
proceeding under this Act, require any person who has entered into an international
transaction to furnish any information or document in respect thereof, as may be
prescribed under sub-section (1), within a period of thirty days from the date of
receipt of a notice issued in this regard :
Provided that the Assessing Officer or the Commissioner (Appeals) may, on an
application made by such person, extend the period of thirty days by a further period
not exceeding thirty days.
Report from an accountant to be furnished by persons entering into
international transaction.
92E.Every person who has entered into an international transaction during a previous
year shall obtain a report from an accountant and furnish such report on or before the
specified date in the prescribed form duly signed and verified in the prescribed
manner by such accountant and setting forth such particulars as may be prescribed40.
Definitions of certain terms relevant to computation of arms length price, etc.
92F. In sections 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise
requires,

(i) accountant shall have the same meaning as in the Explanation below subsection (2) of section 288;
(ii) arms length price means a price which is applied or proposed to be
applied in a transaction between persons other than associated enterprises,
in uncontrolled conditions;
(iii) enterprise means a person (including a permanent establishment of such
person) who is, or has been, or is proposed to be, engaged in any activity,
relating to the production, storage, supply, distribution, acquisition or
control of articles or goods, or know-how, patents, copyrights, trade-marks,
licences, franchises or any other business or commercial rights of similar
nature, or any data, documentation, drawing or specification relating to any
patent, invention, model, design, secret formula or process, of which the
other enterprise is the owner or in respect of which the other enterprise has
exclusive rights, or the provision of services of any kind, 41[or in carrying
out any work in pursuance of a contract,] or in investment, or providing loan
or in the business of acquiring, holding, underwriting or dealing with shares,
debentures or other securities of any other body corporate, whether such
activity or business is carried on, directly or through one or more of its units
or divisions or subsidiaries, or whether such unit or division or subsidiary is
located at the same place where the enterprise is located or at a different
place or places;
42
[(iiia) permanent establishment, referred to in clause (iii), includes a fixed place
of business through which the business of the enterprise is wholly or partly
carried on;]
43
[(iv) specified date shall have the same meaning as assigned to due date in
Explanation 2 below sub-section (1) of section 139;]
(v) transaction includes an arrangement, understanding or action in concert,

(A) whether or not such arrangement, understanding or action is formal or in

writing; or
(B) whether or not such arrangement, understanding or action is intended to
be enforceable by legal proceeding.]
Avoidance of income-tax by transactions resulting in transfer of income to nonresidents.
44
93. (1) Where there is a transfer of assets by virtue or in consequence whereof,
either alone or in conjunction with associated operations, any income becomes
payable to a non-resident, the following provisions shall apply
(a) where any person has, by means of45 any such transfer, either alone or in
conjunction with associated operations, acquired any rights by virtue of
which he has, within the meaning of this section, power to enjoy, whether
forthwith or in the future, any income of a non-resident person which, if it
were income of the first-mentioned person, would be chargeable to incometax, that income shall, whether it would or would not have been chargeable
to income-tax apart from the provisions of this section, be deemed to be
income of the first-mentioned person for all the purposes of this Act;
(b) where, whether before or after any such transfer, any such first-mentioned
person receives or is entitled to receive any capital sum the payment

whereof is in any way connected with the transfer or any associated

operations, then any income which, by virtue or in consequence of the
transfer, either alone or in conjunction with associated operations, has
become the income of a non-resident shall, whether it would or would not
have been chargeable to income-tax apart from the provisions of this
section, be deemed to be the income of the first-mentioned person for all the
purposes of this Act.
Explanation.The provisions of this sub-section shall apply also in relation to
transfers of assets and associated operations carried out before the commencement of
this Act.
(2) Where any person has been charged to income-tax on any income deemed to be
his under the provisions of this section and that income is subsequently received by
him, whether as income or in any other form, it shall not again be deemed to form part
of his income for the purposes of this Act.
(3) The provisions of this section shall not apply if the first-mentioned person in subsection (1) shows to the satisfaction of the 46[Assessing] Officer that
(a) neither the transfer nor any associated operation had for its purpose 47 or for
one of its purposes the avoidance of liability to taxation; or
(b) the transfer and all associated operations were bona fide commercial
transactions and were not designed for the purpose of avoiding liability to
taxation.
Explanation.For the purposes of this section,
(a) references to assets representing any assets, income or accumulations of
income include references to shares in or obligation of any company to
which, or obligation of any other person to whom, those assets, that income
or those accumulations are or have been transferred;
(b) any body corporate incorporated outside India shall be treated as if it were a
non-resident;
(c) a person shall be deemed to have power to enjoy the income of a nonresident if
(i) the income is in fact so dealt with by any person as to be calculated at
some point of time and, whether in the form of income or not, to enure
for the benefit of the first-mentioned person in sub-section (1), or
(ii) the receipt or accrual of the income operates to increase the value to
such first-mentioned person of any assets held by him or for his benefit,
or
(iii) such first-mentioned person receives or is entitled to receive at any time
any benefit provided or to be provided out of that income or out of
moneys which are or will be available for the purpose by reason of the
effect or successive effects of the associated operations on that income
and assets which represent that income, or
(iv) such first-mentioned person has power by means of the exercise of any
power of appointment or power of revocation or otherwise to obtain for
himself, whether with or without the consent of any other person, the
beneficial enjoyment of the income, or
(v) such first-mentioned person is able, in any manner whatsoever and
whether directly or indirectly, to control the application of the income;

(d) in determining whether a person has power to enjoy income, regard shall be
had to the substantial result and effect of the transfer and any associated
operations, and all benefits which may at any time accrue to such person as
a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits.
(4) (a) Assets includes property or rights of any kind and transfer in relation to
rights includes the creation of those rights ;
(b) associated operation, in relation to any transfer, means an operation of any kind
effected by any person in relation to
(i) any of the assets transferred, or
(ii) any assets representing, whether directly or indirectly, any of the assets
transferred, or
(iii) the income arising from any such assets, or
(iv) any assets representing, whether directly or indirectly, the accumulations of
income arising from any such assets ;
(c) benefit includes a payment of any kind ;
(d) capital sum means
(i) any sum paid or payable by way of a loan or repayment of a loan ; and
(ii) any other sum paid or payable otherwise than as income, being a sum which
is not paid or payable for full consideration in money or moneys worth.
Avoidance of tax by certain transactions in securities.
48
94. (1) Where the owner of any securities (in this sub-section and in sub-section (2)
referred to as the owner) sells or transfers those securities, and buys back or
reacquires the securities, then, if the result of the transaction is that any interest
becoming payable in respect of the securities is receivable otherwise than by the
owner, the interest payable as aforesaid shall, whether it would or would not have
been chargeable to income-tax apart from the provisions of this sub-section, be
deemed, for all the purposes of this Act, to be the income of the owner and not to be
the income of any other person.
Explanation.The references in this sub-section to buying back or reacquiring the
securities shall be deemed to include references to buying or acquiring similar
securities, so, however, that where similar securities are bought or acquired, the owner
shall be under no greater liability to income-tax than he would have been under if the
original securities had been bought back or reacquired.
(2) Where any person has had at any time during any previous year any beneficial
interest in any securities, and the result of any transaction relating to such securities or
the income thereof is that, in respect of such securities within such year, either no
income is received by him or the income received by him is less than the sum to
which the income would have amounted if the income from such securities had
accrued from day to day and been apportioned accordingly, then the income from
such securities for such year shall be deemed to be the income of such person.
(3) The provisions of sub-section (1) or sub-section (2) shall not apply if the owner, or
the person who has had a beneficial interest in the securities, as the case may be,
proves to the satisfaction of the 49[Assessing] Officer
(a) that there has been no avoidance of income-tax, or

(b) that the avoidance of income-tax was exceptional and not systematic and
that there was not in his case in any of the three preceding years any
avoidance of income-tax by a transaction of the nature referred to in subsection (1) or sub-section (2).
(4) Where any person carrying on a business which consists wholly or partly in
dealing in securities, buys or acquires any securities and sells back or retransfers the
securities, then, if the result of the transaction is that interest becoming payable in
respect of the securities is receivable by him but is not deemed to be his income by
reason of the provisions contained in sub-section (1), no account shall be taken of the
transaction in computing for any of the purposes of this Act the profits arising from or
loss sustained in the business.
(5) Sub-section (4) shall have effect, subject to any necessary modifications, as if
references to selling back or retransferring the securities included references to selling
or transferring similar securities.
(6) The 50[Assessing] Officer may, by notice in writing, require any person to furnish
him within such time as he may direct (not being less than twenty-eight days), in
respect of all securities of which such person was the owner or in which he had a
beneficial interest at any time during the period specified in the notice, such
particulars as he considers necessary for the purposes of this section and for the purpose of discovering whether income-tax has been borne in respect of the interest on
all those securities.
51
[(7) Where
(a) any person buys or acquires any securities or unit within a period of three
months prior to the record date;
(b) such person sells or transfers such securities or unit within a period of three
months after such date;
The following clause (b) shall be substituted for existing clause (b) of
sub-section (7) of section 94 by the Finance (No. 2) Act, 2004, w.e.f. 1-42005 :
(b) such person sells or transfers
(i) such securities within a period of three months after such date, or
(ii) such unit within a period of nine months after such date;
(c) the dividend or income on such securities or unit received or receivable by
such person is exempt,
then, the loss, if any, arising to him on account of such purchase and sale of securities
or unit, to the extent such loss does not exceed the amount of dividend or income
received or receivable on such securities or unit, shall be ignored for the purposes of
computing his income chargeable to tax.]
The following sub-section (8) shall be inserted after sub-section (7) of section 94
by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(8) Where
(a) any person buys or acquires any units within a period of three months prior
to the record date;
(b) such person is allotted additional units without any payment on the basis of
holding of such units on such date;

(c) such person sells or transfers all or any of the units referred to in clause (a)
within a period of nine months after such date, while continuing to hold all
or any of the additional units referred to in clause (b),
then, the loss, if any, arising to him on account of such purchase and sale of all or any
of such units shall be ignored for the purposes of computing his income chargeable to
tax and notwithstanding anything contained in any other provision of this Act, the
amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of
such additional units referred to in clause (b) as are held by him on the date of such
sale or transfer.
Explanation.For the purposes of this section,
(a) interest includes a dividend ;
52
[(aa) record date means such date as may be fixed by a company or a Mutual
Fund or the Unit Trust of India for the purposes of entitlement of the holder
of the securities or the unit-holder, to receive dividend or income, as the
case may be;]
The following clause (aa) shall be substituted for existing clause (aa) of
Explanation to section 94 by the Finance (No. 2) Act, 2004, w.e.f. 1-42005 :
(aa) record date means such date as may be fixed by
(i) a company for the purposes of entitlement of the holder of the securities
to receive dividend; or
(ii) a Mutual Fund or the Administrator of the specified undertaking or the
specified company as referred to in the Explanation to clause (35) of
section 10, for the purposes of entitlement of the holder of the units to
receive income, or additional unit without any consideration, as the
case may be;
(b) securities includes stocks and shares ;
(c) securities shall be deemed to be similar if they entitle their holders to the
same rights against the same persons as to capital and interest and the same
remedies for the enforcement of those rights, notwithstanding any
difference in the total nominal amounts of the respective securities or in the
form in which they are held or in the manner in which they can be transferred;
53
[(d) unit shall have the meaning assigned to it in clause (b) of the Explanation
to section 115AB.]

CHAPTER XII
DETERMINATION OF TAX IN CERTAIN SPECIAL CASES
60
[Determination of tax where total income includes income on which no tax is
payable.
110. Where there is included in the total income of an assessee any income on which
no income-tax is payable under the provisions of this Act, the assessee shall be
entitled to a deduction, from the amount of income-tax with which he is chargeable on

his total income, of an amount equal to the income-tax calculated at the average rate
of income-tax on the amount on which no income-tax is payable.]
Tax on accumulated balance of recognised provident fund.
111. (1) Where the accumulated balance due to an employee participating in a
recognised provident fund is included in his total income, owing to the provisions of
rule 8 of Part A of the Fourth Schedule not being applicable, the 61[Assessing] Officer
shall calculate the total of the various sums of 62[tax] in accordance with the
provisions of sub-rule (1) of rule 9 thereof.
(2) Where the accumulated balance due to an employee participating in a recognised
provident fund which is not included in his total income under the provisions of rule 8
of Part A of the Fourth Schedule becomes payable, super-tax shall be calculated in the
manner provided in sub-rule (2) of rule 9 thereof.
The following section 111A shall be inserted after section 111 by the Finance (No.
2) Act, 2004, w.e.f. 1-4-2005 :
Tax on short term capital gains in certain cases.
111A. (1) Where the total income of an assessee includes any income chargeable
under the head Capital gains, arising from the transfer of a short-term capital
asset, being an equity share in a company or a unit of an equity oriented fund and
(a) the transaction of sale of such equity share or unit is entered into on or
after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes
into force; and
(b) such transaction is chargeable to securities transaction tax under that
Chapter,
the tax payable by the assessee on the total income shall be the aggregate of
(i) the amount of income-tax calculated on such short-term capital gains at the
rate of ten per cent; and
(ii) the amount of income-tax payable on the balance amount of the total
income as if such balance amount were the total income of the assessee:
Provided that in the case of an individual or a Hindu undivided family, being a
resident, where the total income as reduced by such short-term capital gains is below
the maximum amount which is not chargeable to income-tax, then, such short-term
capital gains shall be reduced by the amount by which the total income as so reduced
falls short of the maximum amount which is not chargeable to income-tax and the tax
on the balance of such short-term capital gains shall be computed at the rate of ten
per cent.
(2) Where the gross total income of an assessee includes any short term capital gains
referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from
the gross total income as reduced by such capital gains.
(3) Where the total income of an assessee includes any short term capital gains
referred to in sub-section (1), the rebate under section 88 shall be allowed from the
income-tax on the total income as reduced by such capital gains.
Explanation.For the purposes of this section, the expression equity oriented fund
shall have the meaning assigned to it in the Explanation to clause (38) of section 10.
63

[Tax on long-term capital gains.

64

112. (1) Where the total income of an assessee includes any income, arising from
the transfer of a long-term capital asset, which is chargeable under the head Capital
gains, the tax payable by the assessee on the total income shall be the aggregate of,
(a) in the case of an individual or a Hindu undivided family, 65[being a
resident,]
(i) the amount of income-tax payable on the total income as reduced by the
amount of such long-term capital gains, had the total income as so
reduced been his total income ; and
(ii) the amount of income-tax calculated on such long-term capital gains at
the rate of twenty per cent :
Provided that where the total income as reduced by such long-term capital
gains is below the maximum amount which is not chargeable to income-tax,
then, such long-term capital gains shall be reduced by the amount by which
the total income as so reduced falls short of the maximum amount which is
not chargeable to income-tax and the tax on the balance of such long-term
capital gains shall be computed at the rate of twenty per cent ;
(b) in the case of a 66[domestic] company,
(i) the amount of income-tax payable on the total income as reduced by the
amount of such long-term capital gains, had the total income as so
reduced been its total income ; and
(ii) the amount of income-tax calculated on such long-term capital gains at
the rate of 67[twenty] per cent :
68
[***]
69
[(c) in the case of a non-resident (not being a company) or a foreign company,
(i) the amount of income-tax payable on the total income as reduced by the
amount of such long-term capital gains, had the total income as so
reduced been its total income ; and
(ii) the amount of income-tax calculated on such long-term capital gains at
the rate of twenty per cent ;]
70
[(d)] in any other case 71[of a resident],
(i) the amount of income-tax payable on the total income as reduced by the
amount of long-term capital gains, had the total income as so reduced
been its total income ; and
(ii) the amount of income-tax calculated on such long-term capital gains at
the rate of 72[twenty] per cent.
Explanation.73[***]
74
[Provided that where the tax payable in respect of any income arising from the
transfer of a long-term capital asset, being listed securities 75[or unit], exceeds ten per
cent of the amount of capital gains before giving effect to the provisions of the second
proviso to section 48, then, such excess shall be ignored for the purpose of computing
the tax payable by the assessee.
76
[Explanation.For the purposes of this sub-section,
(a) listed securities means the securities
(i) as defined in clause (h) of section 277 of the Securities Contracts
(Regulation) Act, 1956 (32 of 1956); and
(ii) listed in any recognised stock exchange in India;

(b) unit shall have the meaning assigned to it in clause (b) of Explanation to
section 115AB.]]
(2) Where the gross total income of an assessee includes any income arising from the
transfer of a long-term capital asset, the gross total income shall be reduced by the
amount of such income and the deduction under Chapter VI-A shall be allowed as if
the gross total income as so reduced were the gross total income of the assessee.
(3) Where the total income of an assessee includes any income arising from the
transfer of a long-term capital asset, the total income shall be reduced by the amount
of such income and the rebate under section 88 shall be allowed from the income-tax
on the total income as so reduced.

78

[Tax in the case of block assessment of search cases.

113. The total undisclosed income of the block period, determined under section
158BC, shall be chargeable to tax at the rate of sixty per cent:]
79
[Provided that the tax chargeable under this section shall be increased by a
surcharge, if any, levied by any Central Act and applicable in the assessment year
relevant to the previous year in which the search is initiated under section 132 or the
requisition is made under section 132A.]

81

[Tax on dividends, royalty and technical service fees in the case of foreign
companies.
82
115A. 83[(1) Where the total income of
(a) a non-resident (not being a company) or of a foreign company, includes any
income by way of
(i) dividends 84[other than dividends referred to in section 115-O] ; or
(ii) interest received from Government or an Indian concern on monies
borrowed or debt incurred by Government or the Indian concern in
foreign currency ; or
(iii) income received in respect of units, purchased in foreign currency, of a
Mutual Fund specified under clause (23D) of section 10 or of the Unit
Trust of India,
the income-tax payable shall be aggregate of
(A) the amount of income-tax calculated on the amount of income by way of
dividends 84[other than dividends referred to in section 115-O], if any,
included in the total income, at the rate of twenty per cent ;
(B) the amount of income-tax calculated on the amount of income by way of
interest referred to in sub-clause (ii), if any, included in the total income,
at the rate of twenty per cent ;
(C) the amount of income-tax calculated on the income in respect of units
referred to in sub-clause (iii), if any, included in the total income, at the
rate of twenty per cent ; and

(D) the amount of income-tax with which he or it would have been

chargeable had his or its total income been reduced by the amount of
income referred to in sub-clause (i), sub-clause (ii) and sub-clause (iii) ;
85
(b) [a non-resident (not being a company) or a foreign company, includes any
income by way of royalty or fees for technical services other than income
referred to in sub-section (1) of section 44DA] 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, and where such agreement is with an Indian concern, the
agreement is approved by the Central Government or where it relates to a
matter included in the industrial policy, for the time being in force, of the
Government of India, the agreement is in accordance with that policy, then,
subject to the provisions of sub-sections (1A) and (2), the income-tax
payable shall be the aggregate of,
86
[(A) the amount of income-tax calculated on the income by way of royalty, if
any, included in the total income, at the rate of thirty per cent if such
royalty is received in pursuance of an agreement made on or before the
31st day of May, 1997 and twenty per cent where such royalty is
received in pursuance of an agreement made after the 31st day of May,
1997;
(B) the amount of income-tax calculated on the income by way of fees for
technical services, if any, included in the total income, at the rate of
thirty per cent if such fees for technical services are received in
pursuance of an agreement made on or before the 31st day of May, 1997
and twenty per cent where such fees for technical services are received
in pursuance of an agreement made after the 31st day of May, 1997;
and]
(C) the amount of income-tax with which it would have been chargeable had
its total income been reduced by the amount of income by way of
royalty and fees for technical services.
Explanation.For the purposes of this section,
(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 currency shall have the same meaning as in the Explanation
below item (g) of sub-clause (iv) of clause (15) of section 10 ;
(c) royalty shall have the same meaning as in Explanation 2 to clause (vi) of
sub-section (1) of section 9 ;
(d) Unit Trust of India means the Unit Trust of India established under the
Unit Trust of India Act, 1963 (52 of 1963).]
87
[(1A) Where the royalty referred to in clause (b) of sub-section (1) is in
consideration for the transfer of all or any rights (including the granting of a licence)
in respect of copyright in any book to an Indian concern 88[or in respect of any
computer software to a person resident in India], the provisions of sub-section (1)
shall apply in relation to such royalty as if the words 89[90[the agreement is approved
by the Central Government or where it relates to a matter] included in the industrial
policy, for the time being in force, of the Government of India, the agreement is in
accordance with that policy] occurring in the said clause had been omitted :

Provided that such book is on a subject, the books on which are permitted, according
to the Import Trade Control Policy of the Government of India for the period
commencing from the 1st day of April, 1977, and ending with the 31st day of March,
1978, to be imported into India under an Open General Licence :
91
[Provided further that such computer software is permitted according to the Import
Trade Control Policy of the Government of India for the time being in force to be
imported into India under an Open General Licence.]
92
[Explanation 1].In this sub-section, Open General Licence means an Open
General Licence issued by the Central Government in pursuance of the Imports
(Control) Order, 1955.]
93
[Explanation 2.In this sub-section, the expression computer software shall have
the meaning assigned to it in clause (b) of the Explanation to section 80HHE.]
(2) Nothing contained in sub-section (1) shall apply in relation to any income by way
of royalty received by a foreign company from an Indian concern in pursuance of an
agreement made by it with the Indian concern after the 31st day of March, 1976, if
such agreement is deemed, for the 94[purposes of the first proviso] to clause (vi) of
sub-section (1) of section 9, to have been made before the 1st day of April, 1976; and
the provisions of the annual Finance Act for calculating, charging, deducting or computing income-tax shall apply in relation to such income as if such income had been
received in pursuance of an agreement made before the 1st day of April, 1976.]
95
[(3) No deduction in respect of any expenditure or allowance shall be allowed to the
assessee under sections 28 to 44C and section 57 in computing his or its income
referred to in sub-section (1).
(4) Where in the case of an assessee referred to in sub-section (1),
(a) the gross total income consists only of the income referred to in clause (a)
of that sub-section, no deduction shall be allowed to him or it under Chapter
VI-A;
(b) the gross total income includes any income referred to in clause (a) of that
sub-section, the gross total income shall be reduced by the amount of such
income and the deduction under Chapter VI-A shall be allowed as if the
gross total income as so reduced were the gross total income of the assessee.
(5) It shall not be necessary for an assessee referred to in sub-section (1) to furnish
under sub-section (1) of section 139 a return of his or its income if
(a) his or its total income in respect of which he or it is assessable under this
Act during the previous year consisted only of income referred to in clause
(a) of sub-section (1); and
(b) the tax deductible at source under the provisions of Chapter XVII-B has
been deducted from such income.]
96

[Tax on income from units purchased in foreign currency or capital gains

arising from their transfer.
115AB. (1) Where the total income of an assessee, being an overseas financial
organisation (hereinafter referred to as Offshore Fund) includes
(a) income received in respect of units purchased in foreign currency; or
(b) income by way of long-term capital gains arising from the transfer of units
purchased in foreign currency,
the income-tax payable shall be the aggregate of

(i) the amount of income-tax calculated on the income in respect of units

referred to in clause (a), if any, included in the total income, at the rate of
ten per cent;
(ii) the amount of income-tax calculated on the income by way of long-term
capital gains referred to in clause (b), if any, included in the total income, at
the rate of ten per cent; and
(iii) the amount of income-tax with which the Offshore Fund would have been
chargeable had its total income been reduced by the amount of income
referred to in clause (a) and clause (b).
(2) Where the gross total income of the Offshore Fund,
(a) consists only of income from units or income by way of long-term capital
gains arising from the transfer of units, or both, no deduction shall be
allowed to the assessee under sections 28 to 44C 97[***] or clause (i) or
clause (iii) of section 57 or under Chapter VI-A 98[and nothing contained in
the provisions of the second proviso to section 48 shall apply to income
referred to in clause (b) of sub-section (1)];
(b) includes any income referred to in clause (a), the gross total income shall be
reduced by the amount of such income and the deduction under Chapter VIA shall be allowed as if the gross total income as so reduced were the gross
total income of the assessee.
Explanation.For the purposes of this section,
(a) overseas financial organisation means any fund, institution, associa-tion
or body, whether incorporated or not, established under the laws of a
country outside India, which has entered into an arrangement for investment
in India with any public sector bank or public financial institution or a
mutual fund specified under clause (23D) of section 10 and such arrangement is approved by the 99[Securities and Exchange Board of India,
established under the Securities and Exchange Board of India Act, 1992 (15
of 1992),] for this purpose;
(b) unit means unit of a mutual fund specified under clause (23D) of section
10 or of the Unit Trust of India;
(c) foreign currency1 shall have the meaning as in the Foreign Exchange
Regulation Act, 1973 (46 of 1973);
(d) public sector bank shall have the meaning assigned to it in clause (23D)
of section 10;
(e) public financial institution shall have the meaning assigned to it in section
4A2 of the Companies Act, 1956 (1 of 1956);
(f) Unit Trust of India means the Unit Trust of India established under the
Unit Trust of India Act, 1963 (52 of 1963)].
3

[Tax on income from bonds or Global Depository Receipts purchased in foreign

currency or capital gains arising from their transfer.
115AC. (1) Where the total income of an assessee, being a non-resident, includes
(a) income by way of interest on bonds of an Indian company issued in
accordance with such scheme as the Central Government may, by
notification in the Official Gazette4, specify in this behalf, or on bonds of a

public sector company sold by the Government, and purchased by him in

foreign currency; or
(b) income by way of dividends 5[, other than dividends referred to in section
115-O,] on Global Depository Receipts
(i) issued in accordance with such scheme as the Central Government
may, by notification in the Official Gazette 4, specify in this behalf,
against the initial issue of shares of an Indian company and purchased
by him in foreign currency through an approved intermediary; or
(ii) issued against the shares of a public sector company sold by the
Government and purchased by him in foreign currency through an
approved intermediary; or
(iii) 6[issued or] re-issued in accordance with such scheme as the Central
Government may, by notification in the Official Gazette 4, specify in
this behalf, against the existing shares of an Indian company purchased
by him in foreign currency through an approved intermediary; or
(iv) 7[***]
(c) income by way of long-term capital gains arising from the transfer of bonds
referred to in clause (a) or, as the case may be, Global Depository Receipts
referred to in clause (b),
the income-tax payable shall be the aggregate of
(i) the amount of income-tax calculated on the income by way of interest or
dividends 8[, other than dividends referred to in section 115-O] , as the case
may be, in respect of bonds referred to in clause (a) or Global Depository
Receipts referred to in clause (b), if any, included in the total income, at the
rate of ten per cent;
(ii) the amount of income-tax calculated on the income by way of long-term
capital gains referred to in clause (c), if any, at the rate of ten per cent; and
(iii) the amount of income-tax with which the non-resident would have been
chargeable had his total income been reduced by the amount of income
referred to in clauses (a), (b) and (c).
(2) Where the gross total income of the non-resident
(a) consists only of income by way of interest or dividends 8[, other than
dividends referred to in section 115-O] in respect of bonds referred to in
clause (a) of sub-section (1) or, as the case may be, Global Depository
Receipts referred to in clause (b) of that sub-section, no deduction shall be
allowed to him under sections 28 to 44C or clause (i) or clause (iii) of
section 57 or under Chapter VI-A;
(b) includes any income referred to in clause (a) or clause (b) or clause (c) of
sub-section (1), the gross total income shall be reduced by the amount of
such income and the deduction under Chapter VI-A shall be allowed as if
the gross total income as so reduced, were the gross total income of the
assessee.
(3) Nothing contained in the first and second provisos to section 48 shall apply for the
computation of long-term capital gains arising out of the transfer of long-term capital
asset, being bonds or Global Depository Receipts referred to in clause (c) of subsection (1).

(4) It shall not be necessary for a non-resident to furnish under sub-section (1) of
section 139 a return of his income if
(a) his total income in respect of which he is assessable under this Act during
the previous year consisted only of income referred to in clauses (a) and (b)
of sub-section (1); and
(b) the tax deductible at source under the provisions of Chapter XVII-B has
been deducted from such income.
(5) Where the assessee acquired Global Depository Receipts or bonds in an
amalgamated or resulting company by virtue of his holding Global Depository
Receipts or bonds in the amalgamating or demerged company, as the case may be, in
accordance with the provisions of sub-section (1), the provisions of that sub-section
shall apply to such Global Depository Receipts or bonds.
Explanation.For the purposes of this section,
(a) approved intermediary means an intermediary who is approved in
accordance with such scheme as may be notified9 by the Central
Government in the Official Gazette;
(b) Global Depository Receipts shall have the same meaning as in clause (a)
of the Explanation to section 115ACA.]
10

[Tax on income from Global Depository Receipts purchased in foreign currency

or capital gains arising from their transfer.
115ACA. 11[(1) Where the total income of an assessee, being an individual, who is a
resident and an employee of an Indian company engaged in specified knowledge
based industry or service, or an employee of its subsidiary engaged in specified
knowledge based industry or service (hereafter in this section referred to as the
resident employee), includes
(a) income by way of dividends 12[, other than dividends referred to in section
115-O,] on Global Depository Receipts of an Indian company engaged in
specified knowledge based industry or service, issued in accordance with
such Employees Stock Option Scheme as the Central Government may, by
notification in the Official Gazette13, specify in this behalf and purchased by
him in foreign currency; or
(b) income by way of long-term capital gains arising from the transfer of
Global Depository Receipts referred to in clause (a),
the income-tax payable shall be the aggregate of
(i) the amount of income-tax calculated on the income by way of dividends 12[,
other than dividends referred to in section 115-O,] in respect of Global
Depository Receipts referred to in clause (a), if any, included in the total
income, at the rate of ten per cent;
(ii) the amount of income-tax calculated on the income by way of long-term
capital gains referred to in clause (b), if any, at the rate of ten per cent; and
(iii) the amount of income-tax with which the resident employee would have
been chargeable had his total income been reduced by the amount of income
referred to in clauses (a) and (b).
Explanation.For the purposes of this sub-section,
(a) specified knowledge based industry or service means

(i)
(ii)
(iii)
(iv)
(v)
(vi)

information technology software;

information technology service;
entertainment service;
pharmaceutical industry;
bio-technology industry; and
any other industry or service, as may be specified by the Central
Government, by notification in the Official Gazette;
(b) subsidiary shall have the meaning assigned to it in section 4 14 of the
Companies Act, 1956 (1 of 1956) and includes subsidiary incorporated
outside India.]
(2) Where the gross total income of the resident employee
(a) consists only of income by way of dividends 15[, other than dividends
referred to in section 115-O,] in respect of Global Depository Receipts
referred to in clause (a) of sub-section (1), no deduction shall be allowed to
him under any other provision of this Act;
(b) includes any income referred to in clause (a) or clause (b) of sub-section
(1), the gross total income shall be reduced by the amount of such income
and the deduction under any provision of this Act shall be allowed as if the
gross total income as so reduced were the gross total income of the assessee.
(3) Nothing contained in the first and second provisos to section 48 shall apply for the
computation of long-term capital gains arising out of the transfer of long-term capital
asset, being Global Depository Receipts referred to in clause (b) of sub-section (1).
Explanation.For the purposes of this section,
(a) Global Depository Receipts means any instrument in the form of a
depository receipt or certificate (by whatever name called) created by the
Overseas Depository Bank outside India and issued to non-resident
investors against the issue of ordinary shares or foreign currency convertible
bonds of issuing company;
(b) information technology service means any service which results from the
use of any information technology software over a system of information
technology products for realising value addition;
(c) information technology software means any representation of
instructions, data, sound or image, including source code and object code,
recorded in a machine readable form and capable of being manipulated or
providing inter-activity to a user, by means of an automatic data processing
machine falling under heading information technology products but does
not include non-information technology products;
(d) Overseas Depository Bank means a bank authorised by the issuing
company to issue Global Depository Receipts against issue of Foreign
Currency Convertible Bonds or ordinary shares of the issuing company.]
16

[Tax on income of Foreign Institutional Investors from securities or capital

gains arising from their transfer.
115AD. (1) Where the total income of a Foreign Institutional Investor includes

17

[(a) income 18[other than income by way of dividends referred to in section 115O] received in respect of securities (other than unit referred to in section
115AB); or]
(b) income by way of short-term or long-term capital gains arising from the
transfer of such securities,
the income-tax payable shall be the aggregate of
(i) the amount of income-tax calculated on the income in respect of securities
referred to in clause (a), if any, included in the total income, at the rate of
twenty per cent;
(ii) the amount of income-tax calculated on the income by way of short-term
capital gains referred to in clause (b), if any, included in the total income, at
the rate of thirty per cent;
The following proviso shall be inserted in clause (ii) of sub-section (1) of
section 115AD by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Provided that the amount of income-tax calculated on the income by way of
short-term capital gains referred to in section 111A shall be at the rate of
ten per cent;
(iii) the amount of income-tax calculated on the income by way of long-term
capital gains referred to in clause (b), if any, included in the total income, at
the rate of ten per cent; and
(iv) the amount of income-tax with which the Foreign Institutional Investor
would have been chargeable had its total income been reduced by the
amount of income referred to in clause (a) and clause (b).
(2) Where the gross total income of the Foreign Institutional Investor
(a) consists only of income in respect of securities referred to in clause (a) of
sub-section (1), no deduction shall be allowed to it under sections 28 to 44C
or clause (i) or clause (iii) of section 57 or under Chapter VI-A;
(b) includes any income referred to in clause (a) or clause (b) of sub-section
(1), the gross total income shall be reduced by the amount of such income
and the deduction under Chapter VI-A shall be allowed as if the gross total
income as so reduced, were the gross total income of the Foreign
Institutional Investor.
(3) Nothing contained in the first and second provisos to section 48 shall apply for the
computation of capital gains arising out of the transfer of securities referred to in
clause (b) of sub-section (1).
Explanation.For the purposes of this section,
(a) the expression Foreign Institutional Investor means such investor as the
Central Government may, by notification in the Official Gazette19, specify in
this behalf;
(b) the expression securities20 shall have the meaning assigned to it in clause
(h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of
1956).]
21

[Tax on profits and gains of life insurance business.

115B. 22[(1)] Where the total income of an assessee includes any profits and gains
from life insurance business, the income-tax payable shall be the aggregate of

(i) the amount of income-tax calculated on the amount of profits and gains of
the life insurance business included in the total income, at the rate of twelve
and one-half per cent; and
(ii) the amount of income-tax with which the assessee would have been
chargeable had the total income of the assessee been reduced by the amount
of profits and gains of the life insurance business.]
23
[(2) Notwithstanding anything contained in sub-section (1) or in any other law for
the time being in force or any instrument having the force of law, the assessee shall, in
addition to the payment of income-tax computed under sub-section (1), deposit,
during 24[the previous years relevant to the assessment years commen-cing on the 1st
day of April, 1989 and the 1st day of April, 1990], an amount equal to thirty-three and
one-third per cent of the amount of income-tax computed under clause (i) of subsection (1), in such social security fund (hereafter in this sub-section referred to as the
security fund), as the Central Government may, by notification25 in the Official
Gazette, specify in this behalf :
Provided that where the assessee makes during the said previous 26[years] any deposit
of an amount of not less than two and one-half per cent of the profits and gains of the
life insurance business in the security fund, the amount of income-tax payable by the
assessee under the said clause (i) shall be reduced by an amount equal to two and onehalf per cent of such profits and gains and, accordingly, the deposit of thirty-three and
one-third per cent required to be made under this sub-section shall be calculated on
the income-tax as so reduced.]
27

[Tax on winnings from lotteries, crossword puzzles, races including horse races,
card games and other games of any sort or gambling or betting of any form or
nature whatsoever.
115BB. Where the total income of an assessee includes any income by way of
winnings from any lottery or crossword puzzle or race including horse race (not being
income from the activity of owning and maintaining race horses) or card game and
other game of any sort or from gambling or betting of any form or nature whatsoever,
the income-tax payable shall be the aggregate of
(i) the amount of income-tax calculated on income by way of winnings from
such lottery or crossword puzzle or race including horse race or card game
and other game of any sort or from gambling or betting of any form or
nature whatsoever, at the rate of 28[thirty] per cent; and
(ii) the amount of income-tax with which the assessee would have been
chargeable had his total income been reduced by the amount of income
referred to in clause (i).
Explanation.For the purposes of this section, horse race shall have the same
meaning as in section 74A.]
29

[Tax on non-resident sportsmen or sports associations.

115BBA. (1) Where the total income of an assessee,
(a) being a sportsman (including an athlete), who is not a citizen of India and is
a non-resident, includes any income received or receivable by way of
(i) participation in India in any game (other than a game the winnings
wherefrom are taxable under section 115BB) or sport; or

(ii) advertisement; or
(iii) contribution of articles relating to any game or sport in India in
newspapers, magazines or journals; or
(b) being a non-resident sports association or institution, includes any amount
guaranteed to be paid or payable to such association or institution in relation
to any game (other than a game the winnings wherefrom are taxable under
section 115BB) or sport played in India,
the income-tax payable by the assessee shall be the aggregate of
(i) the amount of income-tax calculated on income referred to in clause (a) or
clause (b) at the rate of ten per cent; and
(ii) the amount of income-tax with which the assessee would have been
chargeable had the total income of the assessee been reduced by the amount
of income referred to in clause (a) or clause (b) :
Provided that no deduction in respect of any expenditure or allowance shall be
allowed under any provision of this Act in computing the income referred to in clause
(a) or clause (b).
(2) It shall not be necessary for the assessee to furnish under sub-section (1) of section
139 a return of his income if
(a) his total income in respect of which he is assessable under this Act during
the previous year consisted only of income referred to in clause (a) or clause
(b) of sub-section (1); and
(b) the tax deductible at source under the provisions of Chapter XVII-B has
been deducted from such income.]
30

[Tax on income from units of an open-ended equity oriented fund of the Unit
Trust of India or of Mutual Funds.
115BBB. (1) Where the total income of an assessee includes any income from units
of an open-ended equity oriented fund of the Unit Trust of India or of a Mutual Fund,
the income-tax payable shall be the aggregate of
(a) the amount of income-tax calculated on income from units of an open-ended
equity oriented fund of the Unit Trust of India or of a Mutual Fund, at the
rate of ten per cent; and
(b) the amount of income-tax with which the assessee would have been
chargeable had his total income been reduced by the amount of income
referred to in clause (a).
(2) Nothing contained in sub-section (1) shall apply in relation to any income from
units of an open-ended equity oriented fund of the Unit Trust of India or of the Mutual
Fund arising after the 31st day of March, 2003.
Explanation.For the purposes of this section, the expressions Mutual Fund,
open-ended equity oriented fund and Unit Trust of India shall have the meanings
respectively assigned to them in the Explanation to section 115T.]
31

[CHAPTER XII-A
SPECIAL PROVISIONS RELATING TO CERTAIN
INCOMES OF NON-RESIDENTS
Definitions.

115C. In this Chapter, unless the context otherwise requires,

(a) 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;
(b) foreign exchange asset means any specified asset which the assessee has
acquired or purchased with, or subscribed to in, convertible foreign
exchange;
(c) investment income means any income derived 32[other than dividends
referred to in section 115-O] from a foreign exchange asset;
(d) long-term capital gains means income chargeable under the head Capital
gains relating to a capital asset, being a foreign exchange asset which is not
a short-term capital asset;
(e) non-resident Indian means an individual, being a citizen of India or a
person of Indian origin who is not a resident.
Explanation.A person 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;
(f) specified asset means any of the following assets, namely :
(i) shares in an Indian company;
(ii) debentures issued by an Indian company which is not a private
company33 as defined in the Companies Act, 1956 (1 of 1956);
(iii) deposits with an Indian company which is not a private com-pany33 as
defined in the Companies Act, 1956 (1 of 1956);
(iv) any security of the Central Government as defined in clause (2) of
section 234 of the Public Debt Act, 1944 (18 of 1944);
(v) such other assets as the Central Government may specify in this behalf
by notification in the Official Gazette.
Special provision for computation of total income of non-residents.
115D. (1) No deduction in respect of any expenditure or allowance shall be allowed
under any provision of this Act in computing the investment income of a non-resident
Indian.
(2) Where in the case of an assessee, being a non-resident Indian,
(a) the gross total income consists only of investment income or income by way
of long-term capital gains or both, no deduction shall be allowed to the
assessee 35[under Chapter VI-A and nothing contained in the provisions of
the second proviso to section 48 shall apply to income chargeable under the
head Capital gains];
(b) the gross total income includes any income referred to in clause (a), the
gross total income shall be reduced by the amount of such income and the
deductions under Chapter VI-A shall be allowed as if the gross total income
as so reduced were the gross total income of the assessee.
36

[Tax on investment income and long-term capital gains.

115E. Where the total income of an assessee, being a non-resident Indian, includes

(a) any income from investment or income from long-term capital gains of an
asset other than a specified asset;
(b) income by way of long-term capital gains,
the tax payable by him shall be the aggregate of
(i) the amount of income-tax calculated on the income in respect of investment
income referred to in clause (a), if any, included in the total income, at the
rate of twenty per cent;
(ii) the amount of income-tax calculated on the income by way of long-term
capital gains referred to in clause (b), if any, included in the total income, at
the rate of ten per cent; and
(iii) the amount of income-tax with which he would have been chargeable had
his total income been reduced by the amount of income referred to in
clauses (a) and (b).]
Capital gains on transfer of foreign exchange assets not to be charged in certain
cases.
115F. (1) Where, in the case of an assessee being a non-resident Indian, any long-term
capital gains arise from the transfer of a foreign exchange asset (the asset so
transferred being hereafter in this section referred to as the original asset), and the
assessee has, within a period of six months after the date of such transfer, invested
37
[***] the whole or any part of the net consideration in any specified asset 38[***], or
in any savings certificates referred to in clause (4B) of section 10 (such specified asset
39
[***], or such savings certificates being hereafter in this section referred to as the
new asset), the capital gain shall be dealt with in accordance with the following
provisions of this section, that is to say,
(a) if the cost of the new asset is not less than the net consideration in respect of
the original asset, the whole of such capital gain shall not be charged under
section 45;
(b) if the cost of the new asset is less than the net consideration in respect of the
original asset, so much of the capital gain as bears to the whole of the
capital gain the same proportion as the cost of acquisition of the new asset
bears to the net consideration shall not be charged under section 45.
Explanation.For the purposes of this sub-section,
(i) cost, in relation to any new asset, being a deposit 40[***] referred to in
sub-clause (iii), or specified under sub-clause (v), of clause (f) of section
115C, means the amount of such deposit;
(ii) net consideration, in relation to the transfer of the original asset, means
the full value of the consideration received or accruing as a result of the
transfer of such asset as reduced by any expenditure incurred wholly and
exclusively in connection with such transfer.
(2) Where the new asset is transferred or converted (otherwise than by transfer) into
money, within a period of three years from the date of its acquisition, the amount of
capital gain arising from the transfer of the original asset not charged under section 45
on the basis of the cost of such new asset as provided in clause (a) or, as the case may
be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the
head Capital gains relating to capital assets other than short-term capital assets of

the previous year in which the new asset is transferred or converted (otherwise than
by transfer) into money.
Return of income not to be filed in certain cases.
115G. It shall not be necessary for a non-resident Indian to furnish under sub-section
(1) of section 139 a return of his income if
(a) his total income in respect of which he is assessable under this Act during
the previous year consisted only of investment income or income by way of
long-term capital gains or both; and
(b) the tax deductible at source under the provisions of Chapter XVII-B has
been deducted from such income.
Benefit under Chapter to be available in certain cases even after the assessee
becomes resident.
115H. Where a person, who is a non-resident Indian in any previous year, becomes
assessable as resident in India in respect of the total income of any subsequent year,
he may furnish to the 41[Assessing] Officer a declaration in writing along with his
return of income under section 139 for the assessment year for which he is so
assessable, to the effect that the provisions of this Chapter shall continue to apply to
him in relation to the investment income derived from any foreign exchange asset
being an asset of the nature referred to in sub-clause (ii) or sub-clause (iii) or subclause (iv) or sub-clause (v) of clause (f) of section 115C; and if he does so, the
provisions of this Chapter shall continue to apply to him in relation to such income for
that assessment year and for every subsequent assessment year until the transfer or
conversion (otherwise than by transfer) into money of such assets.
Chapter not to apply if the assessee so chooses.
115-I. A non-resident Indian may elect not to be governed by the provisions of this
Chapter for any assessment year by furnishing 42[his return of income for that
assessment year under section 139 declaring therein] that the provisions of this
Chapter shall not apply to him for that assessment year and if he does so, the
provisions of this Chapter shall not apply to him for that assessment year and his total
income for that assessment year shall be computed and tax on such total income shall
be charged in accordance with the other provisions of this Act.]
43

[CHAPTER XII-B
SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES
Special provisions relating to certain companies.
115J. (1) Notwithstanding anything contained in any other provision of this Act,
where in the case of an assessee being a company 44[(other than a company engaged in
the business of generation or distribution of electricity)], the total income, as
computed under this Act in respect of any previous year relevant to the assessment
year commencing on or after the 1st day of April, 1988 45[but before the 1st day of
April, 1991] (hereafter in this section referred to as the relevant previous year), is less
than thirty per cent of its book profit, the total income of such assessee chargeable to
tax for the relevant previous year shall be deemed to be an amount equal to thirty per
cent of such book profit.

46

[(1A) Every assessee, being a company, shall, for the purposes of this section,
prepare its profit and loss account for the relevant previous year in accordance with
the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of
1956).]
Explanation.For the purposes of this section, book profit means the net profit as
shown in the profit and loss account for the relevant previous year 47[prepared under
sub-section (1A)], as increased by
(a) the amount of income-tax paid or payable, and the provision therefor; or
(b) the amounts carried to any reserves 48[(other than the reserves specified in
section 80HHD 49[or sub-section (1) of section 33AC])], by whatever name
called; or
(c) the amount or amounts set aside to provisions made for meeting liabilities,
other than ascertained liabilities; or
(d) the amount by way of provision for losses of subsidiary companies; or
(e) the amount or amounts of dividends paid or proposed; or
(f) the amount or amounts of expenditure relatable to any income to which any
of the provisions of Chapter III 50[applies; or]
51
[(g) the amount withdrawn from the reserve account under section 80HHD,
where it has been utilised for any purpose other than those referred to in
sub-section (4) of that section; or
(h) the amount credited to the reserve account under section 80HHD, to the
extent that amount has not been utilised within the period specified in subsection (4) of that section;]
52
[(ha) the amount deemed to be the profits under sub-section (3) of section 33AC;]
53
[if any amount referred to in clauses (a) to (f) is debited or, as the case may be, the
amount referred to in clauses (g) and (h) is not credited] to the profit and loss account,
and as reduced by,
(i) the amount withdrawn from reserves 54[(other than the reserves specified in
section 80HHD)] or provisions, if any such amount is credited to the
55
[profit and loss account :
Provided that, where this section is applicable to an assessee in any
previous year (including the relevant previous year), the amount withdrawn
from reserves created or provisions made in a previous year relevant to the
assessment year commencing on or after the 1st day of April, 1988 shall not
be reduced from the book profit unless the book profit of such year has been
increased by those reserves or provisions (out of which the said amount was
withdrawn) under this Explanation; or]
(ii) the amount of income to which any of the provisions of Chapter III applies,
if any such amount is credited to the profit and loss account; or
56
[(iii) the amounts [as arrived at after increasing the net profit by the amounts
referred to in clauses (a) to (f) and reducing the net profit by the amounts
referred to in clauses (i) and (ii)] attributable to the business, the profits
from which are eligible for deduction under section 80HHC or section
80HHD; so, however, that such amounts are computed in the manner
specified in sub-section (3) or sub-section (3A) of section 80HHC or subsection (3) of section 80HHD, as the case may be; or]

57

[(iv)] the amount of the loss or the amount of depreciation which would be
required to be set off against the profit of the relevant previous year as if the
provisions of clause (b) of the first proviso to sub-section (1) of section 205
of the Companies Act, 1956 (1 of 1956), are applicable.
(2) Nothing contained in sub-section (1) shall affect the determination of the amounts
in relation to the relevant previous year 58 to be carried forward to the subsequent year
or years under the provisions of sub-section (2) of section 32 or sub-section (3) of
section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74
or sub-section (3) of section 74A or sub-section (3) of section 80J.]
59

[Deemed income relating to certain companies.

115JA. (1) Notwithstanding anything contained in any other provisions of this Act,
where in the case of an assessee, being a company, the total income, as computed
under this Act in respect of any previous year relevant to the assessment year
commencing on or after the 1st day of April, 1997 60[but before the 1st day of April,
2001] (hereafter in this section referred to as the relevant previous year) is less than
thirty per cent of its book profit, the total income of such assessee chargeable to tax
for the relevant previous year shall be deemed to be an amount equal to thirty per cent
of such book profit.
(2) Every assessee, being a company, shall, for the purposes of this section prepare its
profit and loss account for the relevant previous year in accordance with the
provisions of Parts II and III of Schedule VI 61 to the Companies Act, 1956 (1 of
1956) :
Provided that while preparing profit and loss account, the depreciation shall be
calculated on the same method and rates which have been adopted for calculating the
depreciation for the purpose of preparing the profit and loss account laid before the
company at its annual general meeting in accordance with the provisions of section
210 of the Companies Act, 1956 (1 of 1956) :
Provided further that where a company has adopted or adopts the financial year
under the Companies Act, 1956 (1 of 1956), which is different from the previous year
under the Act, the method and rates for calculation of depreciation shall correspond to
the method and rates which have been adopted for calculating the depreciation for
such financial year or part of such financial year falling within the relevant previous
year.
Explanation.For the purposes of this section, book profit means the net profit as
shown in the profit and loss account for the relevant previous year prepared under
sub-section (2), as increased by
(a) the amount of income-tax paid or payable, and the provision therefor; or
(b) the amounts carried to any reserves by whatever name called; or
(c) the amount or amounts set aside to provisions made for meeting liabilities,
other than ascertained liabilities; or
(d) the amount by way of provision for losses of subsidiary companies; or
(e) the amount or amounts of dividends paid or proposed; or
(f) the amount or amounts of expenditure relatable to any income to which any
of the provisions of Chapter III applies;
if any amount referred to in clauses (a) to (f) is debited to the profit and loss account,
and as reduced by,

(i) the amount withdrawn from any reserves or provisions if any such amount
is credited to the profit and loss account :
Provided that, where this section is applicable to an assessee in any
previous year (including the relevant previous year), the amount withdrawn
from reserves created or provisions made in a previous year relevant to the
assessment year commencing on or after the 1st day of April, 1997 62[but
ending before the 1st day of April, 2001] shall not be reduced from the book
profit unless the book profit of such year has been increased by those
reserves or provisions (out of which the said amount was withdrawn) under
this Explanation; or
(ii) the amount of income to which any of the provisions of Chapter III applies,
if any such amount is credited to the profit and loss account; or
63
[(iii) the amount of loss brought forward or unabsorbed depreciation, whichever
is less as per books of account.
Explanation.For the purposes of this clause,
(a) the loss shall not include depreciation;
(b) the provisions of this clause shall not apply if the amount of loss brought
forward or unabsorbed depreciation is nil; or]
(iv) the amount of profits derived by an industrial undertaking from the business
of generation or generation and distribution of power; or
(v) the amount of profits derived by an industrial undertaking located in an
industrially backward State or district as referred to in 64[sub-section (4) and
sub-section (5) of section 80-IB], for the assessment years such industrial
undertaking is eligible to claim a deduction of hundred per cent of the
65
[profits and gains under sub-section (4) or sub-section (5) of section 80IB]; or
(vi) the amount of profits derived by an industrial undertaking from the business
of developing, maintaining and operating any infrastructure facility 66[as
defined in the Explanation to sub-section (4) of section 80-IA and subject
to fulfilling the conditions laid down in that sub-section]; or
(vii) the amount of profits of sick industrial company for the assessment year
commencing from the assessment year relevant to the previous year in
which the said company has become a sick industrial com-pany under subsection (1) of section 17 of the Sick Industrial Companies (Special
Provisions) Act, 1985 (1 of 1986) and ending with the assessment year
during which the entire net worth of such company becomes equal to or
exceeds the accumulated losses.
Explanation.For the purposes of this clause, net worth shall have the
meaning assigned to it in clause (ga)67 of sub-section (1) of section 3 of the
Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); 68[or]
68
[(viii) the amount of profits eligible for deduction under section 80HHC,
computed under clause (a), (b) or (c) of sub-section (3) or sub-section (3A),
as the case may be, of that section, and subject to the conditions specified in
sub-sections (4) and (4A) of that section;
(ix) the amount of profits eligible for deduction under section 80HHE, computed
under sub-section (3) of that section.]

(3) Nothing contained in sub-section (1) shall affect the determination of the amounts
in relation to the relevant previous year to be carried forward to the subsequent year or
years under the provisions of sub-section (2) of section 32 or sub-section (3) of
section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74
or sub-section (3) of section 74A.
(4) Save as otherwise provided in this section, all other provisions of this Act shall
apply to every assessee, being a company, mentioned in this section.]
69

[Tax credit in respect of tax paid on deemed income relating to certain

companies.
115JAA. (1) Where any amount of tax is paid under sub-section (1) of section 115JA
by an assessee being a company for any assessment year, then, credit in respect of tax
so paid shall be allowed to him in accordance with the provisions of this section.
(2) The tax credit to be allowed under sub-section (1) shall be the difference of the
tax paid for any assessment year under sub-section (1) of section 115JA and the
amount of tax payable by the assessee on his total income computed in accordance
with the other provisions of this Act :
Provided that no interest shall be payable on the tax credit allowed under sub-section
(1).
(3) The amount of tax credit determined under sub-section (2) shall be carried forward
and set off in accordance with the provisions of sub-section (4) and sub-section (5)
but such carry forward shall not be allowed beyond the fifth assessment year
immediately succeeding the assessment year in which tax credit becomes allowable
under sub-section (1).
(4) The tax credit shall be allowed set-off in a year when tax becomes payable on the
total income computed in accordance with the provisions of this Act other than section
115JA 70[or section 115JB, as the case may be].
(5) Set off in respect of brought forward tax credit shall be allowed for any
assessment year to the extent of the difference between the tax on his total income and
the tax which would have been payable under the provisions of sub-section (1) of
section 115JA 70[or section 115JB, as the case may be] for that assessment year.
(6) Where as a result of an order under sub-section (1) or sub-section (3) of section
143, section 144, section 147, section 154, section 155, sub-section (4) of section
245D, section 250, section 254, section 260, section 262, section 263 or section 264,
the amount of tax payable under this Act is reduced or increased, as the case may be,
the amount of tax credit allowed under this section shall also be increased or reduced
accordingly.]
71

[Special provision for payment of tax by certain companies.72

115JB. (1) Notwithstanding anything contained in any other provision of this Act,
where in the case of an assessee, being a company, the income-tax, payable on the
total income as computed under this Act in respect of any previous year relevant
to the assessment year commencing on or after the 1st day of April, 2001, is less
than seven and one-half per cent of its book profit, 73[such book profit shall be
deemed to be the total income of the assessee and the tax payable by the assessee
on such total income shall be the amount of income-tax at the rate of seven and
one-half per cent].

(2) Every assessee, being a company, shall, for the purposes of this section, prepare its
profit and loss account for the relevant previous year in accordance with the
provisions of Parts II and III of Schedule VI 74 to the Companies Act, 1956 (1 of
1956) :
Provided that while preparing the annual accounts including profit and loss account,

(i) the accounting policies;

(ii) the accounting standards adopted for preparing such accounts including
profit and loss account;
(iii) the method and rates adopted for calculating the depreciation,
shall be the same as have been adopted for the purpose of preparing such accounts
including profit and loss account and laid before the company at its annual general
meeting in accordance with the provisions of section 210 of the Companies Act,
1956 (1 of 1956) :
Provided further that where the company has adopted or adopts the financial year
under the Companies Act, 1956 (1 of 1956), which is different from the previous
year under this Act,
(i) the accounting policies;
(ii) the accounting standards adopted for preparing such accounts including
profit and loss account;
(iii) the method and rates adopted for calculating the depreciation,
shall correspond to the accounting policies, accounting standards and the method and
rates for calculating the depreciation which have been adopted for preparing such
accounts including profit and loss account for such financial year or part of such
financial year falling within the relevant previous year.
Explanation.For the purposes of this section, book profit means the net profit as
shown in the profit and loss account for the relevant previous year prepared under
sub-section (2), as increased by
(a) the amount of income-tax paid or payable, and the provision therefor; or
(b) the amounts carried to any reserves, by whatever name called 75[, other than
a reserve specified under section 33AC]; or
(c) the amount or amounts set aside to provisions made for meeting liabilities,
other than ascertained liabilities; or
(d) the amount by way of provision for losses of subsidiary companies; or
(e) the amount or amounts of dividends paid or proposed ; or
(f) the amount or amounts of expenditure relatable to any income to which
section 10 75a[(other than the provisions contained in clause (23G) thereof)]
or section 10A or section 10B or section 11 or section 12 apply,
if any amount referred to in clauses (a) to (f) is debited to the profit and loss account,
and as reduced by
76
[(i) the amount withdrawn from any reserve or provision (excluding a reserve
created before the 1st day of April, 1997 otherwise than by way of a debit to
the profit and loss account), if any such amount is credited to the profit and
loss account:
Provided that where this section is applicable to an assessee in any previous
year, the amount withdrawn from reserves created or provisions made in a

previous year relevant to the assessment year commencing on or after the

1st day of April, 1997 shall not be reduced from the book profit unless the
book profit of such year has been increased by those reserves or provisions
(out of which the said amount was withdrawn) under this Explanation or
Explanation below the second proviso to section 115JA, as the case may be;
or]
(ii) the amount of income to which any of the provisions of section 10 76a[(other
than the provisions contained in clause (23G) thereof)] or section 10A or
section 10B or section 11 or section 12 apply, if any such amount is credited
to the profit and loss account; or
77
[(iii) the amount of loss brought forward or unabsorbed depreciation, whichever
is less as per books of account.
Explanation.For the purposes of this clause,
(a) the loss shall not include depreciation;
(b) the provisions of this clause shall not apply if the amount of loss brought
forward or unabsorbed depreciation is nil; or]
(iv) the amount of profits eligible for deduction under section 80HHC,
computed under clause (a) or clause (b) or clause (c) of sub-section (3) or
sub-section (3A), as the case may be, of that section, and subject to the
conditions specified in that section; or
(v) the amount of profits eligible for deduction under section 80HHE computed
under sub-section (3) or sub-section (3A), as the case may be, of that
section, and subject to the conditions specified in that section; or
(vi) the amount of profits eligible for deduction under section 80HHF computed
under sub-section (3) of that section, and subject to the conditions specified
in that section; or
(vii) the amount of profits of sick industrial company for the assessment year
commencing on and from the assessment year relevant to the previous year
in which the said company has become a sick industrial company under
sub-section (1) of section 1778 of the Sick Industrial Companies (Special
Provisions) Act, 1985 (1 of 1986) and ending with the assessment year
during which the entire net worth of such company becomes equal to or
exceeds the accumulated losses.
Explanation.For the purposes of this clause, net worth shall have the
meaning assigned to it in clause (ga) of sub-section (1) of section 3 79 of the
Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986).
(3) Nothing contained in sub-section (1) shall affect the determination of the amounts
in relation to the relevant previous year to be carried forward to the subsequent
year or years under the provisions of sub-section (2) of section 32 or sub-section
(3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or
section 74 or sub-section (3) of section 74A.
(4) Every company to which this section applies, shall furnish a report in the
prescribed form80 from an accountant as defined in the Explanation below subsection (2) of section 288, certifying that the book profit has been computed in
accordance with the provisions of this section along with the return of income
filed under sub-section (1) of section 139 or along with the return of income
furnished in response to a notice under clause (i) of sub-section (1) of section 142.

(5) Save as otherwise provided in this section, all other provisions of this Act shall
apply to every assessee, being a company, mentioned in this section.]

85[CHAPTER

XII-D
SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED
PROFITS OF DOMESTIC COMPANIES
Tax on distributed profits of domestic companies.
115-O. 86[(1) Notwithstanding anything contained in any other provision of this Act
and subject to the provisions of this section, in addition to the income-tax chargeable
in respect of the total income of a domestic company for any assessment year, any
amount declared, distributed or paid by such company by way of dividends (whether
interim or otherwise) on or after the 1st day of April, 2003, whether out of current or
accumulated profits shall be charged to additional income-tax (hereafter referred to as
tax on distributed profits) at the rate of twelve and one-half per cent.]
(2) Notwithstanding that no income-tax is payable by a domestic company on its total
income computed in accordance with the provisions of this Act, the tax on distributed
profits under sub-section (1) shall be payable by such company.
(3) The principal officer of the domestic company and the company shall be liable to
pay the tax on distributed profits to the credit of the Central Government within
fourteen days from the date of
(a) declaration of any dividend; or
(b) distribution of any dividend; or
(c) payment of any dividend,
whichever is earliest.
(4) The tax on distributed profits so paid by the company shall be treated as the final
payment of tax in respect of the amount declared, distributed or paid as dividends and
no further credit therefor shall be claimed by the company or by any other person in
respect of the amount of tax so paid.
(5) No deduction under any other provision of this Act shall be allowed to the
company or a shareholder in respect of the amount which has been charged to tax
under sub-section (1) or the tax thereon.
Interest payable for non-payment of tax by domestic companies.
115P. Where the principal officer of a domestic company and the company fails to
pay the whole or any part of the tax on distributed profits referred to in sub-section (1)
of section 115-O, within the time allowed under sub-section (3) of that section, he or
it shall be liable to pay simple interest at the rate of 87[one] per cent for every month or
part thereof on the amount of such tax for the period beginning on the date
immediately after the last date on which such tax was payable and ending with the
date on which the tax is actually paid.
When company is deemed to be in default.

115Q. If any principal officer of a domestic company and the company does not pay
tax on distributed profits in accordance with the provisions of section 115-O, then, he
or it shall be deemed to be an assessee in default in respect of the amount of tax
payable by him or it and all the provisions of this Act for the collection and recovery
of income-tax shall apply.
Explanation.For the purposes of this Chapter, the expression dividends shall have
the same meaning as is given to dividend in clause (22) of section 2 but shall not
include sub-clause (e) thereof.]
88

[CHAPTER XII-E
SPECIAL PROVISIONS RELATING TO TAX ON
DISTRIBUTED INCOME
Tax on distributed income to unit holders.
115R. (1) Notwithstanding anything contained in any other provisions of this
Act
and section 32 of the Unit Trust of India Act, 1963 (52 of 1963), 89[any amount of
income distributed on or before the 31st day of March, 2002 by the Unit Trust of India
to its unit holders] shall be chargeable to tax and the Unit Trust of India shall be liable
to pay additional income-tax on such distributed income at the rate of 90[ten] per cent :
Provided that nothing contained in this sub-section shall apply in respect of any
income distributed to a unit holder of open-ended equity oriented funds in respect of
any distribution made from such fund for a period of three years commencing from
the 1st day of April, 1999.
91
[(2) Notwithstanding anything contained in any other provision of this Act, any
amount of income distributed by the specified company or a Mutual Fund to its unit
holders shall be chargeable to tax and such specified company or Mutual Fund shall
be liable to pay additional income-tax on such distributed income 91a[at the rate of
(i) twelve and one-half per cent on income distributed to any person being an
individual or a Hindu undivided family; and
(ii) twenty per cent on income distributed to any other person:]
Provided that nothing contained in this sub-section shall apply in respect of any
income distributed,
(a) by the Administrator of the specified undertaking, to the unit holders; or
(b) to a unit holder of open-ended equity oriented funds in respect of any
distribution made from such funds 91b[***].
Explanation.For the purposes of this sub-section, Administrator and specified
company shall have the meanings respectively assigned to them in the Explanation
to clause (35) of section 10.]
(3) The person responsible for making payment of the income distributed by the Unit
Trust of India or a Mutual Fund and the Unit Trust of India or the Mutual Fund, as the
case may be, shall be liable to pay tax to the credit of the Central Government within
fourteen days from the date of distribution or payment of such income, whichever is
earlier.
92
[(3A) The person responsible for making payment of the income distributed by the
Unit Trust of India or a Mutual Fund and the Unit Trust of India or the Mutual Fund,
as the case may be, shall on or before the 15th day of September in each year, furnish
to the prescribed income-tax authority93, a statement in the prescribed form and
verified in the prescribed manner, giving the details of the amount of income

distributed to unit holders during the previous year, the tax paid thereon and such
other relevant details as may be prescribed93.]
(4) No deduction under any other provision of this Act shall be allowed to the Unit
Trust of India or to a Mutual Fund in respect of the income which has been charged to
tax under sub-section (1) or sub-section (2).
Interest payable for non-payment of tax.
115S. Where the person responsible for making payment of the income distributed
by the 94[specified company as referred to in clause (h) of section 2 of the Unit Trust
of India (Transfer of Undertaking and Repeal) Act, 2002 95 (58 of 2002) or a Mutual
Fund and the specified company] or the Mutual Fund, as the case may be, fails to pay
the whole or any part of the tax referred to in sub-section (1) or sub-section (2) of
section 115R, within the time allowed under sub-section (3) of that section, he or it
shall be liable to pay simple interest at the rate of 96[one] per cent every month or part
thereof on the amount of such tax for the period beginning on the date immediately
after the last date on which such tax was payable and ending with the date on which
the tax is actually paid.
Unit Trust of India or Mutual Fund to be an assessee in default.
115T. If any person responsible for making payment of the income distributed by the
94
[specified company as referred to in clause (h) of section 2 of the Unit Trust of India
(Transfer of Undertaking and Repeal) Act, 200295 (58 of 2002) or a Mutual Fund and
the specified company] or the Mutual Fund, as the case may be, does not pay tax, as is
referred to in sub-section (1) or sub-section (2) of section 115R, then, he or it shall be
deemed to be an assessee in default in respect of the amount of tax payable by him or
it and all the provisions of this Act for the collection and recovery of income-tax shall
apply.
Explanation. For the purposes of this Chapter,
(a) Mutual Fund means a Mutual Fund specified under clause (23D) of
section 10;
(b) open-ended equity oriented fund means
(i) the Unit Scheme, 1964 made by the Unit Trust of India; and
(ii) such fund where the investible funds are invested by way of equity
shares in domestic companies to the extent of more than fifty per cent of
the total proceeds of such fund :
Provided that the percentage of equity share holding of the fund shall be
computed with reference to the annual average of the monthly averages of
the opening and closing figures;
(c) Unit Trust of India means the Unit Trust of India established under the
Unit Trust of India Act, 1963 (52 of 1963).]
97

[CHAPTER XII-F
SPECIAL PROVISIONS RELATING TO TAX ON INCOME RECEIVED
FROM VENTURE CAPITAL COMPANIES AND
VENTURE CAPITAL FUNDS
Tax on income in certain cases.

115U. (1) Notwithstanding anything contained in any other provisions of this Act,
any income received by a person out of investments made in a venture capital
company or venture capital fund shall be chargeable to income-tax in the same
manner as if it were the income received by such person had he made investments
directly in the venture capital undertaking.
(2) The person responsible for making payment of the income on behalf of a venture
capital company or a venture capital fund and the venture capital company or venture
capital fund shall furnish, within such time as may be prescribed, to the person
receiving such income and to the prescribed income-tax authority 98, a statement in the
prescribed form98 and verified in the prescribed manner, giving details of the nature of
the income paid during the previous year and such other relevant details as may be
prescribed.
(3) The income paid by the venture capital company and the venture capital fund shall
be deemed to be of the same nature and in the same proportion in the hands of the
person receiving such income as it had been received by, or had accrued to, the
venture capital company or the venture capital fund, as the case may be, during the
previous year.
(4) The provisions of Chapter XII-D or Chapter XII-E or Chapter XVII-B shall not
apply to the income paid by a venture capital company or venture capital fund under
this Chapter.
Explanation.For the purposes of this Chapter, venture capital company, venture
capital fund and venture capital undertaking shall have the meanings respectively
assigned to them in clause (23FB) of section 10.]
The following Chapter XII-G, consisting of sections 115V to 115VZC, shall be
inserted after Chapter XII-F by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
CHAPTER XII-G
SPECIAL PROVISIONS RELATING TO INCOME
OF SHIPPING COMPANIES
A.Meaning of certain expressions
Definitions.
115V. In this Chapter, unless the context otherwise requires,
(a) bareboat charter means hiring of a ship for a stipulated period on terms
which give the charterer possession and control of the ship, including the
right to appoint the master and crew;
(b) bareboat charter-cum-demise means a bareboat charter where the
ownership of the ship is intended to be transferred after a specified period
to the company to whom it has been chartered;
(c) Director-General of Shipping means the Director-General of Shipping
appointed by the Central Government under sub-section (1) of section 7 of
the Merchant Shipping Act, 1958 (44 of 1958);
(d) factory ship includes a vessel providing processing services in respect of
processing of the fishing produce;
(e) fishing vessel shall have the meaning assigned to it in clause (12) of
section 3 of the Merchant Shipping Act, 1958 (44 of 1958);
(f) pleasure craft means a ship of a kind whose primary use is for the
purposes of sport or recreation;

(g) qualifying company means a company referred to in section 115VC;

(h) qualifying ship means a ship referred to in section 115VD;
(i) seagoing ship means a ship if it is certified as such by the competent
authority of any country;
(j) tonnage income means the income of a tonnage tax company computed
in accordance with the provisions of this Chapter;
(k) tonnage tax activities means the activities referred to in sub-section (1)
of section 115V-I;
(l) tonnage tax company means a qualifying company in relation to which
tonnage tax option is in force;
(m) tonnage tax scheme means a scheme for computation of profits and gains
of business of operating qualifying ships under the provisions of this
Chapter.
B.Computation of tonnage income from business of
operating qualifying ships
Computation of profits and gains from the business of operating qualifying ships.
115VA. Notwithstanding anything to the contrary contained in sections 28 to 43C, in
the case of a company, the income from the business of operating qualifying ships,
may, at its option, be computed in accordance with the provisions of this Chapter and
such income shall be deemed to be the profits and gains of such business chargeable
to tax under the head Profits and gains of business or profession.
Operating ships.
115VB. For the purposes of this Chapter, a company shall be regarded as operating
a ship if it operates any ship whether owned or chartered by it and includes a case
where even a part of the ship has been chartered in by it in an arrangement such as
slot charter, space charter or joint charter :
Provided that a company shall not be regarded as the operator of a ship which has
been chartered out by it on bareboat charter-cum-demise terms or on bareboat
charter terms for a period exceeding three years.
Qualifying company.
115VC. For the purposes of this Chapter, a company is a qualifying company if
(a) it is an Indian company;
(b) the place of effective management of the company is in India;
(c) it owns at least one qualifying ship; and
(d) the main object of the company is to carry on the business of operating
ships.
Explanation.For the purposes of this section, place of effective management of the
company means
(A) the place where the board of directors of the company or its executive
directors, as the case may be, make their decisions; or
(B) in a case where the board of directors routinely approve the commercial
and strategic decisions made by the executive directors or officers of the

company, the place where such executive directors or officers of the

company perform their functions.
Qualifying ship.
115VD. For the purposes of this Chapter, a ship is a qualifying ship if
(a) it is a sea going ship or vessel of fifteen net tonnage or more;
(b) it is a ship registered under the Merchant Shipping Act, 1958 (44 of 1958),
or a ship registered outside India in respect of which a licence has been
issued by the Director-General of Shipping under section 406 or section
407 of the Merchant Shipping Act, 1958 (44 of 1958); and
(c) a valid certificate in respect of such ship indicating its net tonnage is in
force,
but does not include
(i) a seagoing ship or vessel if the main purpose for which it is used is the
provision of goods or services of a kind normally provided on land;
(ii) fishing vessels;
(iii) factory ships;
(iv) pleasure crafts;
(v) harbour and river ferries;
(vi) offshore installations;
(vii) dredgers;
(viii) a qualifying ship which is used as a fishing vessel for a period of more than
thirty days during a previous year.

Manner of computation of income under tonnage tax scheme.

115VE. (1) A tonnage tax company engaged in the business of operating qualifying
ships shall compute the profits from such business under the tonnage tax scheme.
(2) The business of operating qualifying ships giving rise to income referred to in subsection (1) of section 115V-I shall be considered as a separate business (hereafter in
this Chapter referred to as the tonnage tax business) distinct from all other activities
or business carried on by the company.
(3) The profits referred to in sub-section (1) shall be computed separately from the
profits and gains from any other business.
(4) The tonnage tax scheme shall apply only if an option to that effect is made in
accordance with the provisions of section 115VP.
(5) Where a company engaged in the business of operating qualifying ships is not
covered under the tonnage tax scheme or, has not made an option to that effect, as the
case may be, the profits and gains of such company from such business shall be
computed in accordance with the other provisions of this Act.
Tonnage income.
115VF.Subject to the other provisions of this Chapter, the tonnage income shall be
computed in accordance with section 115VG and the income so computed shall be
deemed to be the profits chargeable under the head Profits and gains of business or

profession and the relevant shipping income referred to in sub-section (1) of section
115V-I shall not be chargeable to tax.

Computation of tonnage income.

115VG. (1) The tonnage income of a tonnage tax company for a previous year shall
be the aggregate of the tonnage income of each qualifying ship computed in accordance with the provisions of sub-sections (2) and (3).
(2) For the purposes of sub-section (1), the tonnage income of each qualifying ship
shall be the daily tonnage income of each such ship multiplied by
(a) the number of days in the previous year; or
(b) the number of days in part of the previous year in case the ship is operated
by the company as a qualifying ship for only part of the previous year,
as the case may be.
(3) For the purposes of sub-section (2), the daily tonnage income of a qualifying ship
having tonnage referred to in column (1) of the Table below shall be the amount
specified in the corresponding entry in column (2) of the Table:
TABLE
Qualifying ship having net tonnage
Amount of daily tonnage income
(1)
(2)
up to 1,000
Rs. 46 for each 100 tons
exceeding 1,000 but not more than 10,000
Rs. 460 plus Rs. 35 for each100 tons exceeding 1,000 to
exceeding 10,000 but not more than 25,000
Rs. 3,610 plus Rs. 28 for each100 tons exceeding 10,000
exceeding 25,000
Rs. 7,810 plus Rs. 19 for each 100 tons exceeding 25,00
(4) For the purposes of this Chapter, the tonnage shall mean the tonnage of a ship
indicated in the certificate referred to in section 115VX and includes the deemed
tonnage computed in the prescribed manner.
Explanation.For the purposes of this sub-section, deemed tonnage shall be the
tonnage in respect of an arrangement of purchase of slots, slot charter and an
arrangement of sharing of break-bulk vessel.
(5) The tonnage shall be rounded off to the nearest multiple of hundred tons and for
this purpose any tonnage consisting of kilograms shall be ignored and thereafter if
such tonnage is not a multiple of hundred, then, if the last figure in that amount is fifty
tons or more, the tonnage shall be increased to the next higher tonnage which is a
multiple of hundred and if the last figure is less than fifty tons, the tonnage shall be
reduced to the next lower tonnage which is a multiple of hundred; and the tonnage so
rounded off shall be the tonnage of the ship for the purposes of this section.
(6) Notwithstanding anything contained in any other provision of this Act, no
deduction or set off shall be allowed in computing the tonnage income under this
Chapter.
Calculation in case of joint operation, etc.
115VH. (1) Where a qualifying ship is operated by two or more companies by way
of joint interest in the ship or by way of an agreement for the use of the ship and their
respective shares are definite and ascertainable, the tonnage income of each such
company shall be an amount equal to a share of income proportionate to its share of
that interest.

(2) Subject to the provisions of sub-section (1), where two or more companies are
operators of a qualifying ship, the tonnage income of each company shall be
computed as if each had been the only operator.
Relevant shipping income.
115V-I. (1) For the purposes of this Chapter, the relevant shipping income of a
tonnage tax company means
(i) its profits from core activities referred to in sub-section (2);
(ii) its profits from incidental activities referred to in sub-section (5):
Provided that where the aggregate of all such incomes specified in clause (ii) exceeds
one-fourth per cent of the turnover from core activities referred to in sub-section (2),
such excess shall not form part of the relevant shipping income for the purposes of
this Chapter and shall be taxable under the other provisions of this Act.
(2) The core activities of a tonnage tax company shall be
(i) its activities from operating qualifying ships; and
(ii) other ship-related activities mentioned as under :
(A) shipping contracts in respect of
(i) earning from pooling arrangements;
(ii) contracts of affreightment.
Explanation.For the purposes of this sub-clause,
(a) pooling arrangement means an agreement between two or more
persons for providing services through a pool or operating one or
more ships and sharing earnings or operating profits on the basis of
mutually agreed terms;
(b) contract of affreightment means a service contract under which a
tonnage tax company agrees to transport a specified quantity of
specified products at a specified rate, between designated loading
and discharging ports over a specified period;
(B) specific shipping trades, being,
(i) on-board or on-shore activities of passenger ships comprising of
fares and food and beverages consumed on board;
(ii) slot charters, space charters, joint charters, feeder services,
container box leasing of container shipping.
(3) The Central Government, if it considers necessary or expedient so to do, may, by
notification in the Official Gazette, exclude any activity referred to in clause (ii) of
sub-section (2) or prescribe the limit up to which such activities shall be included in
the core activities for the purposes of this section.
(4) Every notification issued under this Chapter shall be laid, as soon as may be after
it is issued, before each House of Parliament, while it is in session for a total period
of thirty days which may be comprised in one session or in two or more successive
sessions, and if, before the expiry of the session immediately following the session or
the successive sessions aforesaid, both Houses agree in making any modification in
the notification, or both Houses agree that the notification should not be issued, the
notification shall thereafter have effect only in such modified form or be of no effect,
as the case may be; so, however, that any such modification or annulment shall be
without prejudice to the validity of anything previously done under that notification.

(5) The incidental activities shall be the activities which are incidental to the core
activities and which may be prescribed for the purpose.
(6) Where a tonnage tax company operates any ship, which is not a qualifying ship,
the income attributable to operating such non-qualifying ship shall be computed in
accordance with the other provisions of this Act.
(7) Where any goods or services held for the purposes of tonnage tax business are
transferred to any other business carried on by a tonnage tax company, or where any
goods or services held for the purposes of any other business carried on by such
tonnage tax company are transferred to the tonnage tax business and, in either case,
the consideration, if any, for such transfer as recorded in the accounts of the tonnage
tax business does not correspond to the market value of such goods or services as on
the date of the transfer, then, the relevant shipping income under this section shall be
computed as if the transfer, in either case, had been made at the market value of such
goods or services as on that date:
Provided that where, in the opinion of the Assessing Officer, the computation of the
relevant shipping income in the manner hereinbefore specified presents exceptional
difficulties, the Assessing Officer may compute such income on such reasonable basis
as he may deem fit.
Explanation.For the purposes of this sub-section, market value, in relation to any
goods or services, means the price that such goods or services would ordinarily fetch
on sale in the open market.
(8) Where it appears to the Assessing Officer that, owing to the close connection
between the tonnage tax company and any other person, or for any other reason, the
course of business between them is so arranged that the business transacted between
them produces to the tonnage tax company more than the ordinary profits which
might be expected to arise in the tonnage tax business, the Assessing Officer shall, in
computing the relevant shipping income of the tonnage tax company for the purposes
of this Chapter, take the amount of income as may be reasonably deemed to have been
derived therefrom.
Explanation.For the purposes of this Chapter, in case the relevant shipping income
of a tonnage tax company is a loss, then, such loss shall be ignored for the purposes
of computing tonnage income.
Treatment of common costs.
115VJ.(1) Where a tonnage tax company also carries on any business or activity
other than the tonnage tax business, common costs attributable to the tonnage tax
business shall be determined on a reasonable basis.
(2) Where any asset, other than a qualifying ship, is not exclusively used for the
tonnage tax business by the tonnage tax company, depreciation on such asset shall be
allocated between its tonnage tax business and other business on a fair proportion to
be determined by the Assessing Officer, having regard to the use of such asset for the
purpose of the tonnage tax business and for the other business.
Depreciation.
115VK. (1) For the purposes of computing depreciation under clause (iv) of section
115VL, the depreciation for the first previous year of the tonnage tax scheme
(hereafter in this section referred to as the first previous year) shall be computed on
the written down value of the qualifying ships as specified under sub-section (2).

(2) The written down value of the block of assets, being ships, as on the first day of
the first previous year, shall be divided in the ratio of the book written down value of
the qualifying ships (hereafter in this section referred to as the qualifying assets) and
the book written down value of the non-qualifying ships (hereafter in this section
referred to as the other assets).
(3) The block of qualifying assets as determined under sub-section (2) shall constitute
a separate block of assets for the purposes of this Chapter.
(4) For the purposes of sub-section (2), the book written down value of the block of
qualifying assets and the block of other assets shall be computed in the following
manner, namely:
(a) the book written down value of each qualifying asset and each other asset
as on the first day of the previous year and which form part of the block of
assets to be divided shall be determined by taking the book written down
value of each asset appearing in the books of account as on the last day of
the preceding previous year:
Provided that any change in the value of the assets consequent to their
revaluation after the date on which the Finance (No. 2) Act, 2004 receives
the assent of the President shall be ignored;
(b) the book written down value of all the qualifying assets and other assets
shall be aggregated; and
(c) the ratio of the aggregate book written down value of the qualifying assets
to the aggregate book written down value of the other assets shall be
determined.
(5) Where an asset forming part of a block of qualifying assets begins to be used for
purposes other than the tonnage tax business, an appropriate portion of the written
down value allocable to such asset shall be reduced from the written down value of
that block and shall be added to the block of other assets.
Explanation.For the purposes of this sub-section, appropriate portion of the written
down value allocable to the asset, which begins to be used for purposes other than the
tonnage tax business, shall be an amount which bears the same proportion to the
written down value of the block of qualifying assets as on the first day of the previous
year as the book written down value of the asset beginning to be used for purposes
other than tonnage tax business bears to the book written down value of all the assets
forming the block of qualifying asset.
(6) Where an asset forming part of a block of other assets begins to be used for
tonnage tax business, an appropriate portion of the written down value allocable to
such asset shall be reduced from the written down value of the block of other assets
and shall be added to the block of qualifying asset.
Explanation.For the purposes of this sub-section, appropriate portion of written
down value allocable to the asset which begins to be used for the tonnage tax
business shall be an amount which bears the same proportion to the written down
value of the block of other assets as on the first day of the previous year as the book
written down value of the asset beginning to be used for tonnage tax business bears to
the total book written down value of all the assets forming the block of other assets.
(7) For the purposes of computing depreciation under clause (iv) of section 115VL in
respect of an asset mentioned in sub-sections (5) and (6), depreciation computed for
the previous year shall be allocated in the ratio of the number of days for which the

asset was used for the tonnage tax business and for purposes other than tonnage tax
business.
Explanation 1.For the removal of doubts, it is hereby declared that for the purposes
of this Act, depreciation on the block of qualifying assets and block of other assets so
created shall be allowed as if such written down value referred to in sub-section (2)
had been brought forward from the preceding previous year.
Explanation 2.For the purposes of this section, book written down value means
the written down value as appearing in the books of account.
General exclusion of deduction and set off, etc.
115VL. (1) Notwithstanding anything contained in any other provision of this Act, in
computing the tonnage income of a tonnage tax company for any previous year
(hereafter in this section referred to as the relevant previous year) in which it is
chargeable to tax in accordance with this Chapter
(i) sections 30 to 43B shall apply as if every loss, allowance or deduction
referred to therein and relating to or allowable for any of the relevant
previous years, had been given full effect to for that previous year itself;
(ii) no loss referred to in sub-sections (1) and (3) of section 70 or sub-sections
(1) and (2) of section 71 or sub-section (1) of section 72 or sub-section (1)
of section 72A, in so far as such loss relates to the business of operating
qualifying ships of the company, shall be carried forward or set off where
such loss relates to any of the previous years when the company is under the
tonnage tax scheme;
(iii) no deduction shall be allowed under Chapter VI-A in relation to the profits
and gains from the business of operating qualifying ships; and
(iv) in computing the depreciation allowance under section 32, the written down
value of any asset used for the purposes of the tonnage tax business shall be
computed as if the company has claimed and has been actually allowed the
deduction in respect of depreciation for the relevant previous years.
Exclusion of loss.
115VM. (1) Section 72 shall apply in respect of any losses that have accrued to a
company before its option for tonnage tax scheme and which are attributable to its
tonnage tax business, as if such losses had been set off against the relevant shipping
income in any of the previous years when the company is under the tonnage tax
scheme.
(2) The losses referred to in sub-section (1) shall not be available for set off against
any income other than relevant shipping income in any previous year beginning on or
after the company exercises its option under section 115VP.
(3) Any apportionment necessary to determine the losses referred to in sub-section (1)
shall be made on a reasonable basis.
Chargeable gains from transfer of tonnage tax assets.
115VN. Any profits or gains arising from the transfer of a capital asset being an asset
forming part of the block of qualifying assets shall be chargeable to income-tax in
accordance with the provisions of section 45, read with section 50, and the capital

gains so arising shall be computed in accordance with the provisions of sections 45 to

51:
Provided that for the purpose of computing such profits or gains, the provisions of
section 50 shall have effect as if for the words written down value of the block of
assets, the words written down value of the block of qualifying assets had been
substituted.
Explanation.For the purposes of this Chapter, written down value of the block of
qualifying assets means the written down value computed in accordance with the
provisions of sub-section (2) of section 115VK.
Exclusion from section 115JB.
115V-O. The book profit or loss derived from the activities of a tonnage tax company,
referred to in sub-section (1) of section 115V-I, shall be excluded from the book profit
of the company for the purposes of section 115JB.
C.Procedure for option of tonnage tax scheme
Method and time of opting for tonnage tax scheme.
115VP.(1) A qualifying company may opt for the tonnage tax scheme by making an
application to the Joint Commissioner having jurisdiction over the company in the
form and manner as may be prescribed, for such scheme.
(2) The application under sub-section (1) may be made by any existing qualifying
company at any time after the 30th day of September, 2004 but before the 1st day of
January, 2005 (hereafter referred to as the initial period):
Provided that
(i) a company incorporated after the initial period; or
(ii) a qualifying company incorporated before the initial period but which
becomes a qualifying company for the first time after the initial period,
may make an application within three months of the date of its incorporation or the
date on which it became a qualifying company, as the case may be.
(3) On receipt of an application for option for tonnage tax scheme under sub-section
(1), the Joint Commissioner may call for such information or documents from the
company as he thinks necessary in order to satisfy himself about the eligibility of the
company and after satisfying himself about such eligibility of the company to make
such option for tonnage tax scheme, he
(i) shall pass an order in writing approving the option for tonnage tax scheme;
or
(ii) shall, if he is not so satisfied, pass an order in writing refusing to approve
the option for tonnage tax scheme,
and a copy of such order shall be sent to the applicant:
Provided that no order under clause (ii) shall be passed unless the applicant has
been given a reasonable opportunity of being heard.
(4) Every order granting or refusing the approval of the option for tonnage tax
scheme under clause (i) or clause (ii), as the case may be, of sub-section (3) shall be
passed before the expiry of one month from the end of the month in which the
application was received under sub-section (1).

(5) Where an order granting approval is passed under sub-section (3), the provisions
of this Chapter shall apply from the assessment year relevant to the previous year in
which the option for tonnage tax scheme is exercised.
Period for which tonnage tax option to remain in force.
115VQ. (1) An option for tonnage tax scheme, after it has been approved under subsection (3) of section 115VP, shall remain in force for a period of ten years from the
date on which such option has been exercised and shall be taken into account from
the assessment year relevant to the previous year in which such option is exercised.
(2) An option for tonnage tax scheme shall cease to have effect from the assessment
year relevant to the previous year in which
(a) the qualifying company ceases to be a qualifying company;
(b) a default is made in complying with the provisions contained in section
115VT or section 115VU or section 115VV;
(c) the tonnage tax company is excluded from the tonnage tax scheme under
section 115VZC;
(d) the qualifying company furnishes to the Assessing Officer, a declaration in
writing to the effect that the provisions of this Chapter may not be made
applicable to it, and the profits and gains of the company from the business
of operating qualifying ships shall be computed in accordance with the
other provisions of this Act.
Renewal of tonnage tax scheme.
115VR. (1) An option for tonnage tax scheme approved under sub-section (3) of
section 115VP may be renewed within one year from the end of the previous year in
which the option ceases to have effect.
(2) The provisions of sections 115VP and 115VQ shall apply in relation to a renewal
of the option for tonnage tax scheme in the same manner as they apply in relation to
the approval of option for tonnage tax scheme.
Prohibition to opt for tonnage tax scheme in certain cases.
115VS.A qualifying company, which, on its own, opts out of the tonnage tax scheme
or makes a default in complying with the provisions of section 115VT or section
115VU or section 115VV or whose option has been excluded from tonnage tax scheme
in pursuance of an order made under sub-section (1) of section 115VZC, shall not be
eligible to opt for tonnage tax scheme for a period of ten years from the date of opting
out or default or order, as the case may be.
D.Conditions for applicability of tonnage tax scheme
Transfer of profits to Tonnage Tax Reserve Account.
115VT. (1) A tonnage tax company shall, subject to and in accordance with the
provisions of this section, be required to credit to a reserve account (hereafter in this
section referred to as the Tonnage Tax Reserve Account) an amount not less than
twenty per cent of the book profit derived from the activities referred to in clauses (i)
and (ii) of sub-section (1) of section 115V-I in each previous year to be utilised in the
manner laid down in sub-section (3):

Provided that a tonnage tax company may transfer a sum in excess of twenty per cent
of the book profit and such excess sum transferred shall also be utilised in the manner
laid down in sub-section (3).
Explanation.For the purposes of this section, book profit shall have the same
meaning as in the Explanation to sub-section (2) of section 115JB so far as it relates
to the income derived from the activities referred to in clauses (i) and (ii) of subsection (1) of section 115V-I.
(2) Where the company has book profit from the business of operating qualifying
ships and book loss from any other sources, and consequently, the company is not in a
position to create the full or any part of the reserves under sub-section (1), the
company shall create the reserves to the extent possible in that previous year and the
shortfall, if any, shall be added to the amount of the reserves required to be created
for the following previous year and such shortfall shall be deemed to be part of the reserve requirement of that following previous year :
Provided that to the extent the shortfall in creation of reserves during a particular
previous year is carried forward to the following previous year under this sub-section,
the company shall be considered as having created sufficient reserves for the first
mentioned previous year:
Provided further that nothing contained in the first proviso shall apply in respect of
the second year in case the shortfall in creation of reserves continues for two
consecutive previous years.
(3) The amount credited to the Tonnage Tax Reserve Account under sub-section (1)
shall be utilised by the company before the expiry of a period of eight years next
following the previous year in which the amount was credited
(a) for acquiring a new ship for the purposes of the business of the company;
and
(b) until the acquisition of a new ship, for the purposes of the business of
operating qualifying ships other than for distribution by way of dividends or
profits or for remittance outside India as profits or for the creation of any
asset outside India.
(4) Where any amount credited to the Tonnage Tax Reserve Account under subsection (1),
(a) has been utilised for any purpose other than that referred to in clause (a) or
clause (b) of sub-section (3); or
(b) has not been utilised for the purpose specified in clause (a) of sub-section
(3); or
(c) has been utilised for the purpose of acquiring a new ship as specified in
clause (a) of sub-section (3), but such ship is sold or otherwise transferred,
other than in any scheme of demerger by the company to any person at any
time before the expiry of three years from the end of the previous year in
which it was acquired,
an amount which bears the same proportion to the total relevant shipping income of
the year in which such reserve was created, as the amount out of such reserve so
utilised or not utilised bears to the total reserve created during that year under subsection (1) shall be taxable under the other provisions of this Act
(i) in a case referred to in clause (a), in the year in which the amount was so
utilised; or

(ii) in a case referred to in clause (b), in the year immediately following the
period of eight years specified in sub-section (3); or
(iii) in a case referred to in clause (c), in the year in which the sale or transfer
took place:
Provided that the income so taxable under the other provisions of this Act shall be
reduced by the proportionate tonnage income charged to tax in the year of creation of
such reserves.
(5) Notwithstanding anything contained in any other provision of this Chapter, where
the amount credited to the Tonnage Tax Reserve Account in accordance with subsection (1) is less than the minimum amount required to be credited under sub-section
(1), an amount which bears the same proportion to the total relevant shipping income,
as the shortfall in credit to the reserves bears to the minimum reserve required to be
credited under sub-section (1) shall not be taxable under the tonnage tax scheme and
shall be taxable under the other provisions of this Act.
(6) If the reserve required to be created under sub-section (1) is not created for any
two consecutive previous years, the option of the company for tonnage tax scheme
shall cease to have effect from the beginning of the previous year following the second
consecutive previous year in which the failure to create the reserve under sub-section
(1) had occurred.
Explanation.For the purposes of this section, new ship includes a qualifying ship
which, before the date of acquisition by the qualifying company was used by any other
person, if it was not at any time previous to the date of such acquisition owned by any
person resident in India.
Minimum training requirement for tonnage tax company.
115VU. (1) A tonnage tax company, after its option has been approved under subsection (3) of section 115VP, shall comply with the minimum training requirement in
respect of trainee officers in accordance with the guidelines framed by the DirectorGeneral of Shipping and notified in the Official Gazette by the Central Government.
(2) The tonnage tax company shall be required to furnish a copy of the certificate
issued by the Director-General of Shipping along with the return of income under
section 139 to the effect that such company has complied with the minimum training
requirement in accordance with the guidelines referred to in sub-section (1) for the
previous year.
(3) If the minimum training requirement is not complied with for any five consecutive
previous years, the option of the company for tonnage tax scheme shall cease to have
effect from the beginning of the previous year following the fifth consecutive previous
year in which the failure to comply with the minimum training requirement under subsection (1) had occurred.
Limit for charter in of tonnage.
115VV. (1) In the case of every company which has opted for tonnage tax scheme,
not more than forty-nine per cent of the net tonnage of the qualifying ships operated
by it during any previous year shall be chartered in.
(2) The proportion of net tonnage referred to in sub-section (1) in respect of a
previous year shall be calculated based on the average of net tonnage during that
previous year.

(3) For the purposes of sub-section (2) the average of net tonnage shall be computed
in such manner as may be prescribed in consultation with the Director-General of
Shipping.
(4) Where the net tonnage of ships chartered in exceeds the limit under sub-section
(1) during any previous year, the total income of such company in relation to that
previous year shall be computed as if the option for tonnage tax scheme does not have
effect for that previous year.
(5) Where the limit under sub-section (1) is exceeded in any two consecutive previous
years, the option for tonnage tax scheme shall cease to have effect from the beginning
of the previous year following the second consecutive previous year in which the limit
had exceeded.
Explanation.For the purposes of this section, the term chartered in shall exclude
a ship chartered in by the company on bareboat charter-cum-demise terms.
Maintenance and audit of accounts.
115VW. An option for tonnage tax scheme by a tonnage tax company shall not have
effect in relation to a previous year unless such company
(i) maintains separate books of account in respect of the business of operating
qualifying ships; and
(ii) furnishes, along with the return of income for that previous year, the report
of an accountant, in the prescribed form duly signed and verified by such
accountant.
Explanation.For the purposes of this section, accountant shall have the same
meaning as in the Explanation below sub-section (2) of section 288.
Determination of tonnage.
115VX. (1) For the purposes of this Chapter,
(a) the tonnage of a ship shall be determined in accordance with the valid
certificate indicating its tonnage;
(b) valid certificate means,
(i) in case of ships registered in India
(a) having a length of less than twenty-four metres, a certificate issued
under the Merchant Shipping (Tonnage Measurement of Ship) Rules,
1987 made under the Merchant Shipping Act, 1958 (44 of 1958);
(b) having a length of twenty-four metres or more, an international
tonnage certificate issued under the provisions of the Convention on
Tonnage Measurement of Ships, 1969 as specified in the Merchant
Shipping (Tonnage Measurement of Ship) Rules, 1987 made under
the Merchant Shipping Act, 1958 (44 of 1958);
(ii) in case of ships registered outside India, a licence issued by the
Director-General of Shipping under section 406 or section 407 of the
Merchant Shipping Act, 1958 (44 of 1958), specifying the net tonnage
on the basis of Tonnage Certificate issued by the Flag State
Administration where the ship is registered or any other evidence
acceptable to the Director-General of Shipping produced by the ship
owner while seeking permission for chartering in the ship.

E.Amalgamation and demerger of shipping companies

Amalgamation.
115VY. Where there has been an amalgamation of a company with another company
or companies, then, subject to the other provisions of this section, the provisions
relating to the tonnage tax scheme shall, as far as may be, apply to the amalgamated
company if it is a qualifying company:
Provided that where the amalgamated company is not a tonnage tax company, it
shall exercise an option for tonnage tax scheme under sub-section (1) of section
115VP within three months from the date of the approval of the scheme of
amalgamation:
Provided further that where the amalgamating companies are tonnage tax
companies, the provisions of this Chapter shall, as far as may be, apply to the
amalgamated company for such period as the option for tonnage tax scheme which
has the longest unexpired period continues to be in force:
Provided also that where one of the amalgamating companies is a qualifying
company as on the 1st day of October, 2004 and which has not exercised the option
for tonnage tax scheme within the initial period, the provisions of this Chapter shall
not apply to the amalgamated company and the income of the amalgamated company
from the business of operating qualifying ships shall be computed in accordance with
the other provisions of this Act.
Demerger.
115VZ. Where in a scheme of demerger, the demerged company transfers its business
to the resulting company before the expiry of the option for tonnage tax scheme, then,
subject to the other provisions of this Chapter, the tonnage tax scheme shall, as far as
may be, apply to the resulting company for the unexpired period if it is a qualifying
company:
Provided that the option for tonnage tax scheme in respect of the demerged company
shall remain in force for the unexpired period of the tonnage tax scheme if it
continues to be a qualifying company.
F.Miscellaneous
Effect of temporarily ceasing to operate qualifying ships.
115VZA. (1) A temporary cessation (as against permanent cessation) of operating
any qualifying ship by a company shall not be considered as a cessation of operating
of such qualifying ship and the company shall be deemed to be operating such
qualifying ship for the purposes of this Chapter.
(2) Where a qualifying company continues to operate a ship, which temporarily
ceases to be a qualifying ship, such ship shall not be considered as a qualifying ship
for the purposes of this Chapter.
G.Provisions of this Chapter not to apply in certain cases
Avoidance of tax.
115VZB. (1) Subject to the provisions of this Chapter, the tonnage tax scheme shall
not apply where a tonnage tax company is a party to any transaction or arrangement
which amounts to an abuse of the tonnage tax scheme.

(2) For the purposes of sub-section (1), a transaction or arrangement shall be

considered an abuse if the entering into or the application of such transaction or
arrangement results, or would but for this section have resulted, in a tax advantage
being obtained for
(i) a person other than a tonnage tax company; or
(ii) a tonnage tax company in respect of its non-tonnage tax activities.
Explanation.For the purposes of this section, tax advantage includes,
(i) the determination of the allowance for any expense or interest, or the
determination of any cost or expense allocated or apportioned, or, as the
case may be, which has the effect of reducing the income or increasing the
loss, as the case may be, from activities other than tonnage tax activities
chargeable to tax, computed on the basis of entries made in the books of account in respect of the previous year in which the transaction was entered
into; or
(ii) a transaction or arrangement which produces to the tonnage tax company
more than ordinary profits which might be expected to arise from tonnage
tax activities.
Exclusion from tonnage tax scheme.
115VZC. (1) Where a tonnage tax company is a party to any transaction or
arrangement referred to in sub-section (1) of section 115VZB, the Assessing Officer
shall, by an order in writing, exclude such company from the tonnage tax scheme:
Provided that an opportunity shall be given by the Assessing Officer by serving a
notice calling upon such company to show cause, on a date and time to be specified in
the notice, why it should not be excluded from the tonnage tax scheme:
Provided further that no order under this sub-section shall be passed without the
previous approval of the Chief Commissioner.
(2) The provisions of this section shall not apply where the company shows to the
satisfaction of the Assessing Officer that the transaction or arrangement was a bona
fide commercial transaction and had not been entered into for the purpose of
obtaining tax advantage under this Chapter.
(3) Where an order has been passed under sub-section (1) by the Assessing Officer
excluding the tonnage tax company from the tonnage tax scheme, the option for
tonnage tax scheme shall cease to be in force from the first day of the previous year in
which the transaction or arrangement was entered into.
CHAPTER XIII
INCOME-TAX AUTHORITIES
A.Appointment and control
99
[Income-tax authorities.
116. There shall be the following classes of income-tax authorities for the purposes of
this Act, namely :
(a) the Central Board of Direct Taxes constituted under the Central Boards of
Revenue Act, 1963 (54 of 1963),
(b) Directors-General of Income-tax or Chief Commissioners of Income-tax,

(c) Directors of Income-tax or Commissioners of Income-tax or Commissioners

of Income-tax (Appeals),
1
[(cc) Additional Directors of Income-tax or Additional Commissioners of
Income-tax or Additional Commissioners of Income-tax (Appeals),]
2
[(cca) Joint Directors of Income-tax or Joint Commissioners of Income-tax,]
(d) Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or
Deputy Commissioners of Income-tax (Appeals),
(e) Assistant Directors of Income-tax or Assistant Commissioners of Incometax,
(f) Income-tax Officers,
(g) Tax Recovery Officers,
(h) Inspectors of Income-tax.]
3

[Appointment of income-tax authorities.

117. (1) The Central Government may appoint such persons as it thinks fit to be
income-tax authorities.
(2) Without prejudice to the provisions of sub-section (1), and subject to the rules and
orders of the Central Government regulating the conditions of service of persons in
public services and posts, the Central Government may authorise the Board, or a
Director-General, a Chief Commissioner or a Director or a Commissioner to appoint
income-tax authorities below the rank of an Assistant Commissioner 4[or Deputy
Commissioner].
(3) Subject to the rules and orders of the Central Government regulating the
conditions of service of persons in public services and posts, an income-tax authority
authorised in this behalf by the Board may appoint such executive or ministerial staff
as may be necessary to assist it in the execution of its functions.]
5

[Control of income-tax authorities.

118. The Board may, by notification in the Official Gazette, direct that any income-tax
authority or authorities specified in the notification shall be subordinate to such other
income-tax authority or authorities as may be specified in such notification.]
6-7

[Instructions to subordinate authorities.

119. (1) The Board may, from time to time, issue such orders, instructions and
directions to other income-tax authorities as it may deem fit for the proper
administration of this Act, and such authorities and all other persons employed in the
execution of this Act shall observe and follow such orders, instructions and directions
of the Board :
Provided that no such orders, instructions or directions shall be issued
(a) so as to require any income-tax authority to make a particular assessment or
to dispose of a particular case in a particular manner; or
(b) so as to interfere with the discretion of the 9[* * *] 10[Commissioner
(Appeals)] in the exercise of his appellate functions.
(2) Without prejudice to the generality of the foregoing power,
11(a) the Board may, if it considers it necessary or expedient so to do, for the
purpose of proper and efficient management of the work of assessment and
8

collection of revenue, issue, from time to time (whether by way of

relaxation of any of the provisions of sections 11a[115P, 115S,] 12[139,]
143, 144, 147, 148, 154, 155 13[, 158BFA], 14[sub-section (1A) of section
201, sections 210, 211, 234A, 234B, 234C], 271 and 273 or otherwise),
general or special orders in respect of any class of incomes or class of cases,
setting forth directions or instructions (not being prejudicial to assessees) as
to the guidelines, principles or procedures to be followed by other incometax authorities in the work relating to assessment or collection of revenue or
the initiation of proceedings for the imposition of penalties and any such
order15-16 may, if the Board is of opinion that it is necessary in the public
interest so to do, be published and circulated in the prescribed manner for
general information;
(b) the Board may, if it considers it desirable or expedient so to do for avoiding
genuine hardship in any case or class of cases, by general or special order,
authorise 17[any income-tax authority, not being a 18[***] Commissioner
(Appeals)] to admit an application or claim for any exemption, deduction,
refund or any other relief under this Act after the expiry of the period
specified by or under this Act for making such application or claim and deal
with the same on merits in accordance with law;
19
[(c) the Board may, if it considers it desirable or expedient so to do for avoiding
genuine hardship in any case or class of cases, by general or special order
for reasons to be specified therein, relax any requirement contained in any
of the provisions of Chapter IV or Chapter VI-A, where the assessee has
failed to comply with any requirement specified in such provision for
claiming deduction thereunder, subject to the following conditions, namely:

(i) the default in complying with such requirement was due to

circumstances beyond the control of the assessee; and
(ii) the assessee has complied with such requirement before the completion
of assessment in relation to the previous year in which such deduction is
claimed :
Provided that the Central Government shall cause every order issued under
this clause to be laid before each House of Parliament.]
20
(3) [***]
B.Jurisdiction
[Jurisdiction of income-tax authorities.
22
120. (1) Income-tax authorities shall exercise all or any of the powers and perform
all or any of the functions conferred on, or, as the case may be, assigned to such
authorities by or under this Act in accordance with such directions as the Board may
issue for the exercise of the powers and performance of the functions by all or any of
those authorities.
(2) The directions of the Board under sub-section (1) may authorise any other incometax authority to issue orders in writing for the exercise of the powers and performance
of the functions by all or any of the other income-tax authorities who are subordinate
to it.
21

(3) In issuing the directions or orders referred to in sub-sections (1) and (2), the Board
or other income-tax authority authorised by it may have regard to any one or more of
the following criteria, namely :
(a) territorial area;
(b) persons or classes of persons;
(c) incomes or classes of income; and
(d) cases or classes of cases.
(4) Without prejudice to the provisions of sub-sections (1) and (2), the Board may, by
general or special order, and subject to such conditions, restrictions or limitations as
may be specified therein,
(a) authorise any Director General or Director to perform such functions of any
other income-tax authority as may be assigned to him by the Board;
(b) empower the Director General or Chief Commissioner or Commissioner to
issue orders in writing that the powers and functions conferred on, or as the
case may be, assigned to, the Assessing Officer by or under this Act in
respect of any specified area or persons or classes of persons or incomes or
classes of income or cases or classes of cases, shall be exercised or
performed by a 23[Joint] Commissioner 24[or a 23[Joint] Director], and, where
any order is made under this clause, references in any other provision of this
Act, or in any rule made thereunder to the Assessing Officer shall be
deemed to be references to such 23[Joint] Commissioner 24[or 23[Joint]
Director] by whom the powers and functions are to be exercised or
performed under such order, and any provision of this Act requiring
approval or sanction of the 23[Joint] Commissioner shall not apply.
(5) The directions and orders referred to in sub-sections (1) and (2) may, wherever
considered necessary or appropriate for the proper management of the work, require
two or more Assessing Officers (whether or not of the same class) to exercise and
perform, concurrently, the powers and functions in respect of any area or persons or
classes of persons or incomes or classes of income or cases or classes of cases; and,
where such powers and functions are exercised and performed concurrently by the
Assessing Officers of different classes, any authority lower in rank amongst them
shall exercise the powers and perform the functions as any higher authority amongst
them may direct, and, further, references in any other provision of this Act or in any
rule made thereunder to the Assessing Officer shall be deemed to be references to
such higher authority and any provision of this Act requiring approval or sanction of
any such authority shall not apply.
(6) Notwithstanding anything contained in any direction or order issued under this
section, or in section 124, the Board may, by notification in the Official Gazette, direct
that for the purpose of furnishing of the return of income or the doing of any other act
or thing under this Act or any rule made thereunder by any person or class of persons,
the income-tax authority exercising and performing the powers and functions in
relation to the said person or class of persons shall be such authority as may be
specified in the notification.]

27

[Jurisdiction of Assessing Officers.

28

124. (1) Where by virtue of any direction or order issued under sub-section (1) or
sub-section (2) of section 120, the Assessing Officer has been vested with jurisdiction
over any area, within the limits of such area, he shall have jurisdiction
(a) in respect of any person carrying on a business or profession, if the place at
which he carries on his business or profession is situate within the area, or
where his business or profession is carried on in more places than one, if the
principal place of his business or profession is situate within the area, and
(b) in respect of any other person residing within the area.
(2) Where a question arises under this section as to whether an Assessing Officer has
jurisdiction to assess any person, the question shall be determined by the Director
General or the Chief Commissioner or the Commissioner; or where the question is
one relating to areas within the jurisdiction of different Director Generals or Chief
Commissioners or Commissioners, by the Directors General or Chief Commissioners
or Commissioners concerned or, if they are not in agreement, by the Board or by such
Director General or Chief Commissioner or Commissioner as the Board may, by
notification in the Official Gazette, specify.
(3) No person shall be entitled to call in question the jurisdiction of an Assessing
Officer
(a) where he has made a return under sub-section (1) of section 139, after the
expiry of one month from the date on which he was served with a notice
under sub-section (1) of section 142 or sub-section (2) of section 143 or
after the completion of the assessment, whichever is earlier;
(b) where he has made no such return, after the expiry of the time allowed by
the notice under sub-section (1) of section 142 or under section 148 for the
making of the return or by the notice under the first proviso to section 144
to show cause why the assessment should not be completed to the best of
the judgment of the Assessing Officer, whichever is earlier.
(4) Subject to the provisions of sub-section (3), where an assessee calls in question the
jurisdiction of an Assessing Officer, then the Assessing Officer shall, if not satisfied
with the correctness of the claim, refer the matter for determination under sub-section
(2) before the assessment is made.
(5) Notwithstanding anything contained in this section or in any direction or order
issued under section 120, every Assessing Officer shall have all the powers conferred
by or under this Act on an Assessing Officer in respect of the income accruing or
arising or received within the area, if any, over which he has been vested with
jurisdiction by virtue of the directions or orders issued under sub-section (1) or subsection (2) of section 120.]

32

[Power to transfer cases33.

34
127. (1) The Director General or Chief Commissioner or Commissioner may, after
giving the assessee a reasonable opportunity of being heard in the matter, wherever it
is possible to do so, and after recording his reasons for doing so, transfer any case 35
from one or more Assessing Officers subordinate to him (whether with or without
concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether
with or without concurrent jurisdiction) also subordinate to him.

(2) Where the Assessing Officer or Assessing Officers from whom the case is to be
transferred and the Assessing Officer or Assessing Officers to whom the case is to be
transferred are not subordinate to the same Director General or Chief Commissioner
or Commissioner,
(a) where the Directors General or Chief Commissioners or Commis-sioners to
whom such Assessing Officers are subordinate are in agreement, then the
Director General or Chief Commissioner or Commissioner from whose
jurisdiction the case is to be transferred may, after giving the assessee a
reasonable opportunity of being heard in the matter, wherever it is possible
to do so, and after recording his reasons for doing so, pass the order;
(b) where the Directors General or Chief Commissioners or Commis-sioners
aforesaid are not in agreement, the order transferring the case may,
similarly, be passed by the Board or any such Director General or Chief
Commissioner or Commissioner as the Board may, by notification in the
Official Gazette, authorise in this behalf.
(3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such
opportunity to be given where the transfer is from any Assessing Officer or Assessing
Officers (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the
offices of all such officers are situated in the same city, locality or place.
(4) The transfer of a case under sub-section (1) or sub-section (2) may be made at any
stage36 of the proceedings, and shall not render necessary the re-issue of any notice
already issued by the Assessing Officer or Assessing Officers from whom the case is
transferred.
Explanation.In section 120 and this section, the word case, in relation to any
person whose name is specified in any order or direction issued thereunder, means all
proceedings under this Act36 in respect of any year which may be pending on the date
of such order or direction or which may have been completed on or before such date,
and includes also all proceedings under this Act which may be commenced after the
date of such order or direction in respect of any year.]

Change of incumbent of an office.

38
129. Whenever in respect of any proceeding under this Act an income-tax authority
ceases to exercise jurisdiction and is succeeded by another who has and exercises
jurisdiction, the income-tax authority so succeeding may continue the proceeding
from the stage at which the proceeding was left by his predecessor :
Provided that the assessee concerned may demand that before the proceeding is so
continued the previous proceeding or any part thereof be reopened or that before any
order of assessment is passed against him, he be reheard.

C.Powers
Power regarding discovery, production of evidence, etc.

41

131. (1) The 42[Assessing] Officer, 43[Deputy Commissioner (Appeals)], 44[Joint

Commissioner] 45[, Commissioner (Appeals)] and 46[Chief Com-missioner or
Commissioner] shall, for the purposes of this Act, have the same powers as are vested
in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in
respect of the following matters, namely :
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking
company and examining him on oath;
(c) compelling the production of books of account and other documents; and
(d) issuing commissions.
47
[(1A) 48[If the Director General or Director or 49[Joint] Director or Assistant Director
50
[or Deputy Director], or the authorised officer referred to in sub-section (1) of
section 132 before he takes action under clauses (i) to (v) of that sub-section51,] has
reason to suspect that any income has been concealed, or is likely to be concealed, by
any person or class of persons, within his jurisdiction, then, for the purposes of
making any enquiry or investigation relating thereto, it shall be competent for him to
exercise the powers conferred under sub-section (1) on the income-tax authorities
referred to in that sub-section, notwithstanding that no proceedings with respect to
such person or class of persons are pending 51 before him or any other income-tax
authority.]
52
(2) [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]
(3) Subject to any rules made in this behalf, any authority referred to in sub-section
(1) 53[or sub-section (1A)] may impound and retain in its custody for such period as it
thinks fit any books of account or other documents produced before it in any
proceeding under this Act :
Provided that an 54[Assessing] Officer 55[or an 56[Assistant Director 57[or Deputy
Director]]] shall not
(a) impound any books of account or other documents without recording his
reasons for so doing, or
(b) retain in his custody any such books or documents for a period exceeding
fifteen days (exclusive of holidays) without obtaining the approval of the
58 59
[ [Chief Commissioner or Director General or Commissioner or Director
therefor, as the case may be.]]
60

[Search and seizure.

132. 62(1) Where the 63[Director General or Director] or the 64[Chief Commissioner
or Commissioner] 65[or any such 66[Joint Director] or 67[Joint Commissioner] as may
be empowered in this behalf by the Board], in consequence of information 68 in his
possession, has reason to believe68 that
(a) any person to whom a summons under sub-section (1) of section 37 of the
Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of
section 131 of this Act, or a notice under sub-section (4) of section 22 of the
Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this
Act was issued to produce, or cause to be produced, any books of account or
other documents has omitted or failed to produce, or cause to be produced,
such books of account or other documents as required by such summons or
notice, or
61

(b) any person to whom a summons or notice as aforesaid has been or might be
issued will not, or would not, produce or cause to be produced, any books of
account or other documents which will be useful for, or relevant to, any
proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under
this Act, or
(c) any person is in possession of any money, bullion, jewellery or other
valuable article or thing69 and such money, bullion, jewellery or other
valuable article or thing represents either wholly or partly income or
property 70[which has not been, or would not be, disclosed 69] for the
purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act
(hereinafter in this section referred to as the undisclosed income or
property),
71
[then,
(A) the 72[Director General or Director] or the 73[Chief Commissioner or
Commissioner], as the case may be, may authorise any 74[Joint Director],
75
[Joint Commissioner], 76[Assistant Director 77[or Deputy Director]],
78
[Assistant Commissioner 77[or Deputy Commissioner] or Income-tax
Officer], or
(B) such 74[Joint Director], or 75[Joint Commissioner], as the case may be, may
authorise any 76[Assistant Director 77[or Deputy Director]], 78[Assistant
Commissioner 77[or Deputy Commissioner] or Income-tax Officer],
(the officer so authorised in all cases being hereinafter referred to as the authorised
officer) to]
(i) enter and search79 any 80[building, place, vessel, vehicle or aircraft] where
he has reason to suspect that such books of account, other documents,
money, bullion, jewellery or other valuable article or thing are kept;
(ii) break open the lock of any door, box, locker, safe, almirah or other
receptacle for exercising the powers conferred by clause (i) where the keys
thereof are not available;
81
[(iia) search any person who has got out of, or is about to get into, or is in, the
building, place, vessel, vehicle or aircraft, if the authorised officer has
reason to suspect that such person has secreted about his person any such
books of account, other documents, money, bullion, jewellery or other
valuable article or thing;]
82
[(iib) require any person who is found to be in possession or control of any books
of account or other documents maintained in the form of electronic record
as defined in clause (t) of sub-section (1) of section 2 of the Information
Technology Act, 2000 (21 of 2000)83, to afford the authorised officer the
necessary facility to inspect such books of account or other documents;]
(iii) seize84 any such84 books of account, other documents, money, bullion,
jewellery or other valuable article or thing found as a result of such search:
85
[Provided that bullion, jewellery or other valuable article or thing, being
stock-in-trade of the business, found as a result of such search shall not be
seized but the authorised officer shall make a note or inventory of such
stock-in-trade of the business;]
(iv) place marks of identification on any books of account or other documents or
make or cause to be made extracts or copies therefrom;

(v) make a note or an inventory of any such money, bullion, jewellery or other
valuable article or thing :
86
[Provided that where any building, place, vessel, vehicle or aircraft referred to in
clause (i) is within the area of jurisdiction of any 87[Chief Commissioner or
Commissioner], but such 87[Chief Commissioner or Commissioner] has no jurisdiction
over the person referred to in clause (a) or clause (b) or clause (c), then,
notwithstanding anything contained in section 88[120], it shall be competent for him to
exercise the powers under this sub-section in all cases where he has reason to believe
that any delay in getting the authorisation from the 89[Chief Commissioner or
Commissioner] having jurisdiction over such person may be prejudicial to the
interests of the revenue :]
90
[Provided further that where it is not possible or practicable to take physical
possession of any valuable article or thing and remove it to a safe place due to its
volume, weight or other physical characteristics or due to its being of a dangerous
nature, the authorised officer may serve an order on the owner or the person who is in
immediate possession or control thereof that he shall not remove, part with or
otherwise deal with it, except with the previous permission of such authorised officer
and such action of the authorised officer shall be deemed to be seizure of such
valuable article or thing under clause (iii):]
91
[Provided also that nothing contained in the second proviso shall apply in case of
any valuable article or thing, being stock-in-trade of the business.]
92
[(1A) Where any 93[Chief Commissioner or Commissioner], in consequence of
information in his possession, has reason to suspect that any books of account, other
documents, money, bullion, jewellery or other valuable article or thing in respect of
which an officer has been authorised by the 94[Director General or Director] or any
other 95[Chief Commissioner or Commissioner] or any such 96[Joint Director] or
97
[Joint Commissioner] as may be empowered in this behalf by the Board to take
action under clauses (i) to (v) of sub-section (1) are or is kept in any building, place,
vessel, vehicle or aircraft not mentioned in the authorisation under sub-section (1),
such 98[Chief Commissioner or Commissioner] may, notwithstanding anything
contained in section 99[120], authorise the said officer to take action under any of the
clauses aforesaid in respect of such building, place, vessel, vehicle or aircraft.]
(2) The authorised officer may requisition the services of any police officer or of any
officer of the Central Government, or of both, to assist him for all or any of the
purposes specified in sub-section (1) 1[or sub-section (1A)] and it shall be the duty of
every such officer to comply with such requisition.
(3) The authorised officer may, where it is not practicable2 to seize any such books of
account, other documents, money, bullion, jewellery or other valuable article or thing,
3
[for reasons other than those mentioned in the second proviso to sub-section (1),]
serve an order on the owner or the person who is in immediate possession2 or control
thereof that he shall not remove, part with or otherwise deal with it except with the
previous permission of such officer and such officer may take such steps as may be
necessary for ensuring compliance with this sub-section.
4
[Explanation.For the removal of doubts, it is hereby declared that serving of an
order as aforesaid under this sub-section shall not be deemed to be seizure of such
books of account, other documents, money, bullion, jewellery or other valuable article
or thing under clause (iii) of sub-section (1).]

(4) The authorised officer may, during the course of the search or seizure, examine on
oath any person who is found to be in possession or control of any books of account,
documents, money, bullion, jewellery or other valuable article or thing and any
statement made by such person during such examination may thereafter be used in
evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or
under this Act.
5
[Explanation.For the removal of doubts, it is hereby declared that the examination
of any person under this sub-section may be not merely in respect of any books of
account, other documents or assets found as a result of the search, but also in respect
of all matters relevant for the purposes of any investigation connected with any
proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.]
6
[(4A) Where any books of account, other documents, money, bullion, jewellery or
other valuable article or thing are or is found in the possession or control of any
person in the course of a search, it may be presumed
(i) that such books of account, other documents, money, bullion, jewellery or
other valuable article or thing belong or belongs to such person ;
(ii) that the contents of such books of account and other documents are true ;
and
(iii) that the signature and every other part of such books of account and other
documents which purport to be in the handwriting of any particular person
or which may reasonably be assumed to have been signed by, or to be in the
handwriting of, any particular person, are in that persons handwriting, and
in the case of a document stamped, executed or attested, that it was duly
stamped and executed or attested by the person by whom it purports to have
been so executed or attested.]
7
(5) [***]
(6) 8[***]
(7) 9[***]
(8) The books of account or other documents seized under sub-section (1) 10[or subsection (1A)] shall not be retained by the authorised officer for a period exceeding
11
[thirty days from the date of the order of assessment under 12[section 153A or] clause
(c) of section 158BC] unless the reasons for retaining the same are recorded by him in
writing and the approval of the 13[Chief Commissioner, Commissioner, Director
General or Director] for such retention is obtained :
Provided that the 13[Chief Commissioner, Commissioner, Director General or
Director] shall not authorise the retention of the books of account and other
documents for a period exceeding thirty days after all the proceedings under the
Indian Income-tax Act, 1922 (11 of 1922), or this Act in respect of the years for which
the books of account or other documents are relevant are completed.
14
[(8A) An order under sub-section (3) shall not be in force for a period exceeding
sixty days from the date of the order.]
(9) The person from whose custody any books of account or other documents are
seized under sub-section (1) 15[or sub-section (1A)] may make copies thereof, or take
extracts therefrom, in the presence of the authorised officer or any other person
empowered by him in this behalf, at such place and time as the authorised officer may
appoint in this behalf.

16

[(9A) Where the authorised officer has no jurisdiction over the person referred to in
clause (a) or clause (b) or clause (c) of sub-section (1), the books of account or other
documents, or any money, bullion, jewellery or other valuable article or thing
(hereafter in this section and in sections 132A and 132B referred to as the assets)
seized under that sub-section shall be handed over by the authorised officer to the
Assessing Officer having jurisdiction over such person within a period of sixty days
from the date on which the last of the authorisations for search was executed and
thereupon the powers exercisable by the authorised officer under sub-section (8) or
sub-section (9) shall be exercisable by such Assessing Officer.]
(10) If a person legally entitled to the books of account or other documents seized
under sub-section (1) 17[or sub-section (1A)] objects for any reason to the approval
given by the 18[Chief Commissioner, Commissioner, Director General or Director]
under sub-section (8), he may make an application to the Board stating therein the
reasons for such objection and requesting for the return of the books of account or
other documents 19[and the Board may, after giving the applicant an opportunity of
being heard, pass such orders as it thinks fit].
(11) 20[***]
(11A) 21[***]
(12) 22[***]
23
[(13) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating
to searches and seizure shall apply, so far as may be, to searches and seizure under
sub-section (1) or sub-section (1A).]
24
(14) The Board may make rules in relation to any search or seizure under this section
; in particular, and without prejudice to the generality of the foregoing power, such
rules may provide for the procedure to be followed by the authorised officer
(i) for obtaining ingress into 25[any building, place, vessel, vehicle or aircraft]
to be searched where free ingress thereto is not available ;
(ii) for ensuring safe custody of any books of account or other documents or
assets seized.
26
[Explanation 1.For the purposes of sub-section (9A), execution of an
authorisation for search shall have the same meaning as assigned to it in Explanation
2 to section 158BE.]
Explanation 2.In this section, the word proceeding means any proceeding in
respect of any year, whether under the Indian Income-tax Act, 1922 (11 of 1922), or
this Act, which may be pending on the date on which a search is authorised under this
section or which may have been completed on or before such date and includes also
all proceedings under this Act which may be commenced after such date in respect of
any year.]
27

[Powers to requisition books of account, etc.

132A. 29(1) Where the 30[Director General or Director] or the 31[Chief Commissioner
or Commissioner], in consequence of information in his possession, has reason to
believe that
(a) any person to whom a summons under sub-section (1) of section 37 of the
Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of
section 131 of this Act, or a notice under sub-section (4) of section 22 of the
Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this
28

Act was issued to produce, or cause to be produced, any books of account or

other documents has omitted or failed to produce, or cause to be produced,
such books of account or other documents, as required by such summons or
notice and the said books of account or other documents have been taken
into custody by any officer or authority32 under any other law for the time
being in force, or
(b) any books of account or other documents will be useful for, or relevant to,
any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or
under this Act and any person to whom a summons or notice as aforesaid
has been or might be issued will not, or would not, produce or cause to be
produced, such books of account or other documents on the return of such
books of account or other documents by any officer or authority by whom
or which such books of account or other documents have been taken into
custody under any other law for the time being in force, or
(c) any assets represent either wholly or partly income or property which has
not been, or would not have been, disclosed for the purposes of the Indian
Income-tax Act, 1922 (11 of 1922), or this Act by any person from whose
possession or control such assets have been taken into custody by any
officer or authority under any other law for the time being in force,
then, the 33[Director General or Director] or the 34[Chief Commissioner or
Commissioner] may authorise any 35[Joint Director], 36[Joint Commissioner],
37
[Assistant Director 38[or Deputy Director]], 39[Assistant Commissioner 38[or Deputy
Commissioner] or Income-tax Officer] (hereafter in this section and in sub-section (2)
of section 278D referred to as the requisitioning officer) to require the officer or
authority referred to in clause (a) or clause (b) or clause (c), as the case may be, to
deliver such books of account, other documents or assets to the requisitioning officer.
(2) On a requisition being made under sub-section (1), the officer or authority referred
to in clause (a) or clause (b) or clause (c), as the case may be, of that sub-section shall
deliver the books of account, other documents or assets to the requisitioning officer
either forthwith or when such officer or authority is of the opinion that it is no longer
necessary to retain the same in his or its custody.
(3) Where any books of account, other documents or assets have been delivered to the
requisitioning officer, the provisions of sub-sections (4A) to (14) (both inclusive) of
section 132 and section 132B shall, so far as may be, apply as if such books of
account, other documents or assets had been seized under sub-section (1) of section
132 by the requisitioning officer from the custody of the person referred to in clause
(a) or clause (b) or clause (c), as the case may be, of sub-section (1) of this section
and as if for the words the authorised officer occurring in any of the aforesaid subsections (4A) to (14), the words the requisitioning officer were substituted.]
40

[Application of seized or requisitioned assets.

132B.(1) The assets seized under section 132 or requisitioned under section 132A
may be dealt with in the following manner, namely:
(i) the amount of any existing liability under this Act, the Wealth-tax Act, 1957
(27 of 1957), the Expenditure-tax Act, 1987 (35 of 1987), the Gift-tax Act,
1958 (18 of 1958) and the Interest-tax Act, 1974 (45 of 1974), and the
amount of the liability determined on completion of the assessment 41[under
section 153A and the assessment of the year relevant to the previous year in

which search is initiated or requisition is made, or the amount of liability

determined on completion of the assessment under Chapter XIV-B for the
block period, as the case may be] (including any penalty levied or interest
payable in connection with such assessment) and in respect of which such
person is in default or is deemed to be in default, may be recovered out of
such assets:
42
[Provided that where the person concerned makes an application to the
Assessing Officer within thirty days from the end of the month in which the
asset was seized, for release of asset and the nature and source of
acquisition of any such asset is explained] to the satisfaction of the
Assessing Officer, the amount of any existing liability referred to in this
clause may be recovered out of such asset and the remaining portion, if any,
of the asset may be released, with the prior approval of the Chief
Commissioner or Commissioner, to the person from whose custody the
assets were seized:
Provided further that such asset or any portion thereof as is referred to in
the first proviso shall be released within a period of one hundred and twenty
days from the date on which the last of the authorisations for search under
section 132 or for requisition under section 132A, as the case may be, was
executed;
(ii) if the assets consist solely of money, or partly of money and partly of other
assets, the Assessing Officer may apply such money in the discharge of the
liabilities referred to in clause (i) and the assessee shall be discharged of
such liability to the extent of the money so applied;
(iii) the assets other than money may also be applied for the discharge of any
such liability referred to in clause (i) as remains undischarged and for this
purpose such assets shall be deemed to be under distraint as if such distraint
was effected by the Assessing Officer or, as the case may be, the Tax
Recovery Officer under authorisation from the Chief Commissioner or
Commissioner under sub-section (5) of section 226 and the Assessing
Officer or, as the case may be, the Tax Recovery Officer may recover the
amount of such liabilities by the sale of such assets and such sale shall be
effected in the manner laid down in the Third Schedule.
(2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of
liabilities aforesaid by any other mode laid down in this Act.
(3) Any assets or proceeds thereof which remain after the liabilities referred to in
clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the
persons from whose custody the assets were seized.
(4) (a) The Central Government shall pay simple interest at the rate of 43[six] per cent
per annum on the amount by which the aggregate amount of money seized under
section 132 or requisitioned under section 132A, as reduced by the amount of money,
if any, released under the first proviso to clause (i) of sub-section (1), and of the
proceeds, if any, of the assets sold towards the discharge of the existing liability
referred to in clause (i) of sub-section (1), exceeds the aggregate of the amount
required to meet the liabilities referred to in clause (i) of sub-section (1) of this
section.
(b) Such interest shall run from the date immediately following the expiry of the
period of one hundred and twenty days from the date on which the last of the

authorisations for search under section 132 or requisition under section 132A was
executed to the date of completion of the assessment 44[under section 153A or] under
Chapter XIV-B.
Explanation.In this section,
(i) block period shall have the meaning assigned to it in clause (a) of section
158B;
(ii) execution of an authorisation for search or requisition shall have the same
meaning as assigned to it in Explanation 2 to section 158BE.]
Power to call for information.
45
133. The 46[Assessing] Officer, the 47[Deputy Commissioner (Appeals),] 48[the
49
[Joint Commissioner] or the Commissioner (Appeals)] may, for the purposes of this
Act,
(1) require any firm to furnish him with a return of the names and addresses of
the partners of the firm and their respective shares ;
(2) require any Hindu undivided family to furnish him with a return of the
names and addresses of the manager and the members of the family ;
(3) require any person whom he has reason to believe to be a trustee, guardian
or agent, to furnish him with a return of the names of the persons for or of
whom he is trustee, guardian or agent, and of their addresses ;
(4) require any assessee to furnish a statement of the names and addresses of all
persons to whom he has paid in any previous year rent, interest,
commission, royalty or brokerage, or any annuity, not being any annuity
taxable under the head Salaries amounting to more than 50[one thousand
rupees, or such higher amount as may be prescribed], together with
particulars of all such payments made ;
(5) require any dealer, broker or agent or any person concerned in the
management of a stock or commodity exchange to furnish a statement of the
names and addresses of all persons to whom he or the exchange has paid
any sum in connection with the transfer, whether by way of sale, exchange
or otherwise, of assets, or on whose behalf or from whom he or the
exchange has received any such sum, together with particulars of all such
payments and receipts ;
(6) require any person, including a banking company or any officer thereof, to
furnish information in relation to such points or matters, or to furnish
statements of accounts and affairs verified in the manner specified by the
51
[Assessing] Officer, the 52[Deputy Commissioner (Appeals)] 53[, the
54
[Joint Commissioner] or the Commissioner (Appeals)], giving information
in relation to such points or matters as, in the opinion of the 51[Assessing]
Officer, the 52[Deputy Commi-ssioner (Appeals)] 53[, the 54[Joint
Commissioner] or the Commissioner (Appeals)], will be useful for, or
relevant to, any 55[enquiry56 or] proceeding56 under this Act :
57
[Provided that the powers referred to in clause (6), may also be exercised
by the Director-General, the Chief Commissioner, the Director and the
Commissioner :]
58
[Provided further that the power in respect of an inquiry, in a case where
no proceeding is pending, shall not be exercised by any income-tax

authority below the rank of Director or Commissioner without the prior

approval of the Director or, as the case may be, the Commissioner.]
59

[Power of survey.
133A. (1) Notwithstanding anything contained in any other provision of this Act, an
income-tax authority may enter
(a) any place within the limits of the area assigned to him, or
(b) any place occupied by any person in respect of whom he exercises
jurisdiction, 61[or]
61
[(c) any place in respect of which he is authorised for the purposes of this
section by such income-tax authority, who is assigned the area within which
such place is situated or who exercises jurisdiction in respect of any person
occupying such place,]
at which a business or profession is carried on, whether such place be the principal
place or not of such business or profession, and require any proprietor, employee or
any other person who may at that time and place be attending in any manner to, or
helping in, the carrying on of such business or profession
(i) to afford him the necessary facility to inspect such books of account or other
documents as he may require and which may be available at such place,
(ii) to afford him the necessary facility to check or verify the cash, stock or
other valuable article or thing which may be found therein, and
(iii) to furnish such information as he may require as to any matter which may
be useful for, or relevant to, any proceeding under this Act.
Explanation.For the purposes of this sub-section, a place where a business or
profession is carried on shall also include any other place, whether any business or
profession is carried on therein or not, in which the person carrying on the business or
profession states that any of his books of account or other documents or any part of
his cash or stock or other valuable article or thing relating to his business or
profession are or is kept.
(2) An income-tax authority may enter any place of business or profession referred to
in sub-section (1) only during the hours at which such place is open for the conduct of
business or profession and, in the case of any other place, only after sunrise and
before sunset.
(3) An income-tax authority acting under this section may,
(i) if he so deems necessary, place marks of identification on the books of
account or other documents inspected by him and make or cause to be made
extracts or copies therefrom,
62
[(ia) impound and retain in his custody for such period as he thinks fit any books
of account or other documents inspected by him:
Provided that such income-tax authority shall not
(a) impound any books of account or other documents except after
recording his reasons for so doing; or
63
[(b) retain in his custody any such books of account or other documents
for a period exceeding ten days (exclusive of holidays) without
obtaining the approval of the Chief Commissioner or Director
General therefor, as the case may be,]]
60

(ii) make an inventory of any cash, stock or other valuable article or thing
checked or verified by him,
(iii) record the statement of any person which may be useful for, or relevant to,
any proceeding under this Act.
(4) An income-tax authority acting under this section shall, on no account, remove or
cause to be removed from the place wherein he has entered, 64[***] any cash, stock or
other valuable article or thing.
(5) Where, having regard to the nature and scale of expenditure incurred by an
assessee, in connection with any function, ceremony or event, the income-tax
authority is of the opinion that it is necessary or expedient so to do, he may, at any
time after such function, ceremony or event, require the assessee by whom such
expenditure has been incurred or any person who, in the opinion of the income-tax
authority, is likely to possess information as respects the expenditure incurred, to
furnish such information as he may require as to any matter which may be useful for,
or relevant to, any proceeding under this Act and may have the statements of the
assessee or any other person recorded and any statement so recorded may thereafter
be used in evidence in any proceeding under this Act.
(6) If a person under this section is required to afford facility to the income-tax
authority to inspect books of account or other documents or to check or verify any
cash, stock or other valuable article or thing or to furnish any information or to have
his statement recorded either refuses or evades to do so, the income-tax authority shall
have all the powers under 65[sub-section (1) of section 131] for enforcing compliance
with the requirement made :
66
[Provided that no action under sub-section (1) shall be taken by an Assistant
Director or a Deputy Director or an Assessing Officer or a Tax Recovery Officer or an
Inspector of Income-tax without obtaining the approval of the Joint Director or the
Joint Commissioner, as the case may be.]
Explanation.In this section,
67
[(a) income-tax authority means a Commissioner, a Joint Commissioner, a
Director, a Joint Director, an Assistant Director or a Deputy Director or an
Assessing Officer, or a Tax Recovery Officer, and for the purposes of clause
(i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5),
includes an Inspector of Income-tax.]
(b) proceeding means any proceeding under this Act in respect of any year
which may be pending on the date on which the powers under this section
are exercised or which may have been completed on or before such date and
includes also all proceedings under this Act which may be commenced after
such date in respect of any year.]
68

[Power to collect certain information.

133B. (1) Notwithstanding anything contained in any other provision of this Act, an
income-tax authority may, for the purpose of collecting any information which may be
useful for, or relevant to, the purposes of this Act, enter
(a) any building or place within the limits of the area assigned to such authority
; or
(b) any building or place occupied by any person in respect of whom he
exercises jurisdiction,

at which a business or profession is carried on, whether such place be the principal
place or not of such business or profession, and require any proprietor, employee or
any other person who may at that time and place be attending in any manner to, or
helping in, the carrying on of such business or profession to furnish such information
as may be prescribed69.
(2) An income-tax authority may enter any place of business or profession referred to
in sub-section (1) only during the hours at which such place is open for the conduct of
business or profession.
(3) For the removal of doubts, it is hereby declared that an incometax authority acting under this section shall, on no account, remove
or cause to be removed from the building or place wherein he has
entered, any books of account or other documents or any cash,
stock or other valuable article or thing.
Explanation.In this section, income-tax authority means a 70[Joint
Commissioner], an 71[Assistant Director] 72[or Deputy Director] or an 73[Assessing]
Officer, and includes an Inspector of Income-tax who has been authorised by the
73
[Assessing] Officer to exercise the powers conferred under this section in relation to
the area in respect of which the 73[Assessing] Officer exercises jurisdiction or part
thereof.]
Power to inspect registers of companies.
134. The 74[Assessing] Officer, the 75[Deputy Commissioner (Appeals)], 76[the
77
[Joint Commissioner] or the Commissioner (Appeals)], or any person subordinate to
him authorised in writing in this behalf by the 74[Assessing] Officer, the 75[Deputy
Commissioner (Appeals)], 76[the 77[Joint Commissioner] or the Commissioner
(Appeals)], may inspect, and if necessary, take copies, or cause copies to be taken, of
any register of the members, debenture holders or mortgagees of any company or of
any entry in such register.
Power of 78[Director General or Director], 79[Chief Commissioner or
Commissioner] and 80[Joint Commissioner].
135. The 78[Director General or Director], the 79[Chief Commissioner or
Commissioner] and the 80[Joint Commissioner] shall be competent to make any
enquiry under this Act, and for this purpose shall have all the powers that an
81
[Assessing] Officer has under this Act in relation to the making of enquiries.
Proceedings before income-tax authorities to be judicial proceedings.
82
136. Any proceeding under this Act before an income-tax authority shall be deemed
to be a judicial proceeding within the meaning of sections 193 and 228 and for the
purposes of section 196 of the Indian Penal Code (45 of 1860) 83[and every incometax authority shall be deemed to be a Civil Court for the purposes of section 195, but
not for the purposes of Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of
1974)].

84

[Disclosure of information respecting assessees.

138. 86[(1)(a) The Board or any other income-tax authority specified by it by a
general or special order in this behalf may furnish or cause to be furnished to
(i) any officer, authority or body performing any functions under any law
relating to the imposition of any tax, duty or cess, or to dealings in 87foreign
exchange as defined in section 2(d) of the Foreign Exchange Regulation
Act, 1947 (7 of 1947)88 ; or
(ii) such officer, authority or body performing functions under any other law as
the Central Government may, if in its opinion it is necessary so to do in the
public interest, specify by notification89 in the Official Gazette in this
behalf,
any such information 90[received or obtained by any income-tax authority in the
performance of his functions under this Act], as may, in the opinion of the Board or
other income-tax authority, be necessary for the purpose of enabling the officer,
authority or body to perform his or its functions under that law.
(b) Where a person makes an application to the 91[Chief Commissioner or
Commissioner] in the prescribed form92 for any information relating to any assessee
93
[received or obtained by any income-tax authority in the performance of his
functions under this Act], the 94[Chief Commissioner or Commissioner] may, if he is
satisfied that it is in the public interest so to do, furnish or cause to be furnished the
information asked for 95[***] and his decision in this behalf shall be final and shall not
be called in question in any court of law.]
(2) Notwithstanding anything contained in sub-section (1) or any other law for the
time being in force, the Central Government may, having regard to the practices and
usages customary or any other relevant factors, by order notified 96 in the Official
Gazette, direct that no information or document shall be furnished or produced by a
public servant in respect of such matters relating to such class of assessees or except
to such authorities as may be specified in the order.]
85

CHAPTER XIV
PROCEDURE FOR ASSESSMENT97
Return of income.
98
139. 99[(1) Every person1,
(a) being a company; or
(b) being a person other than a company, if his total income or the total income
of any other person in respect of which he is assessable under this Act
during the previous year exceeded the maximum amount which is not
chargeable to income-tax,
shall, on or before the due date, furnish a return of his income or the income of such
other person during the previous year, in the prescribed form2 and verified in the
prescribed manner and setting forth such other particulars as may be prescribed:
Provided that a person referred to in clause (b), who is not required to furnish a return
under this sub-section and residing in such area as may be specified by the Board in
this behalf by notification3 in the Official Gazette, and who at any time during the
previous year fulfils any one of the following conditions, namely:

(i) is in occupation of an immovable property exceeding a specified floor area,

whether by way of ownership, tenancy or otherwise, as may be specified 4 by
the Board in this behalf; or
(ii) is the owner or the lessee of a motor vehicle other than a two-wheeled
motor vehicle, whether having any detachable side car having extra wheel
attached to such two-wheeled motor vehicle or not; or
(iii) is a subscriber to a 5[cellular telephone not being a wireless in local loop
telephone]; or
(iv) has incurred expenditure for himself or any other person on travel to any
foreign country; or
(v) is the holder of a credit card 6, not being an add-on card, issued by any
bank or institution; or
(vi) is a member of a club where entrance fee charged is twenty-five thousand
rupees or more,
shall furnish a return, of his income during the previous year, on or before the due
date in the prescribed form7 and verified in the prescribed manner and setting forth
such other particulars as may be prescribed:
Provided further that the Central Government may, by notification8 in the Official
Gazette, specify the class or classes of persons to whom the provisions of the first
proviso shall not apply:
Provided also that every company shall furnish on or before the due date the return in
respect of its income or loss in every previous year.
Explanation 1.For the purposes of this sub-section, the expression motor vehicle
shall have the meaning assigned to it in clause (28) of section 29 of the Motor Vehicles
Act, 1988 (59 of 1988).
Explanation 2.In this sub-section, due date means,
(a) where the assessee is
(i) a company; or
(ii) a person (other than a company) whose accounts are required to be
audited under this Act or under any other law for the time being in force;
or
(iii) a working partner of a firm whose accounts are required to be audited
under this Act or under any other law for the time being in force,
the 31st day of October of the assessment year;
(b) in the case of a person other than a company, referred to in the first proviso
to this sub-section, the 31st day of October of the assessment year;
(c) in the case of any other assessee, the 31st day of July of the assessment year.
Explanation 3.For the purposes of this sub-section, the expression travel to any
foreign country does not include travel to the neighbouring countries or to such
places of pilgrimage as the Board may specify in this behalf by notification 10 in the
Official Gazette.]
11
[(1A) Without prejudice to the provisions of sub-section (1), any person, being an
individual who is in receipt of income chargeable under the head Salaries may, at
his option, furnish a return of his income for any previous year to his employer, in
accordance with such scheme as may be specified by the Board in this behalf, by

notification in the Official Gazette12, and subject to such conditions as may be

specified therein, and such employer shall furnish all returns of income received by
him on or before the due date, in such form (including on a floppy, diskette, magnetic
cartridge tape, CD-ROM or any other computer readable media) and manner as may
be specified in that scheme, and in such case, any employee who has filed a return of
his income to his employer shall be deemed to have furnished a return of income
under sub-section (1), and the provisions of this Act shall apply accordingly.]
13
[***]]
14
[(1B) Without prejudice to the provisions of sub-section (1), any person, being a
company or being a person other than a company, required to furnish a return of
income under sub-section (1), may, at his option, on or before the due date, furnish a
return of his income for any previous year in accordance with such scheme as may be
specified by the Board in this behalf by notification in the Official Gazette15 and
subject to such conditions as may be specified therein, in such form (including on a
floppy, diskette, magnetic cartridge tape, CD-ROM or any other computer readable
media) and in the manner as may be specified in that scheme, and in such case, the
return of income furnished under such scheme shall be deemed to be a return
furnished under sub-section (1), and the provisions of this Act shall apply accordingly.]
16
[***]
(3) If any person who 17[***] has sustained a loss in any previous year under the head
Profits and gains of business or profession or under the head Capital gains and
claims that the loss or any part thereof should be carried forward under sub-section (1)
of section 72, or sub-section (2) of section 73, or sub-section (1) 18[or sub-section (3)]
of section 74, 19[or sub-section (3) of section 74A], he may furnish, within the time
allowed under sub-section (1) 20[***], a return of loss in the prescribed form 21 and
verified in the prescribed manner and containing such other particulars as may be
prescribed, and all the provisions of this Act shall apply as if it were a return under
sub-section (1).
22
[(4) Any person who has not furnished a return within the time allowed 23 to him
under sub-section (1), or within the time allowed under a notice issued under subsection (1) of section 142, may furnish the return for any previous year at any time 23
before the expiry of one year from the end of the relevant assessment year or before
the completion of the assessment, whichever is earlier :
Provided that where the return relates to a previous year relevant to the assessment
year commencing on the 1st day of April, 1988, or any earlier assessment year, the
reference to one year aforesaid shall be construed as a reference to two years from the
end of the relevant assessment year.]
24 25
[ [(4A) 26Every person in receipt of income derived from property held under trust
or other legal obligation wholly for charitable or religious purposes or in part only for
such purposes, or of income being voluntary contributions referred to in sub-clause
(iia) of clause (24) of section 2, shall, if the total income in respect of which he is
assessable as a representative assessee (the total income for this purpose being
computed under this Act without giving effect to the provisions of sections 11 and 12)
exceeds the maximum amount which is not chargeable to income-tax, furnish a return
of such income of the previous year in the prescribed form and verified in the
prescribed manner and setting forth such other particulars as may be prescribed and

all the provisions of this Act shall, so far as may be, apply as if it were a return
required to be furnished under sub-section (1).]]
27
[(4B) 28The chief executive officer (whether such chief executive officer is known as
Secretary or by any other designation) of every political party shall, if the total income
in respect of which the political party is assessable (the total income for this purpose
being computed under this Act without giving effect to the provisions of section 13A)
exceeds the maximum amount which is not chargeable to income-tax, furnish a return
of such income of the previous year in the prescribed form and verified in the
prescribed manner and setting forth such other particulars as may be prescribed and
all the provisions of this Act, shall, so far as may be, apply as if it were a return
required to be furnished under sub-section (1).]
29
[(4C) Every
(a) scientific research association referred to in clause (21) of section 10;
(b) news agency referred to in clause (22B) of section 10;
(c) association or institution referred to in clause (23A) of section 10;
(d) institution referred to in clause (23B) of section 10;
(e) fund or institution referred to in sub-clause (iv) or trust or institution
referred to in sub-clause (v) or any university or other educational institution
referred to in sub-clause (vi) or any hospital or other medical institution
referred to in sub-clause (via) of clause (23C) of section 10;
(f) trade union referred to in sub-clause (a) or association referred to in subclause (b) of clause (24) of section 10,
shall, if the total income in respect of which such scientific research association, news
agency, association or institution, fund or trust or university or other educational
institution or any hospital or other medical institution or trade union is assessable,
without giving effect to the provisions of section 10, exceeds the maximum amount
which is not chargeable to income-tax, furnish a return of such income of the previous
year in the prescribed form30 and verified in the prescribed manner and setting forth
such other particulars as may be prescribed and all the provisions of this Act shall, so
far as may be, apply as if it were a return required to be furnished under sub-section
(1).]
31
[(5) If any person, having furnished a return under sub-section (1), or in pursuance
of a notice issued under sub-section (1) of section 142, discovers any omission or any
wrong statement therein, he may furnish a revised return at any time before the expiry
of one year from the end of the relevant assessment year or before the completion of
the assessment, whichever is earlier :
Provided that where the return relates to the previous year relevant to the assessment
year commencing on the 1st day of April, 1988, or any earlier assessment year, the
reference to one year aforesaid shall be construed as a reference to two years from the
end of the relevant assessment year.]
32
[(6) The prescribed form of the returns referred to 33[in sub-sections (1) and (3) of
this section, and in clause (i) of sub-section (1) of section 142] shall, in such cases as
may be prescribed, require the assessee to furnish the particulars of income exempt
from tax, assets of the prescribed nature 34[, value and belonging to him, his bank
account and credit card held by him], expenditure exceeding the prescribed limits
incurred by him under prescribed heads and such other outgoings as may be
prescribed.

(6A) Without prejudice to the provisions of sub-section (6), the prescribed form of the
returns referred to 35[in 36[***] this section, and in clause (i) of sub-section (1) of
section 142] shall, in the case of an assessee engaged in any business or profession,
also require him to furnish 37[the report of any audit 38[referred to in section 44AB, or,
where the report has been furnished prior to the furnishing of the return, a copy of
such report together with proof of furnishing the report], the] particulars of the
location and style of the principal place where he carries on the business or profession
and all the branches thereof, the names and addresses of his partners, if any, in such
business or profession and, if he is a member of an association or body of individuals,
the names of the other members of the association or the body of individuals and the
extent of the share of the assessee and the shares of all such partners or the members,
as the case may be, in the profits of the business or profession and any branches
thereof.]
(7) 39[***]
40 41
[ (8)(a) 42[Where the return under sub-section (1) or sub-section (2) or sub-section
(4) for an assessment year is furnished after the specified date, or is not furnished,
then [whether or not the 43[Assessing] Officer has extended the date for furnishing the
return under sub-section (1) or sub-section (2)], the assessee shall be liable to pay
simple interest at 44[fifteen] per cent per annum, reckoned from the day immediately
following the specified date to the date of the furnishing of the return or, where no
return has been furnished, the date of completion of the assessment under section 144,
on the amount of the tax payable on the total income as determined on regular
assessment, as reduced by the advance tax, if any, paid, and any tax deducted at
source :
Provided that the 45[Assessing] Officer may, in such cases and under such
circumstances as may be prescribed46, reduce or waive the interest payable by any
assessee under this sub-section.
Explanation 1.For the purposes of this sub-section, specified date, in relation to a
return for an assessment year, means,
(a) in the case of every assessee whose total income, or the total income of any
person in respect of which he is assessable under this Act, includes any
income from business or profession, the date of the expiry of four months
from the end of the previous year or where there is more than one previous
year, from the end of the previous year which expired last before the
commencement of the assessment year or the 30th day of June of the
assessment year, whichever is later;
(b) in the case of every other assessee, the 30th day of June of the assessment
year.]
47
[Explanation 2.Where, in relation to an assessment year, an assessment is made
for the first time under section 147, the assessment so made shall be regarded as a
regular assessment for the purposes of this sub-section.]
48
[(b) Where as a result of an order under section 147 or section 154 or section 155 or
section 250 or section 254 or section 260 or section 262 or section 263 or section 264
49
[or an order of the Settlement Commission under sub-section (4) of section 245D],
the amount of tax on which interest was payable under this sub-section has been
increased or reduced, as the case may be, the interest shall be increased or reduced
accordingly, and
(i) in a case where the interest is increased, the 50[Assessing] Officer shall serve
on the assessee, a notice of demand in the prescribed form specifying the

sum payable, and such notice of demand shall be deemed to be a notice

under section 156 and the provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the excess interest paid, if any, shall
be refunded.]]
51
[(c) The provisions of this sub-section shall apply in respect of the assessment for
the assessment year commencing on the 1st day of April, 1988, or any earlier
assessment year, and references therein to the other provisions of this Act shall be
construed as references to the said provisions as they were applicable to the relevant
assessment year.]
52
[(9) Where the 53[Assessing] Officer considers that the return of income furnished by
the assessee is defective, he may intimate the defect to the assessee and give him an
opportunity to rectify the defect within a period of fifteen days from the date of such
intimation or within such further period which, on an application made in this behalf,
the 53[Assessing] Officer may, in his discretion, allow; and if the defect is not rectified
within the said period of fifteen days or, as the case may be, the further period so
allowed, then, notwithstanding anything contained in any other provision of this Act,
the return shall be treated as an invalid return and the provisions of this Act shall
apply as if the assessee had failed to furnish the return :
Provided that where the assessee rectifies the defect after the expiry of the said period
of fifteen days or the further period allowed, but before the assessment is made, the
53
[Assessing] Officer may condone the delay and treat the return as a valid return.
Explanation.For the purposes of this sub-section, a return of income shall be
regarded as defective unless all the following conditions are fulfilled, namely :
(a) the annexures, statements and columns in the return of income relating to
computation of income chargeable under each head of income, computation
of gross total income and total income have been duly filled in;
(b) the return is accompanied by a statement showing the computation of the
tax payable on the basis of the return;
54
[(bb) the return is accompanied by the report of the audit referred to in section
44AB, or, where the report has been furnished prior to the furnishing of the
return, by a copy of such report together with proof of furnishing the
report;]
(c) the return is accompanied by proof of
(i) the tax, if any, claimed to have been deducted at source 54a[before the 1st
day of April, 2005] and the advance tax and tax on self-assessment, if
any, claimed to have been paid :
55
[Provided that where the return is not accompanied by proof of the
tax, if any, claimed to have been deducted at source, the return of
income shall not be regarded as defective if
(a) a certificate for tax deducted was not furnished under section 203 to
the person furnishing his return of income;
(b) such certificate is produced within a period of two years specified
under sub-section (14) of section 155;]
(ii) the amount of compulsory deposit, if any, claimed to have been made
under the Compulsory Deposit Scheme (Income-tax Payers) Act,
1974 (38 of 1974);

(d) where regular books of account are maintained by the assessee, the return is
accompanied by copies of
(i) manufacturing account, trading account, profit and loss account or, as
the case may be, income and expenditure account or any other similar
account and balance sheet;
(ii) in the case of a proprietary business or profession, the personal account
of the proprietor; in the case of a firm, association of persons or body of
individuals, personal accounts of the partners or members; and in the
case of a partner or member of a firm, association of persons or body of
individuals, also his personal account in the firm, association of persons
or body of individuals;
(e) where the accounts of the assessee have been audited, the return is
accompanied by copies of the audited profit and loss account and balance
sheet and the auditors report 56[and, where an audit of cost accounts of the
assessee has been conducted, under section 233B57 of the Companies Act,
1956 (1 of 1956), also the report under that section];
(f) where regular books of account are not maintained by the assessee, the
return is accompanied by a statement indicating the amounts of turnover or,
as the case may be, gross receipts, gross profit, expenses and net profit of
the business or profession and the basis on which such amounts have been
computed, and also disclosing the amounts of total sundry debtors, sundry
creditors, stock-in-trade and cash balance as at the end of the previous year.]
58
(10) [Omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.]
59

[Permanent account number59a.

139A. (1) Every person,
(i) if his total income or the total income of any other person in respect of
which he is assessable under this Act during any previous year exceeded the
maximum amount which is not chargeable to income-tax; or
(ii) carrying on any business or profession whose total sales, turnover or gross
receipts are or is likely to exceed 60[five lakh] rupees in any previous year;
or
(iii) who is required to furnish a return of income under sub-section (4A) of
section 139,
and who has not been allotted a permanent account number shall, within such time, as
may be prescribed61, apply to the Assessing Officer for the allotment of a permanent
account number.
62
[(1A) Notwithstanding anything contained in sub-section (1), the Central
Government may, by notification63 in the Official Gazette, specify, any class or classes
of persons by whom tax is payable under this Act or any tax or duty is payable under
any other law for the time being in force including importers and exporters whether
any tax is payable by them or not and such persons shall, within such time as
mentioned in that notification, apply to the Assessing Officer for the allotment of a
permanent account number.]
(2) The Assessing Officer may also allot to any other person by whom tax is payable,
a permanent account number.
(3) Any person, not falling under sub-section (1) or sub-section (2), may apply to the
Assessing Officer for the allotment of a permanent account number and, thereupon,

the Assessing Officer shall allot a permanent account number to such person
forthwith.
(4) For the purpose of allotment of permanent account numbers under the new series,
the Board may, by notification64 in the Official Gazette, specify the date from which
the persons referred to in sub-sections (1) and (2) and other persons who have been
allotted permanent account numbers and residing in a place to be specified in such
notification, shall, within such time as may be specified, apply to the Assessing
Officer for the allotment of a permanent account number under the new series and
upon allotment of such permanent account number to a person, the permanent account
number, if any, allotted to him earlier shall cease to have effect :
Provided that the persons to whom permanent account number under the new series
has already been allotted shall not apply for such number again.
(5) Every person shall
(a) quote such number in all his returns to, or correspondence with, any
income-tax authority;
(b) quote such number in all challans for the payment of any sum due under this
Act;
(c) quote such number in all documents pertaining to such transactions as may
be prescribed65by the Board in the interests of the revenue, and entered into
by him:
Provided that the Board may prescribe different dates for different
transactions or class of transactions or for different class of persons:
66
[Provided further that a person shall quote General Index Register
Number till such time Permanent Account Number is allotted to such
person;]
(d) intimate the Assessing Officer any change in his address or in the name and
nature of his business on the basis of which the permanent account number
was allotted to him.
67
[(5A) Every person receiving any sum or income or amount from which tax has been
deducted under the provisions of Chapter XVIIB, shall intimate his permanent
account number to the person responsible for deducting such tax under that Chapter :
67a
[Provided that nothing contained in this sub-section shall apply to a non-resident
referred to in sub-section (4) of section 115AC, or sub-section (2) of section 115BBA,
or to a non-resident Indian referred to in section 115G :]
Provided further that a person referred to in this sub-section shall intimate the
General Index Register Number till such time permanent account number is allotted to
such person.
(5B) Where any sum or income or amount has been paid after deducting tax under
Chapter XVIIB, every person deducting tax under that Chapter shall quote the
permanent account number of the person to whom such sum or income or amount has
been paid by him
(i) in the statement furnished in accordance with the provisions of sub-section
(2C) of section 192;
(ii) in all certificates furnished in accordance with the provisions of section 203;
(iii) in all returns prepared and delivered or caused to be delivered in accordance
with the provisions of section 206 to any income-tax authority:

Provided that the Central Government may, by notification 68 in the Official Gazette,
specify different dates from which the provisions of this sub-section shall apply in
respect of any class or classes of persons:
Provided further that nothing contained in sub-sections (5A) and (5B) shall apply in
case of a person whose total income is not chargeable to income-tax or who is not
required to obtain permanent account number under any provision of this Act if such
person furnishes to the person responsible for deducting tax, a declaration referred to
in section 197A in the form and manner prescribed thereunder to the effect that the tax
on his estimated total income of the previous year in which such income is to be
included in computing his total income will be nil.
(5C) Every buyer 68a[or licensee or lessee] referred to in section 206C shall intimate
his permanent account number to the seller referred to in that section.
(5D) Every seller collecting tax in accordance with the provisions of section 206C
shall quote the permanent account number of every buyer 68a[or licensee or lessee]
referred to in that section
(i) in all certificates furnished in accordance with the provisions of sub-section
(5) of section 206C;
(ii) in all returns prepared and delivered or caused to be delivered in accordance
with the provisions of sub-section (5A) or sub-section (5B) of section 206C
to an income-tax authority.]
(6) Every person receiving any document relating to a transaction prescribed under
clause (c) of sub-section (5) shall ensure that the Permanent Account Number 69[or the
General Index Register Number] has been duly quoted in the document.
(7) No person who has already been allotted a permanent account number under the
new series shall apply, obtain or possess another permanent account number.
70
(8) The Board may make rules providing for
(a) the form and the manner in which an application may be made for the
allotment of a permanent account number and the particulars which such
application shall contain;
(b) the categories of transactions in relation to which Permanent Account
Numbers 71[or the General Index Register Number] shall be quoted by every
person in the documents pertaining to such transactions;
(c) the categories of documents pertaining to business or profession in which
such numbers shall be quoted by every person;
72
[(d) class or classes of persons to whom the provisions of this section shall not
apply;
(e) the form and the manner in which the person who has not been allotted a
Permanent Account Number or who does not have General Index Register
Number shall make his declaration;
(f) the manner in which the Permanent Account Number or the General Index
Register Number shall be quoted in respect of the categories of transactions
referred to in clause (c)*;
(g) the time and the manner in which the transactions referred to in clause (c) *
shall be intimated to the prescribed authority.]
Explanation.For the purposes of this section,
(a) Assessing Officer includes an income-tax authority who is assigned the
duty of allotting permanent account numbers;

(b) permanent account number means a number which the Assessing Officer
may allot to any person for the purpose of identification and includes a
permanent account number allotted under the new series;
(c) permanent account number under the new series means a permanent
account number having ten alphanumeric characters and issued in the form
of a laminated card;]
71
[(d) General Index Register Number means a number given by an Assessing
Officer to an assessee in the General Index Register maintained by him and
containing the designation and particulars of the ward or circle or range of
the Assessing Officer.]
Return by whom to be signed.
73
140. The return under section 139 shall be signed and verified
74
[(a) in the case of an individual,
(i) by the individual himself;
(ii) where he is absent from India, by the individual himself or by some
person duly authorised by him in this behalf;
(iii) where he is mentally incapacitated from attending to his affairs, by his
guardian or any other person competent to act on his behalf; and
(iv) where, for any other reason, it is not possible for the individual to sign
the return, by any person duly authorised by him in this behalf:
Provided that in a case referred to in sub-clause (ii) or sub-clause (iv), the
person signing the return holds a valid power of attorney from the
individual to do so, which shall be attached to the return;]
(b) in the case of a Hindu undivided family, by the karta, and, where the karta is
absent from India or is mentally incapacitated from attending to his affairs,
by any other adult member of such family;
75
[(c) in the case of a company, by the managing director thereof, or where for any
unavoidable reason such managing director is not able to sign and verify the
return, or where there is no managing director, by any director thereof :
76
[Provided that where the company is not resident in India, the return may
be signed and verified by a person who holds a valid power of attorney from
such company to do so, which shall be attached to the return :
Provided further that,
(a) where the company is being wound up, whether under the orders of a
court or otherwise, or where any person has been appointed as the
receiver of any assets of the company, the return shall be signed and
verified by the liquidator referred to in sub-section (1) of section 178;
(b) where the management of the company has been taken over by the
Central Government or any State Government under any law, the return
of the company shall be signed and verified by the principal officer
thereof;]
(cc) in the case of a firm, by the managing partner thereof, or where for any
unavoidable reason such managing partner is not able to sign and verify the
return, or where there is no managing partner as such, by any partner
thereof, not being a minor;

(d) in the case of a local authority, by the principal officer thereof;]

[(dd) in the case of a political party referred to in sub-section (4B) of section 139,
by the chief executive officer of such party (whether such chief executive
officer is known as secretary or by any other designation);]
(e) in the case of any other association, by any member of the association or the
principal officer thereof; and
(f) in the case of any other person, by that person or by some person competent
to act on his behalf.

77

78

[Self-assessment.
140A. 80[(1) Where any tax is payable on the basis of any return required to be
furnished under 81[section 139 or section 142 82[or section 148 or 83[section 153A or],
as the case may be, section 158BC]], after taking into account the amount of tax, if
any, already paid under any provision of this Act, 84[the assessee shall be liable to pay
such tax together with interest payable under any provision of this Act for any delay in
furnishing the return or any default or delay in payment of advance tax, before
furnishing the return and the return shall be accompanied by proof of payment of such
tax and interest.]
85
[Explanation.Where the amount paid by the assessee under this sub-section falls
short of the aggregate of the tax and interest as aforesaid, the amount so paid shall
first be adjusted towards the interest payable as aforesaid and the balance, if any, shall
be adjusted towards the tax payable.]
86
[(1A) For the purposes of sub-section (1), interest payable under section 234A shall
be computed on the amount of the tax on the total income as declared in the return as
reduced by the advance tax, if any, paid and any tax deducted or collected at source.
(1B) For the purposes of sub-section (1), interest payable under section 234B shall be
computed on an amount equal to the assessed tax or, as the case may be, on the
amount by which the advance tax paid falls short of the assessed tax.
Explanation.For the purposes of this sub-section, assessed tax means the tax on
the total income as declared in the return as reduced by the amount of tax deducted or
collected at source, in accordance with the provisions of Chapter XVII, on any income
which is subject to such deduction or collection and which is taken into account in
computing such total income.]
(2) After a regular assessment under section 143 or section 144 87[or an assessment
under 88[section 153A or] section 158BC] has been made, any amount paid under subsection (1) shall be deemed to have been paid towards such regular assessment 87[or
assessment, as the case may be].
89
[(3) If any assessee fails to pay the whole or any part of such tax or interest or both
in accordance with the provisions of sub-section (1), he shall, without prejudice to any
other consequences which he may incur, be deemed to be an assessee in default in
respect of the tax or interest or both remaining unpaid, and all the provisions of this
Act shall apply accordingly.]
90
[(4) The provisions of this section as they stood immediately before their
amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply
to and in relation to any assessment for the assessment year commencing on the 1st
day of April, 1988, or any earlier assessment year and references in this section to the
other provisions of this Act shall be construed as references to those provisions as for
the time being in force and applicable to the relevant assessment year.]
79

Inquiry before assessment.

92
142. (1) For the purpose of making an assessment under this Act, the 93[Assessing]
Officer may serve on any person who has made a return under section 139 94[or in
whose case the time allowed under sub-section (1) of that section for furnishing the
return has expired] a notice requiring him, on a date to be therein specified,
95
[(i) where such person has not made a return 96[within the time allowed under
sub-section (1) of section 139], to furnish a return of his income or the
income of any other person in respect of which he is assessable under this
Act, in the prescribed form and verified in the prescribed manner97 and
setting forth such other particulars as may be prescribed, or]
98
[(ii)] to produce, or cause to be produced, such accounts or documents as the
99
[Assessing] Officer may require, or
1
2
[(iii)] to furnish in writing and verified in the prescribed manner information in
such form and on such points or matters (including a statement of all assets
and liabilities of the assessee, whether included in the accounts or not) as
the 3[Assessing] Officer may require :
Provided that
(a) the previous approval of the 3a[Joint Commissioner] shall be obtained before
requiring the assessee to furnish a statement of all assets and liabilities not
included in the accounts ;
(b) the 4[Assessing] Officer shall not require the production of any accounts
relating to a period more than three years prior to the previous year.
(2) For the purpose of obtaining full information in respect of the income or loss of
any person, the 4[Assessing] Officer may make such inquiry as he considers
necessary.
5
[(2A) 6If, at any stage of the proceedings before him, the 7[Assessing] Officer, having
regard to the nature and complexity8 of the accounts of the assessee and the interests
of the revenue, is of the opinion that it is necessary so to do, he may, with the previous
approval of the 9[Chief Commissioner or Commissioner], direct the assessee to get the
accounts audited by an accountant, as defined in the Explanation below sub-section
(2) of section 288, nominated by the 9[Chief Commissioner or Commissioner] in this
behalf and to furnish a report of such audit in the prescribed form 6 duly signed and
verified by such accountant and setting forth such particulars as may be prescribed
and such other particulars as the 10[Assessing] Officer may require.
(2B) The provisions of sub-section (2A) shall have effect notwithstanding that the
accounts of the assessee have been audited under any other law for the time being in
force or otherwise.
(2C) Every report under sub-section (2A) shall be furnished by the assessee to the
10
[Assessing] Officer within such period as may be specified by the 10[Assessing]
Officer :
Provided that the 10[Assessing] Officer may, on an application made in this behalf by
the assessee and for any good and sufficient reason, extend the said period by such
further period or periods as he thinks fit ; so, however, that the aggregate of the period

originally fixed and the period or periods so extended shall not, in any case, exceed
one hundred and eighty days from the date on which the direction under sub-section
(2A) is received by the assessee.
(2D) The expenses of, and incidental to, any audit under sub-section (2A) (including
the remuneration of the accountant) shall be determined by the 11-12[Chief
Commissioner or Commissioner] (which determination shall be final) and paid by the
assessee and in default of such payment, shall be recoverable from the assessee in the
manner provided in Chapter XVII-D for the recovery of arrears of tax.]
(3) The assessee shall, except where the assessment is made under section 144, be
given an opportunity of being heard in respect of any material gathered on the basis of
any inquiry under sub-section (2) 13[or any audit under sub-section (2A)] and
proposed to be utilised for the purposes of the assessment.
14
[(4) The provisions of this section as they stood immediately before their
amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply
to and in relation to any assessment for the assessment year commencing on the 1st
day of April, 1988, or any earlier assessment year and references in this section to the
other provisions of this Act shall be construed as references to those provisions as for
the time being in force and applicable to the relevant assessment year.]
14a

[Estimate by Valuation Officer in certain cases.

142A.(1) For the purposes of making an assessment or reassessment under this Act,
where an estimate of the value of any investment referred to in section 69 or section
69B or the value of any bullion, jewellery or other valuable article referred to in
section 69A or section 69B is required to be made, the Assessing Officer may require
the Valuation Officer to make an estimate of such value and report the same to him.
(2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for
the purposes of dealing with such reference, have all the powers that he has under
section 38A of the Wealth-tax Act, 1957 (27 of 1957).
(3) On receipt of the report from the Valuation Officer, the Assessing Officer may,
after giving the assessee an opportunity of being heard, take into account such report
in making such assessment or reassessment:
Provided that nothing contained in this section shall apply in respect of an
assessment made on or before the 30th day of September, 2004, and where such
assessment has become final and conclusive on or before that date, except in cases
where a reassessment is required to be made in accordance with the provisions of
section 153A.
Explanation.In this section, Valuation Officer has the same meaning as in clause
(r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]
15

[Assessment16.
17
143. 18[(1) Where a return has been made under section 139, or in response to a
notice under sub-section (1) of section 142,
(i) if any tax or interest is found due on the basis of such return, after
adjustment of any tax deducted at source, any advance tax paid, any tax paid
on self-assessment and any amount paid otherwise by way of tax or interest,
then, without prejudice to the provisions of sub-section (2) 19, an intimation
shall be sent to the assessee specifying the sum so payable, and such intima-

tion shall be deemed to be a notice of demand issued under section 156 and
all the provisions of this Act shall apply accordingly; and
(ii) if any refund is due on the basis of such return, it shall be granted to the
assessee and an intimation to this effect shall be sent to the assessee :
Provided that except as otherwise provided in this sub-section, the acknowledgement of the return shall be deemed to be an intimation under this subsection where either no sum is payable by the assessee or no refund is due to him
:
Provided further that no intimation under this sub-section shall be sent after the
expiry of 20[one year from the end of the financial year in which the return is
made :]
21
[Provided also that where the return made is in respect of the income first
assessable in the assessment year commencing on the 1st day of April, 1999,
such intimation may be sent at any time up to the 31st day of March, 2002.]
(1A) 22[Omitted by the Finance Act, 1999, w.e.f. 1-6-1999.]
(1B) 23[Omitted by the Finance Act, 1999, w.e.f. 1-6-1999.]
24
[(2) Where a return has been furnished under section 139, or in response to a notice
under sub-section (1) of section 142, the Assessing Officer shall,
(i) where he has reason to believe that any claim of loss, exemption, deduction,
allowance or relief made in the return is inadmissible, serve on the assessee
a notice specifying particulars of such claim of loss, exemption, deduction,
allowance or relief and require him, on a date to be specified therein to
produce, or cause to be produced, any evidence or particulars specified
therein or on which the assessee may rely, in support of such claim:
25
[Provided that no notice under this clause shall be served on the assessee
on or after the 1st day of June, 2003;]
(ii) notwithstanding anything contained in clause (i), if he considers it necessary
or expedient to ensure that the assessee has not understated the income or
has not computed excessive loss or has not under-paid the tax in any
manner, serve on the assessee a notice requiring him, on a date to be
specified therein, either to attend his office or to produce, or cause to be
produced, any evidence on which the assessee may rely in support of the
return:
Provided that no notice under 26[clause (ii)] shall be served on the assessee
after the expiry of twelve months from the end of the month in which the
return is furnished.]
27
[(3) On the day specified in the notice,
(i) issued under clause (i) of sub-section (2), or as soon afterwards as may be,
after hearing such evidence and after taking into account such particulars as
the assessee may produce, the Assessing Officer shall, by an order in
writing, allow or reject the claim or claims specified in such notice and
make an assessment determining the total income or loss accordingly, and
determine the sum payable by the assessee on the basis of such assessment;
(ii) issued under clause (ii) of sub-section (2), or as soon afterwards as may be,
after hearing such evidence as the assessee may produce and such other
evidence as the Assessing Officer may require on specified points, and after
taking into account all relevant material which he has gathered, the

Assessing Officer shall, by an order in writing, make an assessment of the

total income or loss of the assessee, and determine the sum payable by him
or refund of any amount due to him on the basis of such assessment:]
28
[Provided that in the case of a
(a) scientific research association referred to in clause (21) of section 10;
(b) news agency referred to in clause (22B) of section 10;
(c) association or institution referred to in clause (23A) of section 10;
(d) institution referred to in clause (23B) of section 10;
(e) fund or institution referred to in sub-clause (iv) or trust or institution
referred to in sub-clause (v) or any university or other educational institution
referred to in sub-clause (vi) or any hospital or other medical institution
referred to in sub-clause (via) of clause (23C) of section 10,
which is required to furnish the return of income under sub-section (4C) of section
139, no order making an assessment of the total income or loss of such scientific
research association, news agency, association or institution or fund or trust or
university or other educational institution or any hospital or other medical institution,
shall be made by the Assessing Officer, without giving effect to the provisions of
section 10, unless
(i) the Assessing Officer has intimated the Central Government or the
prescribed authority the contravention of the provisions of clause (21) or
clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause
(v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the
case may be, by such scientific research association, news agency,
association or institution or fund or trust or university or other educational
institution or any hospital or other medical institution, where in his view
such contravention has taken place; and
(ii) the approval granted to such scientific research association or other
association or institution or university or other educational institution or
hospital or other medical institution has been withdrawn or notification
issued in respect of such news agency or fund or trust or institution has been
rescinded.]
29
[(4) Where a regular assessment under sub-section (3) of this section or section 144
is made,
(a) any tax or interest paid by the assessee under sub-section (1) shall be
deemed to have been paid towards such regular assessment ;
(b) if no refund is due on regular assessment or the amount refunded under subsection (1) exceeds the amount refundable on regular assessment, the whole
or the excess amount so refunded shall be deemed to be tax payable by the
assessee and the provisions of this Act shall apply accordingly.
30
(5) [Omitted by the Finance Act, 1999, w.e.f. 1-6-1999.]]
31
[* * *]
Best judgment assessment.
32
144. 33[(1)] If any person

(a) fails to make the return required 34[under sub-section (1) of section 139] and
has not made a return or a revised return under sub-section (4) or subsection (5) of that section, or
(b) fails to comply with all the terms of a notice issued under sub-section (1) of
section 142 35[or fails to comply with a direction issued under sub-section
(2A) of that section], or
(c) having made a return, fails to comply with all the terms of a notice issued
under sub-section (2) of section 143,
36
the [Assessing] Officer, after taking into account all relevant material which the
36
[Assessing] Officer has gathered, 37[shall, after giving the assessee an oppor-tunity of
being heard, make the assessment38] of the total income or loss to the best of his judgment and determine the sum payable by the assessee 39[* * *] on the basis of such
assessment :
40
[Provided that such opportunity shall be given by the Assessing Officer by serving a
notice calling upon the assessee to show cause, on a date and time to be specified in
the notice, why the assessment should not be completed to the best of his judgment :
Provided further that it shall not be necessary to give such opportunity in a case
where a notice under sub-section (1) of section 142 has been issued prior to the
making of an assessment under this section.]
41
[(2) The provisions of this section as they stood immediately before their
amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply
to and in relation to any assessment for the assessment year commencing on the 1st
day of April, 1988, or any earlier assessment year and references in this section to the
other provisions of this Act shall be construed as references to those provisions as for
the time being in force and applicable to the relevant assessment year.]
42

[Power of 43[Joint Commissioner] to issue directions in certain cases.

44
144A. 45[* * *] A 43[Joint Commissioner] may, on his own motion or on a reference
being made to him by the 46[Assessing] Officer or on the application of an assessee,
call for and examine the record of any proceeding in which an assessment is pending
and, if he considers that, having regard to the nature of the case or the amount
involved or for any other reason, it is necessary or expedient so to do, he may issue
such directions as he thinks fit for the guidance of the 46[Assessing] Officer to enable
him to complete the assessment and such directions shall be binding on the
46
[Assessing] Officer :
Provided that no directions which are prejudicial to the assessee shall be issued
before an opportunity is given to the assessee to be heard.
Explanation.For the purposes of this 47[section] no direction as to the lines on which
an investigation connected with the assessment should be made 48, shall be deemed to
be a direction prejudicial to the assessee.
49
[* * *]]

51

[Method of accounting.52
145. (1) Income chargeable under the head Profits and gains of business or
profession or Income from other sources shall, subject to the provisions of sub-

section (2), be computed in accordance with either cash or mercantile system of

accounting regularly52 employed by the assessee.
(2) The Central Government may notify in the Official Gazette 53 from time to time
accounting standards to be followed by any class of assessees or in respect of any
class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness
of the accounts of the assessee, or where the method of accounting provided in subsection (1) or accounting standards as notified under sub-section (2), have not been
regularly followed by the assessee, the Assessing Officer may make an assessment in
the manner provided in section 144.]
54

[Method of accounting in certain cases.

145A.Notwithstanding anything to the contrary contained in section 145, the
valuation of purchase and sale of goods and inventory for the purposes of determining
the income chargeable under the head Profits and gains of business or profession
shall be
(a) in accordance with the method of accounting regularly employed by the
assessee; and
(b) further adjusted to include the amount of any tax, duty, cess or fee (by
whatever name called) actually paid or incurred by the assessee to bring the
goods to the place of its location and condition as on the date of valuation.
Explanation. For the purposes of this section, any tax, duty, cess or fee (by
whatever name called) under any law for the time being in force, shall include all such
payment notwithstanding any right arising as a consequence to such payment.]

56

[Income escaping assessment.

147. If the 58[Assessing] Officer 59[has reason to believe60] that any income
chargeable to tax has escaped assessment60 for any assessment year, he may, subject to
the provisions of sections 148 to 153, assess or reassess 60 such income and also any
other income chargeable to tax which has escaped assessment and which comes to his
notice subsequently in the course of the proceedings under this section, or recompute
the loss or the depreciation allowance or any other allowance, as the case may be, for
the assessment year concerned (hereafter in this section and in sections 148 to 153
referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this
section has been made for the relevant assessment year, no action shall be taken under
this section after the expiry of four years from the end of the relevant assessment year,
unless any income chargeable to tax has escaped assessment for such assessment year
by reason of the failure60 on the part of the assessee to make a return under section
139 or in response to a notice issued under sub-section (1) of section 142 or section
148 or to disclose fully and truly all material facts61 necessary for his assessment, for
that assessment year.
Explanation 1.Production before the Assessing Officer of account books or other
evidence from which material evidence could with due diligence have been
discovered by the Assessing Officer will not necessarily61 amount to disclosure within
the meaning of the foregoing proviso.
57

Explanation 2.For the purposes of this section, the following shall also be deemed
to be cases where income chargeable to tax has escaped assessment, namely :
(a) where no return of income has been furnished by the assessee although his
total income or the total income of any other person in respect of which he
is assessable under this Act during the previous year exceeded the maximum
amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no
assessment has been made and it is noticed by the Assessing Officer that the
assessee has understated the income or has claimed excessive loss,
deduction, allowance or relief in the return ;
(c) where an assessment has been made, but
(i) income chargeable to tax has been under-assessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act
; or
(iv) excessive loss or depreciation allowance or any other allowance under
this Act has been computed.]
62

[Issue of notice where income has escaped assessment.

148. 64[(1)] Before making the assessment, reassessment or recomputation under
section 147, the Assessing Officer shall serve65 on the assessee a notice requiring him
to furnish within such period, 66[* * *] as may be specified in the notice, a return of
his income or the income of any other person in respect of which he is assessable
under this Act during the previous year corresponding to the relevant assessment year,
in the prescribed form and verified in the prescribed manner and setting forth such
other particulars as may be pres-cribed; and the provisions of this Act shall, so far as
may be67, apply accordingly as if such return were a return required to be furnished
under section 139.]
68
[(2) The Assessing Officer shall, before issuing any notice under this section, record
his reasons for doing so.]
63

Time limit for notice.

149. 69[(1) No notice under section 148 shall be issued70 for the relevant assessment
year,
71
[(a) if four years have elapsed from the end of the relevant assessment year,
unless the case falls under clause (b);
(b) if four years, but not more than six years, have elapsed from the end of the
relevant assessment year unless the income chargeable to tax which has
escaped assessment amounts to or is likely to amount to one lakh rupees or
more72 for that year.]
Explanation.In determining income chargeable to tax which has escaped
assessment for the purposes of this sub-section, the provisions of Explanation 2 of
section 147 shall apply as they apply for the purposes of that section.]
(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the
provisions of section 151.
(3) If the person on whom a notice under section 148 is to be served is a person
treated as the agent of a non-resident under section 163 and the assessment,

reassessment or recomputation to be made in pursuance of the notice is to be made on

him as the agent of such non-resident, the notice shall not be issued after the expiry of
a period of two years from the end of the relevant assessment year.
Provision for cases where assessment is in pursuance of an order on appeal, etc.
150. (1) Notwithstanding anything contained in section 149, the notice under section
148 may be issued at any time for the purpose of making an assessment or
reassessment or recomputation in consequence of or to give effect to any finding or
direction contained in an order passed by any authority in any proceeding under this
Act by way of appeal, reference or revision 73[or by a Court in any proceeding under
any other law].
(2) The provisions of sub-section (1) shall not apply in any case where any such
assessment, reassessment or recomputation as is referred to in that sub-section relates
to an assessment year in respect of which an assessment, reassessment or
recomputation could not have been made at the time the order which was the subjectmatter of the appeal, reference or revision, as the case may be, was made by reason of
any other provision limiting the time within which any action for assessment,
reassessment or recomputation may be taken.
74

[Sanction for issue of notice.

151. (1) In a case where an assessment under sub-section (3) of section 143 or
section 147 has been made for the relevant assessment year, no notice shall be issued
under section 148 75[by an Assessing Officer, who is below the rank of Assistant
Commissioner 76[or Deputy Commissioner], unless the 77[Joint] Commissioner is
satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the
issue of such notice] :
Provided that, after the expiry of four years from the end of the relevant assessment
year, no such notice shall be issued unless the Chief Commissioner or Commissioner
is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit
case for the issue of such notice.
(2) In a case other than a case falling under sub-section (1), no notice shall be issued
under section 148 by an Assessing Officer, who is below the rank of 77[Joint]
Commissioner, after the expiry of four years from the end of the relevant assessment
year, unless the 77[Joint] Commissioner is satisfied, on the reasons recorded by such
Assessing Officer, that it is a fit case for the issue of such notice.]
Other provisions.
152. (1) In an assessment, reassessment or recomputation made under section 147, the
tax shall be chargeable at the rate or rates at which it would have been charged had the
income not escaped assessment.
(2) Where an assessment is reopened 78-79[under section 147], the assessee may, if he
has not impugned any part of the original assessment order for that year either under
sections 246 to 248 or under section 264, claim that the proceedings under section 147
shall be dropped on his showing that he had been assessed on an amount or to a sum
not lower than what he would be rightly liable for even if the income alleged to have
escaped assessment had been taken into account, or the assessment or computation
had been properly made :

Provided that in so doing he shall not be entitled to reopen matters concluded by an

order under section 154, 155, 260, 262, or 263.
Time limit for completion of assessments and reassessments.
153. 80[(1) No order of assessment81 shall be made under section 143 or section 144 at
any time after the expiry of
(a) two years from the end of the assessment year in which the income was first
assessable ; or
(b) one year from the end of the financial year in which a return or a revised
return relating to the assessment year commencing on the 1st day of April,
1988, or any earlier assessment year, is filed under sub-section (4) or subsection (5) of section 139,
whichever is later.]
82
[(2) No order of assessment, reassessment or recomputation shall be made under
section 147 after the expiry of 83[one year] from the end of the financial year in which
the notice under section 148 was served :
84
[Provided that where the notice under section 148 was served on or after the 1st day
of April, 1999 but before the 1st day of April, 2000, such assessment, reassessment or
recomputation may be made at any time up to the 31st day of March, 2002.]
85
[(2A) Notwithstanding anything contained in sub-sections (1) and (2), in relation to
the assessment year commencing on the 1st day of April, 1971, and any subsequent
assessment year, an order of fresh assessment in pursuance of an order under section
250 or section 254 or section 263 or section 264, setting aside or cancelling an
assessment, may be made at any time before the expiry of one year from the end of
the financial year in which the order under section 250 or section 254 is received by
the Chief Commissioner or Commissioner or, as the case may be, the order under
section 263 or section 264 is passed by the Chief Commissioner or Commissioner:
Provided that where the order under section 250 or section 254 is received by the
Chief Commissioner or Commissioner or, as the case may be, the order under section
263 or section 264 is passed by the Chief Commissioner or Commissioner, on or after
the 1st day of April, 1999 but before the 1st day of April, 2000, such an order of fresh
assessment may be made at any time up to the 31st day of March, 2002.]
(3) The provisions of sub-sections (1) and (2) shall not apply to the following classes
of assessments, reassessments and recomputations which may, 86[subject to the
provisions of sub-section (2A),] be completed at any time
(i) 87[***]
(ii) where the assessment, reassessment or recomputation is made on the
assessee or any person88 in consequence of or to give effect to 88 any finding
or direction89 contained in an order under section 250, 254, 260, 262, 263, or
264 90[or in an order of any court in a proceeding otherwise than by way of
appeal or reference under this Act] ;
(iii) where, in the case of a firm, an assessment is made on a partner of the firm
in consequence of an assessment made on the firm under section 147.
91
[Explanation 1.In computing the period of limitation for the purposes of this
section

(i) the time taken in reopening the whole or any part of the proceeding or in
giving an opportunity to the assessee to be re-heard under the proviso to
section 129, or
(ii) the period during which the assessment proceeding92 is stayed by an order or
injunction of any court, or
93
[(iia) the period commencing from the date on which the Assessing Officer
intimates the Central Government or the prescribed authority, the
contravention of the provisions of clause (21) or clause (22B) or clause
(23A) or clause (23B) or sub-clause (iv) or sub-clause (v) or sub-clause (vi)
or sub-clause (via) of clause (23C) of section 10, under clause (i) of the
proviso to sub-section (3) of section 143 and ending with the date on which
the copy of the order withdrawing the approval or rescinding the
notification, as the case may be, under those clauses is received by the
Assessing Officer;]
(iii) the period commencing from the date on which the 94[Assessing] Officer
directs the assessee to get his accounts audited under sub-section (2A) of
section 142 and ending with 95[the last date on which the assessee is
required to furnish] a report of such audit under that sub-section, or
(iv) 96[* * *]
97
[(iva) the period (not exceeding sixty days) commencing from the date on which
the 98[Assessing] Officer received the declaration under sub-section (1) of
section 158A and ending with the date on which the order under sub-section
(3) of that section is made by him, or]
(v) in a case where an application made before the Income-tax Settlement
Commission under section 245C is rejected by it or is not allowed to be
proceeded with by it, the period commencing from the date on which such
application is made and ending with the date on which the order under subsection (1) of section 245D is received by the Commissioner under subsection (2) of that section, 98a[or]
98a
[(vi) the period commencing from the date on which an application is made
before the Authority for Advance Rulings under sub-section (1) of section
245Q and ending with the date on which the order rejecting the application
is received by the Commissioner under sub-section (3) of section 245R, or
(vii) the period commencing from the date on which an application is made
before the Authority for Advance Rulings under sub-section (1) of section
245Q and ending with the date on which the advance ruling pronounced by
it is received by the Commissioner under sub-section (7) of section 245R,]
shall be excluded :
99
[Provided that where immediately after the exclusion of the aforesaid time or
period, the period of limitation referred to in sub-sections (1), (2) and (2A) available
to the Assessing Officer for making an order of assessment, reassessment or
recomputation, as the case may be, is less than sixty days, such remaining period shall
be extended to sixty days and the aforesaid period of limitation shall be deemed to be
extended accordingly.]
Explanation 2.Where, by an order 1[referred to in clause (ii) of sub-section (3)], any
income is excluded from the total income of the assessee for an assessment year, then,
an assessment of such income for another assessment year shall, for the purposes of

section 150 and this section, be deemed to be one made in consequence of or to give
effect to any finding or direction contained in the said order.
Explanation 3.Where, by an order 1[referred to in clause (ii) of sub-section (3)], any
income is excluded from the total income of one person and held to be the income of
another person2, then, an assessment of such income on such other person shall, for
the purposes of section 150 and this section, be deemed to be one made in
consequence of or to give effect to any finding or direction contained in the said order,
provided such other person was given an opportunity of being heard before the said
order was passed.
3

[Assessment in case of search or requisition.

153A.Notwithstanding anything contained in section 139, section 147, section 148,
section 149, section 151 and section 153, in the case of a person where a search is
initiated under section 132 or books of account, other documents or any assets are
requisitioned under section 132A after the 31st day of May, 2003, the Assessing
Officer shall
(a) issue notice to such person requiring him to furnish within such period, as
may be specified in the notice, the return of income in respect of each
assessment year falling within six assessment years referred to in clause (b),
in the prescribed form and verified in the prescribed manner and setting
forth such other particulars as may be prescribed and the provisions of this
Act shall, so far as may be, apply accordingly as if such return were a return
required to be furnished under section 139;
(b) assess or reassess the total income of six assessment years immediately
preceding the assessment year relevant to the previous year in which such
search is conducted or requisition is made :
Provided that the Assessing Officer shall assess or reassess the total income in respect
of each assessment year falling within such six assessment years:
Provided further that assessment or reassessment, if any, relating to any assessment
year falling within the period of six assessment years referred to in this section
pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.
Explanation.For the removal of doubts, it is hereby declared that,
(i) save as otherwise provided in this section, section 153B and section 153C,
all other provisions of this Act shall apply to the assessment made under this
section;
(ii) in an assessment or reassessment made in respect of an assessment year
under this section, the tax shall be chargeable at the rate or rates as
applicable to such assessment year.
Time-limit for completion of assessment under section 153A.
153B.(1) Notwithstanding anything contained in section 153, the Assessing Officer
shall make an order of assessment or reassessment,
(a) in respect of each assessment year falling within six assessment years
referred to in clause (b) of section 153A, within a period of two years from
the end of the financial year in which the last of the authorisations for
search under section 132 or for requisition under section 132A was
executed;

(b) in respect of the assessment year relevant to the previous year in which
search is conducted under section 132 or requisition is made under section
132A, within a period of two years from the end of the financial year in
which the last of the authorisations for search under section 132 or for
requisition under section 132A was executed.
Explanation.In computing the period of limitation for the purposes of this section,

(i) the period during which the assessment proceeding is stayed by an order or
injunction of any court; or
(ii) the period commencing from the day on which the Assessing Officer directs
the assessee to get his accounts audited under sub-section (2A) of section
142 and ending on the day on which the assessee is required to furnish a
report of such audit under that sub-section; or
(iii) the time taken in reopening the whole or any part of the proceeding or in
giving an opportunity to the assessee of being re-heard under the proviso to
section 129; or
(iv) in a case where an application made before the Settlement Commission
under section 245C is rejected by it or is not allowed to be proceeded with
by it, the period commencing from the date on which such application is
made and ending with the date on which the order under sub-section (1) of
section 245D is received by the Commissioner under sub-section (2) of that
section, 3a[or]
3a
[(v) the period commencing from the date on which an application is made
before the Authority for Advance Rulings under sub-section (1) of section
245Q and ending with the date on which the order rejecting the application
is received by the Commissioner under sub-section (3) of section 245R, or
(vi) the period commencing from the date on which an application is made
before the Authority for Advance Rulings under sub-section (1) of section
245Q and ending with the date on which the advance ruling pronounced by
it is received by the Commissioner under sub-section (7) of section 245R,]
shall be excluded :
Provided that where immediately after the exclusion of the aforesaid period, the
period of limitation referred to in clause (a) or clause (b) of this section available to
the Assessing Officer for making an order of assessment or reassessment, as the case
may be, is less than sixty days, such remaining period shall be extended to sixty days
and the aforesaid period of limitation shall be deemed to be extended accordingly.
(2) The authorisation referred to in clause (a) and clause (b) of sub-section (1) shall be
deemed to have been executed,
(a) in the case of search, on the conclusion of search as recorded in the last
panchnama drawn in relation to any person in whose case the warrant of
authorisation has been issued;
(b) in the case of requisition under section 132A, on the actual receipt of the
books of account or other documents or assets by the Authorised Officer.
Assessment of income of any other person.
153C.Notwithstanding anything contained in section 139, section 147, section 148,
section 149, section 151 and section 153, where the Assessing Officer is satisfied that
any money, bullion, jewellery or other valuable article or thing or books of account or

documents seized or requisitioned belongs or belong to a person other than the person
referred to in section 153A, then the books of account or documents or assets seized
or requisitioned shall be handed over to the Assessing Officer having jurisdiction over
such other person and that Assessing Officer shall proceed against each such other
person and issue such other person notice and assess or reassess income of such other
person in accordance with the provisions of section 153A.]
Rectification of mistake.
4
154. 5[(1) With a view to rectifying any mistake apparent from the record 6 an
income-tax authority referred to in section 116 may,
(a) amend any order passed by it under the provisions of this Act ;
7
[(b) amend any intimation or deemed intimation under sub-section (1) of section
143.]]
8
[(1A) Where any matter has been considered and decided in any proceeding by way
of appeal or revision relating to an order referred to in sub-section (1), the authority
passing such order may, notwithstanding anything contained in any law for the time
being in force, amend the order under that sub-section in relation to any matter other
than the matter which has been so considered and decided.]
(2) Subject to the other provisions of this section, the authority concerned
(a) may make an amendment under sub-section (1) of its own motion, and
(b) shall make such amendment for rectifying any such mistake which has been
brought to its notice by the assessee, and where the authority concerned is
the 9[***] 10[Commissioner (Appeals)], by the 11[Assessing] Officer also.
12
[* * *]
(3) An amendment, which has the effect of enhancing an assessment or reducing a
refund or otherwise increasing the liability of the assessee, shall not be made under
this section unless the authority concerned has given notice to the assessee of its
intention so to do and has allowed the assessee a reasonable opportunity of being
heard.
(4) Where an amendment is made under this section, an order shall be passed in
writing by the income-tax authority concerned.
(5) Subject to the provisions of section 241, where any such amendment has the effect
of reducing the assessment, the 13[Assessing] Officer shall make any refund which
may be due to such assessee.
(6) Where any such amendment has the effect of enhancing the assessment or
reducing a refund already made, the 13[Assessing] Officer shall serve on the assessee a
notice of demand in the prescribed form specifying the sum payable 14, and such notice
of demand shall be deemed to be issued under section 156 and the provisions of this
Act shall apply accordingly.
(7) Save as otherwise provided in section 155 or sub-section (4) of section 186 no
amendment under this section shall be made after the expiry of four years 15[from the
end of the financial year in which the order16 sought to be amended was passed.]
17
[(8) Without prejudice to the provisions of sub-section (7), where an application for
amendment under this section is made by the assessee on or after the 1st day of June,
2001 to an income-tax authority referred to in sub-section (1), the authority shall pass

an order, within a period of six months from the end of the month in which the
application is received by it,
(a) making the amendment; or
(b) refusing to allow the claim.]
Other amendments.
155. (1) 18[Where, in respect of any completed assessment 19 of a partner in a firm for
the assessment year commencing on the 1st day of April, 1992, or any earlier
assessment year,] it is found
(a) on the assessment or reassessment of the firm, or
(b) on any reduction or enhancement made in the income of the firm under this
section, section 154, section 250, section 254, section 260, section 262,
section 263 or section 264, 20[or]
21
[(c) on any order passed under sub-section (4) of section 245D on the
application made by the firm,]
that the share of the partner in the income of the firm has not been included in the
assessment of the partner or, if included, is not correct, the 22[Assessing] Officer may
amend the order of assessment of the partner with a view to the inclusion of the share
in the assessment or the correction thereof, as the case may be; and the provisions of
section 154 shall, so far as may be, apply thereto, the period of four years specified in
sub-section (7) of that section being reckoned 23[from the end of the financial year in
which the final order was passed] in the case of the firm.
24
[(1A) Where in respect of any completed assessment of a firm it is found
(a) on the assessment or reassessment of the firm, or
(b) on any reduction or enhancement made in the income of the firm under this
section, section 154, section 250, section 254, section 260, section 262,
section 263 or section 264, or
(c) on any order passed under sub-section (4) of section 245D on the
application made by the firm,
that any remuneration to any partner is not deductible under clause (b) of section 40,
the Assessing Officer may amend the order of assessment of the partner with a view to
adjusting the income of the partner to the extent of the amount not so deductible ; and
the provisions of section 154 shall, so far as may be, apply thereto, the period of four
years specified in sub-section (7) of that section being reckoned from the end of the
financial year in which the final order was passed in the case of the firm.]
(2) Where in respect of any completed assessment of a member of an association of
persons or of a body of individuals it is found
(a) on the assessment or reassessment of the association or body, or
(b) on any reduction or enhancement made in the income of the association or
body under this section, section 154, section 250, section 254, section 260,
section 262, section 263 or section 264, 25[or]
25
[(c) on any order passed under sub-section (4) of section 245D on the
application made by the association or body,]
that the share of the member in the income of the association or body, as the case may
be, has not been included in the assessment of the member or, if included, is not
correct, the 26[Assessing] Officer may amend the order of assessment of the member

with a view to the inclusion of the share in the assessment or the correction thereof, as
the case may be ; and the provisions of section 154 shall, so far as may be, apply
thereto, the period of four years specified in sub-section (7) of that section being
reckoned 27[from the end of the financial year in which the final order was passed] in
the case of the association or body, as the case may be.
(3) 28[* * *]
(4) Where as a result of proceedings initiated under section 147, a loss or depreciation
has been recomputed and in consequence thereof it is necessary to recompute the total
income of the assessee for the succeeding year or years to which the loss or
depreciation allowance has been carried forward and set off under the provisions of
sub-section (1) of section 72, or sub-section (2) of section 73, or sub-section (1) 29[or
sub-section (3)] of section 74, 30[or sub-section (3) of section 74A,] the 31[Assessing]
Officer may proceed to recompute the total income in respect of such year or years
and make the necessary amendment ; and the provisions of section 154 shall, so far as
may be, apply thereto, the period of four years specified in sub-section (7) of that
section being reckoned 32[from the end of the financial year in which the order was
passed] under section 147.
33
[(4A) Where an allowance by way of investment allowance has been made wholly or
partly to an assessee33a in respect of a ship or an aircraft or any machinery or plant in
any assessment year under section 32A and subsequently
(a) at any time before the expiry of eight years from the end of the previous
year in which the ship or aircraft was acquired or the machinery or plant
was installed, the ship, aircraft, machinery or plant is sold or otherwise
transferred by the assessee to any person other than the Government, a local
authority, a corporation established by a Central, State or Provincial Act or a
34
Government company as defined in section 617 of the Companies Act,
1956 (1 of 1956), or in connection with any amalgamation or succession
referred to in sub-section (6) or sub-section (7) of section 32A ; or
(b) at any time before the expiry of ten years from the end of the previous year
in which the ship or aircraft was acquired or the machinery or plant was
installed, the assessee does not utilise the amount credited to the reserve
account under sub-section (4) of section 32A for the purposes of acquiring a
new ship or a new aircraft or new machinery or plant (other than machinery
or plant of the nature referred to in clauses (a), (b) and (d) of the 35[second]
proviso to sub-section (1) of section 32A) for the purposes of the business
of the undertaking ; or
(c) at any time before the expiry of ten years referred to in clause (b) the
assessee utilises the amount credited to the reserve account under subsection (4) of section 32A
(i) for distribution by way of dividends or profits ; or
(ii) for remittance outside India as profits or for the creation of any asset
outside India ; or
(iii) for any other purpose which is not a purpose of the business of the
undertaking,
the investment allowance originally allowed shall be deemed to have been wrongly
allowed, and the 36[Assessing] Officer may, notwithstanding anything contained in
this Act, recompute the total income of the assessee for the relevant previous year and
make the necessary amendment; and the provisions of section 154 shall, so far as may

be, apply thereto, the period of four years specified in sub-section (7) of that section
being reckoned,
(i) in a case referred to in clause (a), from the end of the previous year in which
the sale or other transfer took place ;
(ii) in a case referred to in clause (b), from the end of the ten years referred to in
that clause ;
(iii) in a case referred to in clause (c), from the end of the previous year in which
the amount was utilised.
Explanation.For the purposes of clause (b), new ship or new aircraft or new
machinery or plant shall have the same meanings as in the 37[Explanation below subsection (2) of section 32A].]
(5) Where an allowance by way of development rebate has been made wholly or
partly to an assessee in respect of a ship, machinery or plant installed after the 31st
day of December, 1957, in any assessment year under section 33 or under the
corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), and
subsequently
(i) at any time before the expiry of eight years from the end of the previous
year in which the ship was acquired or the machinery or plant was installed,
the ship, machinery or plant is sold or otherwise transferred 38 by the
assessee to any person other than the Government, a local authority, a
corporation established by a Central, State or Provincial Act or a
39
Government company as defined in section 617 of the Companies Act,
1956 (1 of 1956), or in connection with any amalgamation or succession
referred to in sub-section (3) or sub-section (4) of section 33 ; or
(ii) at any time before the expiry of the eight years referred to in sub-section (3)
of section 34, the assessee utilises the amount credited to the reserve
account under clause (a) of that sub-section
(a) for distribution by way of dividends or profits ; or
(b) for remittance outside India as profits or for the creation of any asset
outside India ; or
(c) for any other purpose which is not a purpose of the business of the
undertaking,
the development rebate originally allowed shall be deemed to have been wrongly
allowed, and the 40[Assessing] Officer may, notwithstanding anything contained in
this Act, recompute the total income of the assessee for the relevant previous year and
make the necessary amendment; and the provisions of section 154 shall, so far as may
be, apply thereto, the period of four years specified in sub-section (7) of that section
being reckoned from the end of the previous year in which the sale or transfer took
place or the money was so utilised.
41
[(5A) Where an allowance by way of development allowance has been made wholly
or partly to an assessee in respect of the cost of planting in any area in any assessment
year under section 33A and subsequently
(i) at any time before the expiry of eight years from the end of the previous
year in which such allowance was made, the land is sold or otherwise
transferred by the assessee to any person other than the Government, a local
authority, a corporation established by a Central, State or provincial Act or a
Government company42 as defined in section 617 of the Companies Act,

1956 (1 of 1956), or in connection with any amalgamation or succession

referred to in sub-section (5) or sub-section (6) of section 33A ; or
(ii) at any time before the expiry of the eight years referred to in sub-section (3)
of section 33A, the assessee utilises the amount credited to the reserve
account under clause (ii) of that sub-section
(a) for distribution by way of dividends or profits ; or
(b) for remittance outside India as profits or for the creation of any asset
outside India ; or
(c) for any other purpose which is not a purpose of the business of the
undertaking ;
the development allowance originally allowed shall be deemed to have been wrongly
allowed, and the 43[Assessing] Officer may, notwithstanding anything contained in
this Act, recompute the total income of the assessee for the relevant previous year and
make the necessary amendment ; and the provisions of section 154 shall, so far as
may be, apply thereto, the period of four years specified in sub-section (7) of that
section being reckoned from the end of the previous year in which the sale or transfer
took place or the money was so utilised.]
44
[Explanation.For the purposes of this sub-section, where an assessee having any
leasehold or other right of occupancy in any land transfers such right, he shall be
deemed to have sold or otherwise transferred such land.]
45
[(5B) Where any deduction in respect of any expenditure on scientific research has
been made in any assessment year under sub-section (2B) of section 35 and the
assessee fails to furnish a certificate of completion of the programme obtained from
the prescribed authority within one year of the period allowed for its completion by
such authority, the deduction originally made in excess of the expenditure actually
incurred shall be deemed to have been wrongly made, and the 46[Assessing] Officer
may, notwithstanding anything contained in this Act, recompute the total income of
the assessee for the relevant previous year and make the necessary amendment; and
the provisions of section 154 shall, so far as may be, apply thereto, the period of four
years specified in sub-section (7) of that section being reckoned from the end of the
previous year in which the period allowed for the completion of the programme by the
prescribed authority expired.]
(6) 47[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]
(7) Where as a result of any proceeding under this Act, in the assessment for any year
of a company in whose case an order under section 104 has been made for that year, it
is necessary to recompute the distributable income of that company, the 48[Assessing]
Officer may proceed to recompute the distributable income and determine the 49[tax]
payable on the basis of such recomputation and make the necessary amendment ; and
the provisions of section 154 shall, so far as may be, apply thereto, the period of four
years specified in sub-section (7) of that section being reckoned 50[from the end of the
financial year in which the final order was passed] in the case of the company in
respect of that proceeding.
(7A) 51[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]
52
[(7B) Where in the assessment for any year, the capital gain arising from the transfer
of a capital asset is not charged under section 45 by virtue of the provisions of clause
(iv) or, as the case may be, clause (v) of section 47, but is deemed under section 47A
to be income chargeable under the head Capital gains of the previous year in which
the transfer took place by reason of

(i) such capital asset being converted by the transferee company into, or being
treated by it, as stock-in-trade of its business ; or
(ii) the parent company or its nominees or, as the case may be, the holding
company ceasing to hold the whole of the share capital of the subsidiary
company,
at any time before the expiry of the period of eight years from the date of such
transfer, the 53[Assessing] Officer may, notwithstanding anything contained in this
Act, recompute the total income of the transferor company for the relevant previous
year and make the necessary amendment ; and the provisions of section 154 shall, so
far as may be, apply thereto, the period of four years specified in sub-section (7) of
that section being reckoned from the end of the previous year in which the capital
asset was so converted or treated or in which the parent company or its nominees or,
as the case may be, the holding company ceased to hold the whole of the share capital
of the subsidiary company.]
(8) 54[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]
(8A) 55[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]
(9) 56[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]
(9A) 57[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]
(10) 58[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]
59
[(10A) Where in the assessment for any year, a capital gain arising from the transfer
of a 60[long-term capital asset], is charged to tax and within a period of six months
after the date of such transfer, the assessee has made any investment or deposit in any
specified asset within the meaning of Explanation 1 to sub-section (1) of section 54E,
the 61[Assessing] Officer shall amend the order of assessment so as to exclude the
amount of the capital gain not chargeable to tax under the provisions of 62[sub-section
(1) of] section 54E ; and the provisions of section 154 shall, so far as may be, apply
thereto, the period of four years specified in sub-section (7) of that section being
63
[reckoned from the end of the financial year in which the assessment was made.]
(10B) 64[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]
(10C) 65[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]
66
[(11) Where in the assessment for any year, a capital gain arising from the transfer of
any original asset as is referred to in section 54H is charged to tax and within the
period extended under that section the assessee acquires the new asset referred to in
that section or, as the case may be, deposits or invests the amount of such capital gain
within the period so extended, the Assessing Officer shall amend the order of
assessment so as to exclude the amount of the capital gain not chargeable to tax under
any of the sections referred to in section 54H; and the provisions of section 154 shall,
so far as may be, apply thereto, the period of four years specified in sub-section (7) of
section 154 being reckoned from the end of the previous year in which the
compensation was received by the assessee.]
67
[(12) Where in the assessment for any year commencing before the 1st day of April,
1988, the deduction under section 80-O in respect of any income, being the whole or
any part of income by way of royalty, commission, fees or any similar payment as is
referred to in that section, has not been allowed on the ground that such income has
not been received in convertible foreign exchange in India, or having been received in
convertible foreign exchange outside India, or having been converted into convertible
foreign exchange outside India, has not been brought into India, by or on behalf of the

assessee in accordance with any law for the time being in force for regulating
payments and dealings in foreign exchange and subsequently such income or part
thereof has been or is received in, or brought into, India in the manner aforesaid, the
Assessing Officer shall amend the order of assessment so as to allow deduction under
section 80-O in respect of such income or part thereof as is so received in, or brought
into, India; and the provisions of section 154 shall, so far as may be, apply thereto, the
period of four years specified in sub-section (7) of that section being reckoned from
the end of the previous year in which such income is so received in, or brought into,
India; so, however, that the period from the 1st day of April, 1988 to the 30th day of
September, 1991 shall be excluded in computing the period of four years.]
68
[(13) Where in the assessment for any year, the deduction under section 80HHB or
section 80HHC or section 80HHD or section 80HHE or section 80-O or section 80R
or section 80RR or section 80RRA has not been allowed on the ground that such
income has not been received in convertible foreign exchange in India, or having been
received in convertible foreign exchange outside India, or having been converted into
convertible foreign exchange outside India, has not been brought into India, by or on
behalf of the assessee with the approval of the Reserve Bank of India or such other
authority as is authorised under any law for the time being in force for regulating
payments and dealings in foreign exchange and subsequently such income or part
thereof has been or is received in, or brought into, India in the manner aforesaid, the
Assessing Officer shall amend the order of assessment so as to allow deduction under
section 80HHB or section 80HHC or section 80HHD or section 80HHE or section 80O or section 80R or section 80RR or section 80RRA, as the case may be, in respect of
such income or part thereof as is so received in, or brought into, India; and the
provisions of section 154 shall, so far as may be, apply thereto, and the period of four
years shall be reckoned from the end of the previous year in which such income is so
received in, or brought into, India.]
69
[(14) Where in the assessment for any previous year or in any intimation or deemed
intimation under sub-section (1) of section 143 for any previous year, credit for tax
deducted in accordance with the provisions of section 199 has not been given on the
ground that the certificate furnished under section 203 was not filed with the return
and subsequently such certificate is produced before the Assessing Officer within two
years from the end of the assessment year in which such income is assessable, the
Assessing Officer shall amend the order of assessment or any intimation or deemed
intimation under sub-section (1) of section 143, as the case may be, and the provisions
of section 154 shall, so far as may be, apply thereto :
Provided that nothing contained in this sub-section shall apply unless the income
from which the tax has been deducted has been disclosed in the return of income filed
by the assessee for the relevant assessment year.
(15) Where in the assessment for any year, a capital gain arising from the transfer of a
capital asset, being land or building or both, is computed by taking the full value of
the consideration received or accruing as a result of the transfer to be the value
adopted or assessed by any authority of a State Government for the purpose of
payment of stamp duty in accordance with sub-section (1) of section 50C, and
subsequently such value is revised in any appeal or revision or reference referred to in
clause (b) of sub-section (2) of that section, the Assessing Officer shall amend the
order of assessment so as to compute the capital gain by taking the full value of the
consideration to be the value as so revised in such appeal or revision or reference; and
the provisions of section 154 shall, so far as may be, apply thereto, and the period of

four years shall be reckoned from the end of the previous year in which the order
revising the value was passed in that appeal or revision or reference.]
70
[(16) Where in the assessment for any year, a capital gain arising from the transfer
of a capital asset, being a transfer by way of compulsory acquisition under any law,
or a transfer, the consideration for which was determined or approved by the Central
Government or the Reserve Bank of India, is computed by taking the compensation or
consideration as referred to in clause (a) or, as the case may be, the compensation or
consideration enhanced or further enhanced as referred to in clause (b) of sub-section
(5) of section 45, to be the full value of consideration deemed to be received or
accruing as a result of the transfer of the asset and subsequently such compensation
or consideration is reduced by any court, Tribunal or other authority, the Assessing
Officer shall amend the order of assessment so as to compute the capital gain by
taking the compensation or consideration as so reduced by the court, Tribunal or any
other authority to be the full value of consideration; and the provisions of section 154
shall, so far as may be, apply thereto, and the period of four years shall be reckoned
from the end of the previous year in which the order reducing the compensation was
passed by the court, Tribunal or other authority.
(17) Where a deduction has been allowed to an assessee in any assessment year
under section 80RRB in respect of any patent, and subsequently by an order of the
Controller or the High Court under the Patents Act, 1970 (39 of 1970),
(i) the patent was revoked, or
(ii) the name of the assessee was excluded from the patents register as patentee
in respect of that patent,
the deduction from the income by way of royalty attributable to the period during
which the patent had been revoked or the period for which the assessees name was
excluded as patentee in respect of that patent, shall be deemed to have been wrongly
allowed and the Assessing Officer may, notwithstanding anything contained in this
Act, recompute the total income of the assessee for the relevant previous year and
make necessary amendment; and the provisions of section 154 shall, so far as may be,
apply thereto, the period of four years specified in sub-section (7) of that section
being reckoned from the end of the previous year in which such order of the
Controller referred to in clause (b) of sub-section (1), or the High Court referred to in
clause (i) of sub-section (1) of section 2, of the Patents Act, 1970 (39 of 1970), as the
case may be, was passed.]
71
[Explanation.For the purposes of this section,
(a) additional compensation shall have the meaning assigned to it in clause
(1) of the Explanation to sub-section (2) of section 54;
(b) additional consideration, in relation to the transfer of any capital asset the
consideration for which was determined or approved by the Central
Government or the Reserve Bank of India, means the difference between
the amount of consideration for such transfer as enhanced by any court,
tribunal or other authority and the amount of consideration which would
have been payable if such enhancement had not been made.]
Notice of demand71a.
156. When any tax, interest, penalty, fine or any other sum 72[***] is payable in
consequence of any order passed under this Act, the 73[Assessing] Officer shall74 serve

upon the assessee a notice of demand in the prescribed form75 specifying the sum so
payable.
Intimation of loss.
157. When, in the course of the assessment of the total income of any assessee, it is
established that a loss has taken place which the assessee is entitled to have carried
forward and set off under the provisions of sub-section (1) of section 72, sub-section
(2) of section 73, 76[sub-section (1) 77[or sub-section (3)] of section 74 or sub-section
(3) of section 74A], the 78[Assessing] Officer shall notify to the assessee by an order
in writing the amount of the loss as computed by him for the purposes of sub-section
(1) of section 72, sub-section (2) of section 73, 79[sub-section (1) 80[or sub-section (3)]
of section 74 or sub-section (3) of section 74A].
Intimation of assessment of firm.
158. 81[Whenever, in respect of the assessment year commencing on the 1st day of
April, 1992, or any earlier assessment year, a registered firm is assessed], or an
unregistered firm is assessed under the provisions of clause (b) of section 183, the
82
[Assessing] Officer shall notify to the firm by an order in writing the amount of its
total income assessed and the apportionment thereof between the several partners.
[CHAPTERXIVA

83

SPECIALPROVISIONFORAVOIDINGREPETITIVEAPPEALS
Procedure when assessee claims identical question of law is pending before High
Court or Supreme Court.
158A. 84(1) Notwithstanding anything contained in this Act, where an assessee claims
that any question of law arising in his case for an assessment year which is pending
before the 85[Assessing] Officer or any appellate authority (such case being hereafter
in this section referred to as the relevant case) is identical with a question of law
arising in his case for another assessment year which is pending before the High Court
on a reference under section 256 or 86[before the Supreme Court on a reference under
section 257 or in appeal under section 260A before the High Court or in appeal under
section 261 before the Supreme Court] (such case being hereafter in this section
referred to as the other case), he may furnish to the 87[Assessing] Officer or the
appellate authority, as the case may be, a declaration in the prescribed form and
verified84 in the prescribed manner, that if the 87[Assessing] Officer or the appellate
authority, as the case may be, agrees to apply in the relevant case the final decision on
the question of law in the other case, he shall not raise such question of law in the
relevant case in appeal before any appellate authority or 88[in appeal before the High
Court under section 260A or in appeal before the Supreme Court under section 261].
(2) Where a declaration under sub-section (1) is furnished to any appellate authority,
the appellate authority shall call for a report from the 89[Assessing] Officer on the
correctness of the claim made by the assessee and, where the 89[Assessing] Officer
makes a request to the appellate authority to give him an opportunity of being heard in
the matter, the appellate authority shall allow him such opportunity.
(3) The 89[Assessing] Officer or the appellate authority, as the case may be, may, by
order in writing,

(i) admit the claim of the assessee if he or it is satisfied that the question of law
arising in the relevant case is identical with the question of law in the other
case; or
(ii) reject the claim if he or it is not so satisfied.
(4) Where a claim is admitted under sub-section (3),
(a) the 89[Assessing] Officer or, as the case may be, the appellate authority may
make an order disposing of the relevant case without awaiting the final
decision on the question of law in the other case; and
(b) the assessee shall not be entitled to raise, in relation to the relevant case,
such question of law in appeal before any appellate authority or 88[ in appeal
before the High Court under section 260A or the Supreme Court under
section 261]].
(5) When the decision on the question of law in the other case becomes final, it shall
be applied to the relevant case and the 89[Assessing] Officer or the appellate authority,
as the case may be, shall, if necessary, amend the order referred to in clause (a) of
sub-section (4) conformably to such decision.
(6) An order under sub-section (3) shall be final and shall not be called in question in
any proceeding by way of appeal, reference or revision under this Act.
Explanation. In this section,
(a) appellate authority means the 90[Deputy Commissioner (Appeals)], the
Commissioner (Appeals) or the Appellate Tribunal;
(b) case, in relation to an assessee, means any proceeding under this Act for
the assessment of the total income of the assessee or for the imposition of
any penalty or fine on him.]
[CHAPTERXIVB*

91

SPECIALPROCEDUREFORASSESSMENTOFSEARCHCASES
Definitions.
158B. In this Chapter, unless the context otherwise requires,
92
[(a) block period means the period comprising previous years relevant to six
assessment years preceding the previous year in which the search was
conducted under section 132 or any requisition was made under section
132A and also includes the period up to the date of the commencement of
such search or date of such requisition in the previous year in which the said
search was conducted or requisition was made :
Provided that where the search is initiated or the requisition is made before
the 1st day of June, 2001, the provisions of this clause shall have effect as if
for the words six assessment years, the words ten assessment years had
been substituted;]
(b) undisclosed income includes any money, bullion, jewellery or other
valuable article or thing or any income based on any entry in the books of
account or other documents or transactions, where such money, bullion,
jewellery, valuable article, thing, entry in the books of account or other
document or transaction represents wholly or partly income or property
which has not been or would not have been disclosed for the purposes of

this Act 93[, or any expense, deduction or allowance claimed under this Act
which is found to be false].
Assessment of undisclosed income as a result of search.
158BA. (1) Notwithstanding anything contained in any other provisions of this Act,
where after the 30th day of June, 1995 a search is initiated under section 132 or books
of account, other documents or any assets are requisitioned under section 132A in the
case of any person, then, the Assessing Officer shall proceed to assess the undisclosed
income in accordance with the provisions of this Chapter.
(2) The total undisclosed income relating to the block period shall be charged to tax,
at the rate specified in section 113, as income of the block period irrespective of the
previous year or years to which such income relates and irrespective of the fact
whether regular assessment for any one or more of the relevant assessment years is
pending or not.
94
[Explanation.For the removal of doubts, it is hereby declared that
(a) the assessment made under this Chapter shall be in addition to the regular
assessment in respect of each previous year included in the block period;
(b) the total undisclosed income relating to the block period shall not include
the income assessed in any regular assessment as income of such block
period;
(c) the income assessed in this Chapter shall not be included in the regular
assessment of any previous year included in the block period.]
(3) Where the assessee proves to the satisfaction of the Assessing Officer that any part
of income referred to in sub-section (1) relates to an assessment year for which the
previous year has not ended or the date of filing the return of income under subsection (1) of section 139 for any previous year has not expired, and such income or
the transactions relating to such income are recorded on or before the date of the
search or requisition in the books of account or other documents maintained in the
normal course relating to such previous years, the said income shall not be included in
the block period.
Computation of undisclosed income of the block period.
158BB. (1) The undisclosed income of the block period shall be the aggregate of the
total income of the previous years falling within the block period computed, 95[in
accordance with the provisions of this Act, on the basis of evidence found as a result
of search or requisition of books of account or other documents and such other
materials or information as are available with the Assessing Officer and relatable to
such evidence], as reduced by the aggregate of the total income, or as the case may be,
as increased by the aggregate of the losses of such previous years, determined,
(a) where assessments under section 143 or section 144 or section 147 have
been concluded 96[prior to the date of commencement of the search or the
date of requisition], on the basis of such assessments;
(b) where returns of income have been filed under section 139 97[or in response
to a notice issued under sub-section (1) of section 142 or section 148] but
assessments have not been made till the date of search or requisition, on the
basis of the income disclosed in such returns;

98

[(c) where the due date for filing a return of income has expired, but no return of
income has been filed,
(A) on the basis of entries as recorded in the books of account and other
documents maintained in the normal course on or before the date of the
search or requisition where such entries result in computation of loss for
any previous year falling in the block period; or
(B) on the basis of entries as recorded in the books of account and other
documents maintained in the normal course on or before the date of the
search or requisition where such income does not exceed the maximum
amount not chargeable to tax for any previous year falling in the block
period;
(ca) where the due date for filing a return of income has expired, but no return of
income has been filed, as nil, in cases not falling under clause (c);]
(d) where the previous year has not ended or the date of filing the return of
income under sub-section (1) of section 139 has not expired, on the basis of
entries relating to such income or transactions as recorded in the books of
account and other documents maintained in the normal course on or before
the date of the search or requisition relating to such previous years;
(e) where any order of settlement has been made under sub-section (4) of
section 245D, on the basis of such order;
(f) where an assessment of undisclosed income had been made earlier under
clause (c) of section 158BC, on the basis of such assessment.
Explanation.For the purposes of determination of undisclosed income,
(a) the total income or loss of each previous year shall, for the purpose of
aggregation, be taken as the total income or loss computed in accordance
with the provisions of 99[this Act] without giving effect to set off of brought
forward losses under Chapter VI or unabsorbed depreciation under subsection (2) of section 32:
1
[Provided that in computing deductions under Chapter VI-A for the
purposes of the said aggregation, effect shall be given to set off of brought
forward losses under Chapter VI or unabsorbed depreciation under subsection (2) of section 32;]
2
[(b) of a firm, returned income and total income assessed for each of the
previous years falling within the block period shall be the income
determined before allowing deduction of salary, interest, commission, bonus
or remuneration by whatever name called 3[to any partner not being a
working partner] :
Provided that undisclosed income of the firm so determined shall not be
chargeable to tax in the hands of the partners, whether on allocation or on
account of enhancement;]
(c) assessment under section 143 includes determination of income under subsection (1) or sub-section (1B) of section 143.
(2) In computing the undisclosed income of the block period, the provisions of
sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to
financial year in those sections shall be construed as references to the relevant
previous year falling in the block period including the previous year ending with the
date of search or of the requisition.

(3) The burden of proving to the satisfaction of the Assessing Officer that any
undisclosed income had already been disclosed in any return of income filed by the
assessee before the commencement of search or of the requisition, as the case may be,
shall be on the assessee.
(4) For the purpose of assessment under this Chapter, losses brought forward from the
previous year under Chapter VI or unabsorbed depreciation under sub-section (2) of
section 32 shall not be set off against the undisclosed income determined in the block
assessment under this Chapter, but may be carried forward for being set off in the
regular assessments.
Procedure for block assessment.
158BC. Where any search has been conducted under section 132 or books of account,
other documents or assets are requisitioned under section 132A, in the case of any
person, then,
4
[(a) the Assessing Officer shall
(i) in respect of search initiated or books of account or other documents or
any assets requisitioned after the 30th day of June, 1995, but before the
1st day of January, 1997, serve a notice to such person requiring him to
furnish within such time not being less than fifteen days;
(ii) in respect of search initiated or books of account or other documents or
any assets requisitioned on or after the 1st day of January, 1997, serve a
notice to such person requiring him to furnish within such time not
being less than fifteen days but not more than forty-five days,
as may be specified in the notice a return in the prescribed form 5 and
verified in the same manner as a return under clause (i) of sub-section (1) of
section 142, setting forth his total income including the undisclosed income
for the block period :
Provided that no notice under section 148 is required to be issued for the
purpose of proceeding under this Chapter :
Provided further that a person who has furnished a return under this clause
shall not be entitled to file a revised return;]
(b) the Assessing Officer shall proceed to determine the undisclosed income of
the block period in the manner laid down in section 158BB and the
provisions of section 142, sub-sections (2) and (3) of section 143 6[, section
144 and section 145] shall, so far as may be, apply;
(c) the Assessing Officer, on determination of the undisclosed income of the
block period in accordance with this Chapter, shall pass an order of
assessment and determine the tax payable by him on the basis of such
assessment;
7
[(d) the assets seized under section 132 or requisitioned under section 132A
shall be dealt with in accordance with the provisions of section 132B.]
Undisclosed income of any other person.
158BD. Where the Assessing Officer is satisfied that any undisclosed income
belongs to any person, other than the person with respect to whom search was made
under section 132 or whose books of account or other documents or any assets were
requisitioned under section 132A, then, the books of account, other documents or

assets seized or requisitioned shall be handed over to the Assessing Officer having
jurisdiction over such other person and that Assessing Officer shall proceed 8[under
section 158BC] against such other person and the provisions of this Chapter shall
apply accordingly.
Time limit for completion of block assessment.
158BE. 9[(1) The order under section 158BC shall be passed
(a) within one year from the end of the month in which the last of the
authorisations for search under section 132 or for requisition under section
132A, as the case may be, was executed in cases where a search is initiated
or books of account or other documents or any assets are requisitioned after
the 30th day of June, 1995, but before the 1st day of January, 1997;
(b) within two years from the end of the month in which the last of the
authorisations for search under section 132 or for requisition under section
132A, as the case may be, was executed in cases where a search is initiated
or books of account or other documents or any assets are requisitioned on or
after the 1st day of January, 1997.
(2) The period of limitation for completion of block assessment in the case of the
other person referred to in section 158BD shall be
(a) one year from the end of the month in which the notice under this Chapter
was served on such other person in respect of search initiated or books of
account or other documents or any assets requisitioned after the 30th day of
June, 1995, but before the 1st day of January, 1997; and
(b) two years from the end of the month in which the notice under this Chapter
was served on such other person in respect of search initiated or books of
account or other documents or any assets are requisitioned on or after the
1st day of January, 1997.]
10
[Explanation 1.In computing the period of limitation for the purposes of this
section,
(i) the period during which the assessment proceeding is stayed by an order or
injunction of any court; or
(ii) the period commencing from the day on which the Assessing Officer directs
the assessee to get his accounts audited under sub-section (2A) of section
142 and ending on the day on which the assessee is required to furnish a
report of such audit under that sub-section; or
(iii) the time taken in reopening the whole or any part of the proceeding or
giving an opportunity to the assessee to be re-heard under the proviso to
section 129; or
(iv) in a case where an application made before the Settlement Commission
under section 245C is rejected by it or is not allowed to be proceeded with
by it, the period commencing on the date on which such application is made
and ending with the date on which the order under sub-section (1) of section
245D is received by the Commissioner under sub-section (2) of that section,
shall be excluded:
Provided that where immediately after the exclusion of the aforesaid period, the
period of limitation referred to in sub-section (1) or sub-section (2) available to the
Assessing Officer for making an order under clause (c) of section 158BC is less than

sixty days, such remaining period shall be extended to sixty days and the aforesaid
period of limitation shall be deemed to be extended accordingly.]
11
[Explanation 2.For the removal of doubts, it is hereby declared that the
authorisation referred to in sub-section (1) shall be deemed to have been executed,
(a) in the case of search, on the conclusion of search as recorded in the last
panchnama drawn in relation to any person in whose case the warrant of
authorisation has been issued;
(b) in the case of requisition under section 132A, on the actual receipt of the
books of account or other documents or assets by the Authorised Officer.]
Certain interests and penalties not to be levied or imposed.
158BF. No interest under the provisions of section 234A, 234B or 234C or penalty
under the provisions of clause (c) of sub-section (1) of section 271 or section 271A or
section 271B shall be levied or imposed upon the assessee in respect of the
undisclosed income determined in the block assessment.
12

[Levy of interest and penalty in certain cases.

158BFA. (1) Where the return of total income including undisclosed income for the
block period, in respect of search initiated under section 132 or books of account,
other documents or any assets requisitioned under section 132A on or after the 1st day
of January, 1997, as required by a notice under clause (a) of section 158BC, is
furnished after the expiry of the period specified in such notice, or is not furnished,
the assessee shall be liable to pay simple interest at the rate of 13[one] per cent of the
tax on undisclosed income, determined under clause (c) of section 158BC, for every
month or part of a month comprised in the period commencing on the day
immediately following the expiry of the time specified in the notice, and
(a) where the return is furnished after the expiry of the time aforesaid, ending
on the date of furnishing the return; or
(b) where no return has been furnished, on the date of completion of assessment
under clause (c) of section 158BC.
(2) The Assessing Officer or the Commissioner (Appeals) in the course of any
proceedings under this Chapter, may direct that a person shall pay by way of penalty a
sum which shall not be less than the amount of tax leviable but which shall not exceed
three times the amount of tax so leviable in respect of the undisclosed income
determined by the Assessing Officer under clause (c) of section 158BC :
Provided that no order imposing penalty shall be made in respect of a person if
(i) such person has furnished a return under clause (a) of section 158BC;
(ii) the tax payable on the basis of such return has been paid or, if the assets
seized consist of money, the assessee offers the money so seized to be
adjusted against the tax payable;
(iii) evidence of tax paid is furnished along with the return; and
(iv) an appeal is not filed against the assessment of that part of income which is
shown in the return :
Provided further that the provisions of the preceding proviso shall not apply where
the undisclosed income determined by the Assessing Officer is in excess of the
income shown in the return and in such cases the penalty shall be imposed on that

portion of undisclosed income determined which is in excess of the amount of

undisclosed income shown in the return.
(3) No order imposing a penalty under sub-section (2) shall be made,
(a) unless an assessee has been given a reasonable opportunity of being heard;
(b) by the Assistant Commissioner 14[or Deputy Commissioner] or the Assistant
Director 14[or Deputy Director], as the case may be, where the amount of
penalty exceeds twenty thousand rupees except with the previous approval
of the 15[Joint] Commissioner or the 15[Joint] Director, as the case may be;
(c) in a case where the assessment is the subject-matter of an appeal to the
Commissioner (Appeals) under section 246 16[or section 246A] or an appeal
to the Appellate Tribunal under section 253, after the expiry of the financial
year in which the proceedings, in the course of which action for the
imposition of penalty has been initiated, are completed, or six months from
the end of the month in which the order of the Commissioner (Appeals) or,
as the case may be, the Appellate Tribunal is received by the Chief
Commissioner or the Commissioner, whichever period expires later;
(d) in a case where the assessment is the subject-matter of revision under
section 263, after the expiry of six months from the end of the month in
which such order of revision is passed;
(e) in any case other than those mentioned in clauses (c) and (d), after the
expiry of the financial year in which the proceedings, in the course of which
action for the imposition of penalty has been initiated, are completed, or six
months from the end of the month in which action for imposition of penalty
is initiated, whichever period expires later;
(f) in respect of search initiated under section 132 or books of account, other
documents or any assets requisitioned under section 132A, after the 30th
day of June, 1995 but before the 1st day of January, 1997.
Explanation.In computing the period of limitation for the purpose of this section,
(i) the time taken in giving an opportunity to the assessee to be reheard under
the proviso to section 129;
(ii) the period during which the immunity granted under section 245H remained
in force; and
(iii) the period during which the proceedings under sub-section (2) are stayed by
an order or injunction of any court,
shall be excluded.
(4) An income-tax authority on making an order under sub-section (2) imposing a
penalty, unless he is himself an Assessing Officer, shall forthwith send a copy of such
order to the Assessing Officer.]
17

[Authority competent to make the block assessment.

158BG. The order of assessment for the block period shall be passed by an Assessing
Officer not below the rank of an Assistant Commissioner 18[or Deputy Commissioner]
or an Assistant Director 18[or Deputy Director], as the case may be :
Provided that no such order shall be passed without the previous approval of
(a) the Commissioner or Director, as the case may be, in respect of search
initiated under section 132 or books of account, other documents or any

assets requisitioned under section 132A, after the 30th day of June, 1995 but
before the 1st day of January, 1997;
(b) the 19[Joint] Commissioner or the 19[Joint] Director, as the case may be, in
respect of search initiated under section 132 or books of account, other
documents or any assets requisitioned under section 132A, on or after the
1st day of January, 1997.]
Application of other provisions of this Act.
158BH. Save as otherwise provided in this Chapter, all other provisions of this Act
shall apply to assessment made under this Chapter.]
20

[Chapter not to apply after certain date.

158BI. The provisions of this Chapter shall not apply where a search is initiated under
section 132, or books of account, other documents or any assets are requisitioned
under section 132A after the 31st day of May, 2003.]
CHAPTERXV
LIABILITYINSPECIALCASES
A.Legal representatives
21

Legal representatives.
159. (1) Where a person dies, his legal representative shall be liable to pay any sum
which the deceased would have been liable to pay if he had not died, in the like
manner and to the same extent as the deceased.
(2) For the purpose of making an assessment (including an assessment, reassessment
or recomputation under section 147) of the income of the deceased and for the
purpose of levying any sum in the hands of the legal representative in accordance with
the provisions of sub-section (1),
(a) any proceeding taken against the deceased before his death shall be deemed
to have been taken against the legal representative and may be continued
against the legal representative from the stage at which it stood on the date
of the death of the deceased;
(b) any proceeding which could have been taken against the deceased if he had
survived, may be taken against the legal representative; and
(c) all the provisions of this Act shall apply accordingly.
(3) The legal representative of the deceased shall, for the purposes of this Act, be
deemed to be an assessee.
(4) Every legal representative shall be personally liable for any tax payable by him in
his capacity as legal representative if, while his liability for tax remains undischarged,
he creates a charge on or disposes of or parts with any assets 22 of the estate of the
deceased, which are in, or may come into, his possession, but such liability shall be
limited to the value of the asset so charged, disposed of or parted with.
(5) The provisions of sub-section (2) of section 161, section 162, and section 167,
shall, so far as may be and to the extent to which they are not inconsistent with the
provisions of this section, apply in relation to a legal representative.

(6) The liability of a legal representative under this section shall, subject to the
provisions of sub-section (4) and sub-section (5), be limited to the extent to which the
estate is capable of meeting the liability.
B.Representative assessees - General provisions
Representative assessee.23
160. (1) For the purposes of this Act, representative assessee means
(i) in respect of the income of a non-resident specified in 24[***] sub-section
(1) of section 9, the agent of the non-resident, including a person who is
treated as an agent under section 163;
(ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager
who is entitled to receive or is in receipt of such income on behalf of such
minor, lunatic or idiot;
(iii) in respect of income which the Court of Wards, the Administrator- General,
the Official Trustee or any receiver or manager (including any person,
whatever his designation, who in fact manages property on behalf of
another) appointed by or under any order of a court, receives or is entitled to
receive, on behalf or for the benefit of any person, such Court of Wards,
Administrator-General, Official Trustee, receiver or manager;
(iv) in respect of income which a trustee25 appointed under a trust declared by a
duly executed instrument in writing whether testamentary or otherwise
[including any wakf25 deed which is valid under the Mussalman Wakf
Validating Act, 1913 (6 of 1913),] receives or is entitled to receive on behalf
or for the benefit of any person, such trustee or trustees;
26
[(v) in respect of income which a trustee appointed under an oral trust receives
or is entitled to receive on behalf or for the benefit of any person, such
trustee or trustees.
Explanation 1.A trust which is not declared by a duly executed instrument in
writing [including any wakf deed which is valid under the Mussalman Wakf
Validating Act, 1913 (6 of 1913),] shall be deemed, for the purposes of clause (iv), to
be a trust declared by a duly executed instrument in writing if a statement in writing,
signed by the trustee or trustees, setting out the purpose or purposes of the trust,
particulars as to the trustee or trustees, the beneficiary or beneficiaries and the trust
property, is forwarded to the 27[Assessing] Officer,
(i) where the trust has been declared before the 1st day of June, 1981, within a
period of three months from that day; and
(ii) in any other case, within three months from the date of declaration of the
trust.
Explanation 2.For the purposes of clause (v), oral trust means a trust which is not
declared by a duly executed instrument in writing [including any wakf deed which is
valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] and which is not
deemed under Explanation 1 to be a trust declared by a duly executed instrument in
writing.]
(2) Every representative assessee shall be deemed to be an assessee for the purposes
of this Act.
Liability of representative assessee.

161. (1) Every representative assessee, as regards the income in respect of which he
is a representative assessee, shall be subject to the same duties, responsibilities and
liabilities as if the income were income received by or accruing to or in favour of him
beneficially, and shall be liable to assessment in his own name in respect of that
income; but any such assessment shall be deemed to be made upon him in his
representative capacity only, and the tax shall, subject to the other provisions
contained in this Chapter, be levied upon and recovered from him in like manner and
to the same extent as it would be leviable upon and recoverable from the person
represented by him.
28
[(1A) Notwithstanding anything contained in sub-section (1), where any income in
respect of which the person mentioned in clause (iv) of sub-section (1) of section 160
is liable as representative assessee consists of, or includes, profits and gains of
business, tax shall be charged on the whole of the income in respect of which such
person is so liable at the maximum marginal rate :
Provided that the provisions of this sub-section shall not apply where such profits and
gains are receivable under a trust declared by any person by will exclusively for the
benefit of any relative dependent on him for support and maintenance, and such trust
is the only trust so declared by him.
29
[***]
(2) Where any person is, in respect of any income, assessable under this Chapter in
the capacity of a representative assessee, he shall not, in respect of that income, be
assessed under any other provision of this Act.
Right of representative assessee to recover tax paid.
162. (1) Every representative assessee who, as such, pays any sum under this Act,
shall be entitled to recover the sum so paid from the person on whose behalf it is paid,
or to retain out of any moneys that may be in his possession or may come to him in
his representative capacity, an amount equal to the sum so paid.
(2) Any representative assessee, or any person who apprehends that he may be
assessed as a representative assessee, may retain out of any money payable by him to
the person on whose behalf he is liable to pay tax (hereinafter in this section referred
to as the principal), a sum equal to his estimated liability under this Chapter, and in
the event of any disagreement between the principal and such representative assessee
or person as to the amount to be so retained, such representative assessee or person
may secure from the 30[Assessing] Officer a certificate stating the amount to be so
retained pending final settlement of the liability, and the certificate so obtained shall
be his warrant for retaining that amount.
(3) The amount recoverable from such representative assessee or person at the time of
final settlement shall not exceed the amount specified in such certificate, except to the
extent to which such representative assessee or person may at such time have in his
hands additional assets of the principal.
C.Representative assesseesSpecial cases
Who may be regarded as agent.31
163. (1) For the purposes of this Act, agent, in relation to a non-resident, includes
any person in India
(a) who is employed by or on behalf of the non-resident; or

(b) who has any business connection with the non-resident; or

(c) from or through whom the non-resident is in receipt of any income, whether
directly or indirectly; or
(d) who is the trustee of the non-resident;
and includes also any other person who, whether a resident or non-resident, has
acquired by means of a transfer, a capital asset in India :
Provided that a broker in India who, in respect of any transactions, does not deal
directly with or on behalf of a non-resident principal but deals with or through a nonresident broker shall not be deemed to be an agent under this section in respect of
such transactions, if the following conditions are fulfilled, namely:
(i) the transactions are carried on in the ordinary course of business through the
first-mentioned broker; and
(ii) the non-resident broker is carrying on such transactions in the ordinary
course of his business and not as a principal.
32
[Explanation.For the purposes of this sub-section, the expression business
connection shall have the meaning assigned to it in Explanation 2 to clause (i) of
sub-section (1) of section 9 of this Act.]
(2) No person shall be treated as the agent of a non-resident unless he has had an
opportunity of being heard by the 33[Assessing] Officer as to his liability to be treated
as such.
34

[Charge of tax where share of beneficiaries unknown.

164. (1) 35[Subject to the provisions of sub-sections (2) and (3), where] any income
in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of
section 160 are liable as representative assessees or any part thereof is not specifically
receivable on behalf or for the benefit of36 any one person or where the individual
shares of the persons on whose behalf or for whose benefit such income or such part
thereof is receivable are indeterminate or unknown (such income, such part of the
income and such persons being hereafter in this section referred to as relevant
income, part of relevant income and beneficiaries, respectively), 37[tax shall be
charged on the relevant income or part of relevant income at the maximum marginal
rate36 :]
Provided that in a case where
38
[(i) none of the beneficiaries has any other income chargeable under this Act
exceeding the maximum amount not chargeable to tax in the case of an
39
[association of persons] or is a beneficiary under any other trust; or]
(ii) the relevant income or part of relevant income is receivable under 40[a trust
declared by any person by will and such trust is the only trust so declared by
him]; or
(iii) the relevant income or part of relevant income is receivable under a trust
created before the 1st day of March, 1970, by a non-testamentary instrument
and the 41[Assessing] Officer is satisfied, having regard to all the
circumstances existing at the relevant time, that the trust was created bona
fide exclusively for the benefit of the relatives of the settlor, or where the
settlor is a Hindu undivided family, exclusively for the benefit of the
members of such family, in circumstances where such relatives or members
were mainly dependent on the settlor for their support and maintenance; or

(iv) the relevant income is receivable by the trustees on behalf of a provident

fund, superannuation fund, gratuity fund, pension fund or any other fund
created bona fide by a person carrying on a business or profession
exclusively for the benefit of persons employed in such business or
profession,
tax shall be charged 42[on the relevant income or part of relevant income as if it] were
the total income of an 43[association of persons] :
44
[Provided further that where any income in respect of which the person mentioned
in clause (iv) of sub-section (1) of section 160 is liable as representative assessee
consists of, or includes, profits and gains of business, the preceding proviso shall
apply only if such profits and gains are receivable under a trust declared by any
person by will exclusively for the benefit of any relative dependent on him for support
and maintenance, and such trust is the only trust so declared by him.]
45
[(2) In the case of relevant income which is derived from property held under trust
wholly for charitable or religious purposes, 46[or which is of the nature referred to in
sub-clause (iia) of clause (24) of section 2,] 47[or which is of the nature referred to in
sub-section (4A) of section 11,] tax shall be charged on so much of the relevant
income as is not exempt under section 11 48[or section 12], as if the relevant income
not so exempt were the income of an association of persons :
49
[Provided that in a case where the whole or any part of the relevant income is not
exempt under section 11 or section 12 by virtue of the provisions contained in clause
(c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant
income or part of relevant income at the maximum marginal rate.]]
50
[(3) In a case where the relevant income is derived from property held under trust in
part only for charitable or religious purposes 51[or is of the nature referred to in subclause (iia) of clause (24) of section 2] 52[or is of the nature referred to in sub-section
(4A) of section 11,] and either the relevant income applicable to purposes other than
charitable or religious purposes (or any part thereof) 53[is not specifically receivable
on behalf or for the benefit of any one person or the individual shares of the
beneficiaries in the income so applicable are indeterminate or unknown, the tax
chargeable on the relevant income shall be the aggregate of
(a) the tax which would be chargeable on that part of the relevant income which
is applicable to charitable or religious purposes (as reduced by the income,
if any, which is exempt under section 11) as if such part (or such part as so
reduced) were the total income of an association of persons; and
(b) the tax on that part of the relevant income which is applicable to purposes
other than charitable or religious purposes, and which is either not
specifically receivable on behalf or for the benefit of any one person or in
respect of which the shares of the beneficiaries are indeterminate or
unknown, at the maximum marginal rate :]
Provided that in a case where
54
[(i) none of the beneficiaries in respect of the part of the relevant income which
is not applicable to charitable or religious purposes has any other income
chargeable under this Act exceeding the maximum amount not chargeable to
tax in the case of an association of persons or is a beneficiary under any
other trust; or]
(ii) the relevant income is receivable under 55[a trust declared by any person by
will and such trust is the only trust so declared by him]; or

(iii) the relevant income is receivable under a trust created before the 1st day of
March, 1970, by a non-testamentary instrument and the 56[Assessing]
Officer is satisfied, having regard to all the circumstan-ces existing at the
relevant time, that the trust, to the extent it is not for charitable or religious
purposes, was created bona fide exclusively for the benefit of the relatives
of the settlor, or where the settlor is a Hindu undivided family, exclusively
for the benefit of the members of such family, in circumstances where such
relatives or members were mainly dependent on the settlor for their support
and maintenance,
tax shall be charged 57[on the relevant income] as if the relevant income (as reduced
by the income, if any, which is exempt under section 11) were the total income of an
association of persons :]
58
[Provided further that where the relevant income consists of, or includes, profits
and gains of business, the preceding proviso shall apply only if the income is
receivable under a trust declared by any person by will exclusively for the benefit of
any relative dependent on him for support and maintenance, and such trust is the only
trust so declared by him :
Provided also that in a case where the whole or any part of the relevant income is not
exempt under section 11 or section 12 by virtue of the provisions contained in clause
(c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant
income or part of relevant income at the maximum marginal rate.]]
59
[Explanation 1.For the purposes of this section,
(i) any income in respect of which the persons mentioned in clause (iii) and
clause (iv) of sub-section (1) of section 160 are liable as representative
assessee or any part thereof shall be deemed as being not specifically
receivable on behalf or for the benefit of any one person unless the person
on whose behalf or for whose benefit such income or such part thereof is
receivable during the previous year is expressly stated in the order of the
court or the instrument of trust or wakf deed, as the case may be, and is
identifiable as such on the date of such order, instrument or deed ;
(ii) the individual shares of the persons on whose behalf or for whose benefit
such income or such part thereof is received shall be deemed to be
indeterminate or unknown unless the individual shares of the persons on
whose behalf or for whose benefit such income or such part thereof is
receivable, are expressly stated in the order of the court or the instrument of
trust or wakf deed, as the case may be, and are ascertainable as such on the
date of such order, instrument or deed.
Explanation 2. 60[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 14-1989.]
61

[Charge of tax in case of oral trust.

164A. Where a trustee receives or is entitled to receive any income on behalf or for
the benefit of any person under an oral trust, then, notwithstanding anything contained
in any other provision of this Act, tax shall be charged on such income at the
maximum marginal rate.
Explanation.For the purposes of this section,
(i) 62[***]

(ii) oral trust shall have the meaning assigned to it in Explanation 2 below
sub-section (1) of section 160.]
Case where part of trust income is chargeable.
165. Where part only of the income of a trust is chargeable under this Act, that
proportion only of the income receivable by a beneficiary from the trust which the
part so chargeable bears to the whole income of the trust shall be deemed to have been
derived from that part.
D.Representative assessees - Miscellaneous provisions
Direct assessment or recovery not barred.
63
166. Nothing in the foregoing sections in this Chapter shall prevent either the direct
assessment of the person on whose behalf or for whose benefit income therein
referred to is receivable, or the recovery from such person of the tax payable in
respect of such income.
Remedies against property in cases of representative assessees.
167. The 64[Assessing] Officer shall have the same remedies against all property of
any kind vested in or under the control or management of any representative assessee
as he would have against the property of any person liable to pay any tax, and in as
full and ample a manner, whether the demand is raised against the representative
assessee or against the beneficiary direct.
65

[DD.Firms, association of persons and body of individuals]

[Charge of tax in the case of a firm.
167A. In the case of a firm which is assessable as a firm, tax shall be charged on its
total income at the 67[rate as specified in the Finance Act of the relevant year].]
66

68

[Charge of tax where shares of members in association of persons or body of

individuals unknown, etc.
69
167B. (1) Where the individual shares of the members of an association of persons
or body of individuals (other than a company or a co-operative society or a society
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) in the whole or any part of the
income of such association or body are indeterminate or unknown, tax shall be
charged on the total income of the association or body at the maximum marginal rate :
Provided that, where the total income of any member of such association or body is
chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall
be charged on the total income of the association or body at such higher rate.
(2) Where, in the case of an association of persons or body of individuals as aforesaid
[not being a case falling under sub-section (1)],
(i) the total income of any member thereof for the previous year (excluding his
share from such association or body) exceeds the maximum amount which
is not chargeable to tax in the case of that member under the Finance Act of
the relevant year, tax shall be charged on the total income of the association
or body at the maximum marginal rate;

(ii) any member or members thereof is or are chargeable to tax at a rate or rates
which is or are higher than the maximum marginal rate, tax shall be charged
on that portion or portions of the total income of the association or body
which is or are relatable to the share or shares of such member or members
at such higher rate or rates, as the case may be, and the balance of the total
income of the association or body shall be taxed at the maximum marginal
rate.
Explanation.For the purposes of this section, the individual shares of the members
of an association of persons or body of individuals in the whole or any part of the
income of such association or body shall be deemed to be indeterminate or unknown
if such shares (in relation to the whole or any part of such income) are indeterminate
or unknown on the date of formation of such association or body or at any time
thereafter.]
E.Executors
Executors.
168. (1) Subject as hereinafter provided, the income of the estate of a deceased
person shall be chargeable to tax in the hands of the executor,
(a) if there is only one executor, then, as if the executor70 were an individual; or
(b) if there are more executors than one, then, as if the executors were an
association of persons;
and for the purposes of this Act, the executor shall be deemed to be resident or nonresident according as the deceased person was a resident or non-resident during the
previous year in which his death took place.
(2) The assessment of an executor under this section shall be made separately from
any assessment that may be made on him in respect of his own income.
(3) Separate assessments shall be made under this section on the total income of each
completed previous year or part thereof as is included in the period from the date of
the death to the date of complete distribution to the beneficiaries of the estate
according to their several interests71.
(4) In computing the total income of any previous year under this section, any income
of the estate of that previous year distributed to, or applied to the benefit of, any
specific legatee of the estate during that previous year shall be excluded; but the
income so excluded shall be included in the total income of the previous year of such
specific legatee.
Explanation.In this section, executor includes an administrator or other person
administering the estate of a deceased person72.
Right of executor to recover tax paid.
169. The provisions of section 162 shall, so far as may be, apply in the case of an
executor in respect of tax paid or payable by him as they apply in the case of a
representative assessee.
F.Succession to business or profession
Succession to business otherwise than on death.

170. (1) Where a person carrying on any business or profession (such person
hereinafter in this section being referred to as the predecessor) has been succeeded
therein by any other person (hereinafter in this section referred to as the successor)
who continues to carry on that business or profession,
(a) the predecessor shall be assessed in respect of the income of the previous
year in which the succession took place up to the date of succession;
(b) the successor shall be assessed in respect of the income of the previous year
after the date of succession.
(2) Notwithstanding anything contained in sub-section (1), when the predecessor
cannot be found, the assessment of the income of the previous year in which the
succession took place up to the date of succession and of the previous year preceding
that year shall be made on the successor in like manner and to the same extent as it
would have been made on the predecessor, and all the provisions of this Act shall, so
far as may be, apply accordingly.
(3) When any sum payable under this section in respect of the income of such
business or profession for the previous year in which the succession took place up to
the date of succession or for the previous year preceding that year, assessed on the
predecessor, cannot be recovered from him, the 73[Assessing] Officer shall record a
finding to that effect and the sum payable by the predecessor shall thereafter be
payable by and recoverable from the successor, and the successor shall be entitled to
recover from the predecessor any sum so paid.
(4) Where any business or profession carried on by a Hindu undivided family is
succeeded to, and simultaneously with the succession or after the succession there has
been a partition of the joint family property between the members or groups of
members, the tax due in respect of the income of the business or profession succeeded
to, up to the date of succession, shall be assessed and recovered in the manner
provided in section 171, but without prejudice to the provisions of this section.
Explanation.For the purposes of this section, income includes any gain accruing
from the transfer, in any manner whatsoever, of the business or profession as a result
of the succession.
G.Partition
Assessment after partition of a Hindu undivided family.
171. (1) A Hindu family hitherto assessed as undivided shall be deemed for the
purposes of this Act to continue to be a Hindu undivided family, except where and in
so far as a finding of partition has been given under this section in respect of the
Hindu undivided family.
(2) Where, at the time of making an assessment under section 143 or section 144, it is
claimed by or on behalf of any member of a Hindu family assessed as undivided that a
partition, whether total or partial, has taken place among the members of such family,
the 74[Assessing] Officer shall make an inquiry thereinto after giving notice of the
inquiry to all the members of the family.
(3) On the completion of the inquiry, the 74[Assessing] Officer shall record a finding
as to whether there has been a total or partial partition of the joint family property,
and, if there has been such a partition, the date on which it has taken place.
(4) Where a finding of total or partial partition has been recorded by the 74[Assessing]
Officer under this section, and the partition took place during the previous year,

(a) the total income of the joint family in respect of the period up to the date of
partition shall be assessed as if no partition had taken place; and
(b) each member or group of members 75 shall, in addition to any tax for which
he or it may be separately liable and notwithstanding anything contained in
clause (2) of section 10, be jointly and severally liable for the tax on the
income so assessed.
(5) Where a finding of total or partial partition has been recorded by the 76[Assessing]
Officer under this section, and the partition took place after the expiry of the previous
year, the total income of the previous year of the joint family shall be assessed as if no
partition had taken place; and the provisions of clause (b) of sub-section (4) shall, so
far as may be, apply to the case.
(6) Notwithstanding anything contained in this section, if the 76[Assessing] Officer
finds after completion of the assessment of a Hindu undivided family that the family
has already effected a partition, whether total or partial, the 76[Assessing] Officer shall
proceed to recover the tax from every person who was a member of the family before
the partition, and every such person shall be jointly and severally liable for the tax on
the income so assessed.
(7) For the purposes of this section, the several liability of any member or group of
members thereunder shall be computed according to the portion of the joint family
property allotted to him or it at the partition, whether total or partial.
(8) The provisions of this section shall, so far as may be, apply in relation to the levy
and collection of any penalty, interest, fine or other sum in respect of any period up to
date of the partition, whether total or partial, of a Hindu undivided family as they
apply in relation to the levy and collection of tax in respect of any such period.
77
[(9) Notwithstanding anything contained in the foregoing provisions of this section,
where a partial partition has taken place after the 31st day of December, 1978, among
the members of a Hindu undivided family hitherto assessed as undivided,
(a) no claim that such partial partition has taken place shall be inquired into
under sub-section (2) and no finding shall be recorded under sub-section (3)
that such partial partition had taken place and any finding recorded under
sub-section (3) to that effect whether before or after the 18th day of June,
1980, being the date of introduction of the Finance (No. 2) Bill, 1980, shall
be null and void;
(b) such family shall continue to be liable to be assessed under this Act as if no
such partial partition had taken place;
(c) each member or group of members of such family immediately before such
partial partition and the family shall be jointly and severally liable for any
tax, penalty, interest, fine or other sum payable under this Act by the family
in respect of any period, whether before or after such partial partition;
(d) the several liability of any member or group of members aforesaid shall be
computed according to the portion of the joint family property allotted to
him or it at such partial partition,
and the provisions of this Act shall apply accordingly.]
Explanation.In this section,
(a) partition means
(i) where the property admits of a physical division, a physical division of
the property, but a physical division of the income without a physical

division of the property producing the income shall not be deemed to be

a partition; or
(ii) where the property does not admit of a physical division, then such
division as the property admits of, but a mere severance of status shall
not be deemed to be a partition;
(b) partial partition means a partition which is partial as regards the persons
constituting the Hindu undivided family, or the properties belonging to the
Hindu undivided family, or both.
H.Profits of non-residents from occasional shipping business
Shipping business of non-residents.
78
172. (1) The provisions of this section shall, notwithstanding anything contained in
the other provisions of this Act, apply for the purpose of the levy and recovery of tax
in the case of any ship, belonging to or chartered by a non-resident, which carries
passengers, livestock, mail or goods shipped at a port in India 79[***].
(2) Where such a ship carries passengers, livestock, mail or goods shipped at a port in
India, 80[seven and a half] per cent of the amount paid or payable on account of such
carriage to the owner or the charterer or to any person on his behalf, whether that
amount is paid or payable in or out of India, shall be deemed to be income accruing in
India to the owner or charterer on account of such carriage.
(3) Before the departure from any port in India of any such ship, the master of the ship
shall prepare and furnish to the 81[Assessing] Officer a return of the full amount paid
or payable to the owner or charterer or any person on his behalf, on account of the
carriage of all passengers, livestock, mail or goods shipped at that port since the last
arrival of the ship thereat:
Provided that where the 81[Assessing] Officer is satisfied that it is not possible for the
master of the ship to furnish the return required by this sub-section before the
departure of the ship from the port and provided the master of the ship has made
satisfactory arrangements for the filing of the return and payment of the tax by any
other person on his behalf, the 81[Assessing] Officer may, if the return is filed within
thirty days of the departure of the ship, deem the filing of the return by the person so
authorised by the master as sufficient compliance with this sub-section.
(4) On receipt of the return, the 81[Assessing] Officer shall assess the income referred
to in sub-section (2) and determine the sum payable as tax thereon at the rate or rates
82
[in force] applicable to the total income of a company which has not made the
arrangements referred to in section 194 and such sum shall be payable by the master
of the ship.
(5) For the purpose of determining the tax payable under sub-section (4), the
83
[Assessing] Officer may call for such accounts or documents as he may require.
(6) A port clearance shall not be granted to the ship until the Collector of Customs, or
other officer duly authorised to grant the same, is satisfied that the tax assessable
under this section has been duly paid or that satisfactory arrangements have been
made for the payment thereof.
(7) Nothing in this section shall be deemed to prevent the owner or charterer of a ship
from claiming before the expiry of the assessment year relevant to the previous year
in which the date of departure of the ship from the Indian port falls, that an assessment
be made of his total income of the previous year and the tax payable on the basis

thereof be determined in accordance with the other provisions of this Act, and if he so
claims, any payment made under this section in respect of the passengers, livestock,
mail or goods shipped at Indian ports during that previous year shall be treated as a
payment in advance of the tax84 leviable for that assessment year, and the difference
between the sum so paid and the amount of tax found payable by him on such
assessment shall be paid by him or refunded to him, as the case may be.
85
[(8) For the purposes of this section, the amount referred to in sub-section (2) shall
include the amount paid or payable by way of demurrage charge or handling charge or
any other amount of similar nature.]
I.Recovery of tax in respect of non-residents
Recovery of tax in respect of non-resident from his assets.
173. Without prejudice to the provisions of sub-section (1) of section 161 or of
section 167, where the person entitled to the income referred to in clause (i) of subsection (1) of section 9 is a non-resident, the tax chargeable thereon, whether in his
name or in the name of his agent who is liable as a representative assessee, may be
recovered by deduction under any of the provisions of Chapter XVII-B and any
arrears of tax may be recovered also in accordance with the provisions of this Act
from any assets of the non-resident which are, or may at any time come, within India.
J.Persons leaving India
Assessment of persons leaving India.
174. (1) Notwithstanding anything contained in section 4, when it appears to the
86
[Assessing] Officer that any individual may leave India during the current
assessment year or shortly after its expiry and that he has no present intention of
returning to India, the total income of such individual for the period from the expiry
of the previous year for that assessment year up to the probable date of his departure
from India shall be chargeable to tax in that assessment year.
(2) The total income of each completed previous year or part of any previous year
included in such period shall be chargeable to tax at the rate or rates in force in that
assessment year, and separate assessments shall be made in respect of each such completed previous year or part of any previous year.
(3) The 86[Assessing] Officer may estimate the income of such individual for such
period or any part thereof, where it cannot be readily determined in the manner
provided in this Act.
(4) For the purpose of making an assessment under sub-section (1), the 87[Assessing]
Officer may serve a notice upon such individual requiring him to furnish within such
time, not being less than seven days, as may be specified in the notice, a return in the
same form and verified in the same manner 88[as a return under clause (i) of subsection (1) of section 142], setting forth his total income for each completed previous
year comprised in the period referred to in sub-section (1) and his estimated total
income for any part of the previous year comprised in that period; and the provisions
of this Act shall, so far as may be, and subject to the provisions of this section, apply
as if the notice were a 89[notice issued under clause (i) of sub-section (1) of section
142].
(5) The tax chargeable under this section shall be in addition to the tax, if any,
chargeable under any other provision of this Act.

(6) Where the provisions of sub-section (1) are applicable, any notice issued by the
87
[Assessing] Officer under 90[clause (i) of sub-section (1) of section 142 or] section
148 in respect of any tax chargeable under any other provision of this Act may, notwithstanding anything contained in 90[clause (i) of sub-section (1) of section 142 or]
section 148, as the case may be, require the furnishing of the return by such individual
within such period, not being less than seven days, as the 87[Assessing] Officer may
think proper.
91

[JA.Association of persons or body of individuals or

artificial juridical person formed for a particular
event or purpose
Assessment of association of persons or body of individuals or artificial juridical
person formed for a particular event or purpose.
174A.Notwithstanding anything contained in section 4, where it appears to the
Assessing Officer that any association of persons or a body of individuals or an
artificial juridical person, formed or established or incorporated for a particular event
or purpose is likely to be dissolved in the assessment year in which such association
of persons or a body of individuals or an artificial juridical person was formed or
established or incorporated or immediately after such assessment year, the total
income of such association or body or juridical person for the period from the expiry
of the previous year for that assessment year up to the date of its dissolution shall be
chargeable to tax in that assessment year, and the provisions of sub-sections (2) to (6)
of section 174 shall, so far as may be, apply to any proceedings in the case of any
such person as they apply in the case of persons leaving India.]
K.Persons trying to alienate their assets
Assessment of persons likely to transfer property to avoid tax.
175. Notwithstanding anything contained in section 4, if it appears to the
87
[Assessing] Officer during any current assessment year that any person is likely to
charge, sell, transfer, dispose of or otherwise part with any of his assets with a view to
avoiding payment of any liability under the provisions of this Act, the total income of
such person for the period from the expiry of the previous year for that assessment
year to the date when the 92[Assessing] Officer commences proceedings under this
section shall be chargeable to tax in that assessment year, and the provisions of subsections (2), (3), (4), (5) and (6) of section 174 shall, so far as may be, apply to any
proceedings in the case of any such person as they apply in the case of persons
leaving India.
L.Discontinuance of business, or dissolution
Discontinued business.
93
176. (1) Notwithstanding anything contained in section 4, where any business or
profession is discontinued in any assessment year, the income of the period from the
expiry of the previous year for that assessment year up to the date of such discontinuance may, at the discretion of the 92[Assessing] Officer, be charged to tax in that
assessment year.
(2) The total income of each completed previous year or part of any previous year
included in such period shall be chargeable to tax at the rate or rates in force in that

assessment year, and separate assessments shall be made in respect of each such completed previous year or part of any previous year.
(3) Any person discontinuing any business or profession shall give to the 94[Assessing]
Officer notice of such discontinuance within fifteen days thereof.
95
[(3A) Where any business is discontinued in any year, any sum received after the
discontinuance shall be deemed to be the income of the recipient and charged to tax
accordingly in the year of receipt, if such sum would have been included in the total
income of the person who carried on the business had such sum been received before
such discontinuance.]
(4) Where any profession is discontinued in any year on account of the cessation of
the profession by, or the retirement or death of, the person carrying on the profession,
any sum received after the discontinuance shall be deemed to be the income of the
recipient and charged to tax accordingly in the year of receipt, if such sum would have
been included in the total income of the aforesaid person had it been received before
such discontinuance.
(5) Where an assessment is to be made under the provisions of this section, the
96
[Assessing] Officer may serve on the person whose income is to be assessed or, in
the case of a firm, on any person who was a partner of such firm at the time of its
discontinuance or, in the case of a company, on the principal officer thereof, a notice
containing all or any of the requirements which may be included in a notice under
97
[clause (i) of sub-section (1) of section 142] and the provisions of this Act shall, so
far as may be, apply accordingly as if the notice were a notice issued under 97[clause
(i) of sub-section (1) of section 142].
(6) The tax chargeable under this section shall be in addition to the tax, if any,
chargeable under any other provision of this Act.
(7) Where the provisions of sub-section (1) are applicable, any notice issued by the
98
[Assessing] Officer under 99[clause (i) of sub-section (1) of section 142 or] section
148 in respect of any tax chargeable under any other provisions of this Act may,
notwithstanding anything contained in 1[clause (i) of sub-section (1) of section 142 or]
section 148, as the case may be, require the furnishing of the return by the person to
whom the aforesaid notices are issued within such period, not being less than seven
days, as the 2[Assessing] Officer may think proper.
Association dissolved or business discontinued.
177. (1) Where any business or profession carried on by an association of persons
has been discontinued or where an association of persons is dissolved, the
3
[Assessing] Officer shall make an assessment of the total income of the association of
persons as if no such discontinuance or dissolution had taken place, and all the
provisions of this Act, including the provisions relating to the levy of a penalty or any
other sum chargeable under any provision of this Act shall apply, so far as may be, to
such assessment.
(2) Without prejudice to the generality of the foregoing sub-section, if the
3
[Assessing] Officer or the 4[* * *] 5[Commissioner (Appeals)] in the course of any
proceeding under this Act in respect of any such association of persons as is referred
to in that sub-section is satisfied that the association of persons was guilty of any of
the acts specified in Chapter XXI, he may impose or direct the imposition of a penalty
in accordance with the provisions of that Chapter.

(3) Every person who was at the time of such discontinuance or dissolution a member
of the association of persons, and the legal representative of any such person who is
deceased, shall be jointly and severally liable for the amount of tax, penalty or other
sum payable, and all the provisions of this Act, so far as may be, shall apply to any
such assessment or imposition of penalty or other sum.
(4) Where such discontinuance or dissolution takes place after any proceedings in
respect of an assessment year have commenced, the proceedings may be continued
against the persons referred to in sub-section (3) from the stage at which the
proceedings stood at the time of such discontinuance or dissolution, and all the
provisions of this Act shall, so far as may be, apply accordingly.
(5) Nothing in this section shall affect the provisions of sub-section (6) of section 159.
Company in liquidation.
178. (1) Every person
(a) who is the liquidator of any company which is being wound up, whether
under the orders of a court or otherwise ; or
(b) who has been appointed the receiver of any assets of a company,
(hereinafter referred to as the liquidator) shall, within thirty days after he has become
such liquidator, give notice of his appointment as such to the 6[Assessing] Officer
who is entitled to assess the income of the company.
(2) The 6[Assessing] Officer shall, after making such inquiries or calling for such
information as he may deem fit, notify to the liquidator within three months from the
date on which he receives notice of the appointment of the liquidator the amount
which, in the opinion of the 6[Assessing] Officer, would be sufficient to provide for
any tax which is then, or is likely thereafter to become, payable by the company.
7
[(3) The liquidator
(a) shall not, without the leave of the 8[Chief Commissioner or Commissioner],
part with any of the assets of the company or the properties in his hands
until he has been notified by the 9[Assessing] Officer under sub-section (2) ;
and
(b) on being so notified, shall set aside an amount, equal to the amount notified
and, until he so sets aside such amount, shall not part with any of the assets
of the company or the properties in his hands :
Provided that nothing contained in this sub-section shall debar the liquidator from
parting with such assets or properties for the purpose of the payment of the tax
payable by the company or for making any payment to secured creditors whose debts
are entitled under law to priority of payment over debts due to Government on the
date of liquidation or for meeting such costs and expenses of the winding up of the
company as are in the opinion of the 10[Chief Commissioner or Commissioner]
reasonable.
(4) If the liquidator fails to give the notice in accordance with sub-section (1) or fails
to set aside the amount as required by sub-section (3) or parts with any of the assets of
the company or the properties in his hands in contravention of the provisions of that
sub-section, he shall be personally liable for the payment of the tax which the
company would be liable to pay :

Provided that if the amount of any tax payable by the company is notified under subsection (2), the personal liability of the liquidator under this sub-section shall be to the
extent of such amount.]
(5) Where there are more liquidators than one, the obligations and liabilities attached
to the liquidator under this section shall attach to all the liquidators jointly and
severally.
(6) The provisions of this section shall have effect notwithstanding anything to the
contrary contained in any other law for the time being in force.
11

[M.Private companies]
Liability of directors of private company in liquidation.
179. 12[(1)] Notwithstanding anything contained in the Companies Act, 1956 (1 of
1956), 13[where any tax due from a private company in respect of any income of any
previous year or from any other company in respect of any income of any previous
year during which such other company was a private company] cannot be recovered,
then, every person who was a director of the private company at any time during the
relevant previous year shall be jointly and severally liable for the payment of such tax
unless he proves that the non-recovery cannot be attributed to any gross neglect,
misfeasance or breach of duty on his part in relation to the affairs of the company.
14
[(2) Where a private company is converted into a public company and the tax
assessed in respect of any income of any previous year during which such company
was a private company cannot be recovered, then, nothing contained in sub-section
(1) shall apply to any person who was a director of such private company in relation
to any tax due in respect of any income of such private company assessable for any
assessment year commencing before the 1st day of April, 1962.]
N.Special provisions for certain kinds of income
Royalties or copyright fees for literary or artistic work.
180. Where the time taken by the author of a literary or artistic work in the making
thereof is more than twelve months, the amount received or receivable by him during
any previous year on account of any lump sum consideration for the assignment or
grant of any of his interests in the copyright of that work or of royalties or copyright
fees (whether receivable in lump sum or otherwise), in respect of that work, shall, if
he so claims, be allocated for purposes of assessment in such manner and to such
period as may be prescribed :
16
[Provided that nothing contained in this section shall apply in relation to the
previous year relevant to the assessment year commencing on or after the 1st day of
April, 2000.]
Explanation.For the purposes of this section, the expression author includes a
joint author, and the expression lump sum, in regard to royalties or copyright fees,
includes an advance payment on account of such royalties or copyright fees which is
not returnable.
15

17

[Consideration for know-how.

180A. Where the time taken by an individual, who is resident in India, for developing
any know-how is more than twelve months, he may elect that the gross amount of any
lump sum consideration received or receivable by him during the previous year

18

[relevant to the assessment year commencing on the 1st day of April, 2000 or earlier
assessment years] for allowing use of such know-how shall be treated for the purposes
of charging income-tax for that year and for each of the two immediately preceding
previous years as if one-third thereof were included in his income chargeable to tax
for each of those years respectively and if he so elects, notwithstanding anything contained in any other provision of this Act,
(a) such gross amount shall be so treated, and
(b) the assessments for each of the two preceding previous years shall, if made,
be accordingly rectified under section 154, the period of four years specified
in sub-section (7) of that section being reckoned from the end of the
financial year in which the assessment relating to the previous year in which
the amount was received or receivable by such individual is made.
Explanation.For the purposes of this section, the expression know-how has the
meaning assigned to it in section 35AB.]

23

[Assessment as a firm.
184. (1) A firm shall be assessed as a firm for the purposes of this Act, if
(i) the partnership is evidenced by an instrument24 ; and
(ii) the individual shares of the partners are specified25 in that instrument24.
(2) A certified copy of the instrument of partnership referred to in sub-section (1) shall
accompany the return of income of the firm of the previous year relevant to the
assessment year commencing on or after the 1st day of April, 1993 in respect of which
assessment as a firm is first sought.
Explanation.For the purposes of this sub-section, the copy of the instrument of
partnership shall be certified in writing by all the partners (not being minors) or,
where the return is made after the dissolution of the firm, by all persons (not being
minors) who were partners in the firm immediately before its dissolution and by the
legal representative of any such partner who is deceased.
(3) Where a firm is assessed as such for any assessment year, it
shall be assessed in the same capacity for every subsequent year if
there is no change in the constitution of the firm or the shares of
the partners as evidenced by the instrument of partnership on the
basis of which the assessment as a firm was first sought.
(4) Where any such change had taken place in the previous year, the firm shall furnish
a certified copy of the revised instrument of partnership along with the return of
income for the assessment year relevant to such previous year and all the provisions
of this section shall apply accordingly.
26
[(5) Notwithstanding anything contained in any other provision of this Act,
where, in respect of any assessment year, there is on the part of a firm
any such failure as is mentioned in section 144, the firm shall be so
assessed that no deduction by way of any payment of interest, salary,
bonus, commission or remuneration, by whatever name called, made by

such firm to any partner of such firm shall be allowed in computing the
income chargeable under the head Profits and gains of business or
profession and such interest, salary, bonus, commission or
remuneration shall not be chargeable to income-tax under clause (v) of
section 28.]
27

[Assessment when section 184 not complied with.

185. Notwithstanding anything contained in any other provision of this Act, where a
firm does not comply with the provisions of section 184 for any assessment year, the
firm shall be so assessed that no deduction by way of any payment of interest, salary,
bonus, commission or remuneration, by whatever name called, made by such firm to
any partner of such firm shall be allowed in computing the income chargeable under
the head Profits and gains of business or profession and such interest, salary,
bonus, commission or remuneration shall not be chargeable to income-tax under
clause (v) of section 28.]
C.Changes in constitution, succession and dissolution
Change in constitution of a firm.
187. (1) Where at the time of making an assessment under section 143 or section 144
it is found that a change has occurred in the constitution of a firm, the assessment
shall be made on the firm as constituted at the time of making the assessment.
28
[***]
(2) For the purposes of this section, there is a change in the constitution of the firm
(a) if one or more of the partners cease to be partners 29 or one or more new
partners are admitted, in such circumstances that one or more of the persons
who were partners of the firm before the change continue as partner or
partners after the change ; or29
(b) where all the partners continue with a change in their respective shares or in
the shares of some of them :
30
[Provided that nothing contained in clause (a) shall apply to a case where the firm is
dissolved on the death of any of its partners.]
Succession of one firm by another firm.
188. Where a firm carrying on a business or profession is succeeded by another firm,
and the case is not one covered by section 187, separate assessments shall be made on
the predecessor firm and the successor firm in accordance with the provisions of
section 170.
31

[Joint and several liability of partners for tax payable by firm.

188A. Every person who was, during the previous year, a partner of a firm, and the
legal representative of any such person who is deceased, shall be jointly and severally
liable along with the firm for the amount of tax, penalty or other sum payable by the
firm for the assessment year to which such previous year is relevant, and all the
provisions of this Act, so far as may be, shall apply to the assessment of such tax or
imposition or levy of such penalty or other sum.]
Firm dissolved or business discontinued.

189. (1) Where any business or profession carried on by a firm has been
discontinued or where a firm is dissolved, the 32[Assessing] Officer shall make an
assessment of the total income of the firm as if no such discontinuance or dissolution
had taken place, and all the provisions of this Act, including the provisions relating to
the levy of a penalty or any other sum chargeable under any provision of this Act,
shall apply, so far as may be, to such assessment.
(2) Without prejudice to the generality of the foregoing sub-section, if the
33
[Assessing] Officer or the 34[***] 35[Commissioner (Appeals)] in the course of any
proceeding under this Act in respect of any such firm as is referred to in that subsection is satisfied that the firm was guilty of any of the acts specified in Chapter XXI,
he may impose or direct the imposition of a penalty in accordance with the provisions
of that Chapter.
(3) Every person who was at the time of such discontinuance or dissolution a partner
of the firm, and the legal representative of any such person who is deceased, shall be
jointly and severally liable for the amount of tax, penalty or other sum payable, and all
the provisions of this Act, so far as may be, shall apply to any such assessment or
imposition of penalty or other sum.
Explanation.36[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
(4) Where such discontinuance or dissolution takes place after any proceedings in
respect of an assessment year have commenced, the proceedings may be continued
against the person referred to in sub-section (3) from the stage at which the
proceedings stood at the time of such discontinuance or dissolution, and all the
provisions of this Act shall, so far as may be, apply accordingly.
(5) Nothing in this section shall affect the provisions of sub-section (6) of section 159.
37

[Provisions applicable to past assessments of firms.

189A. In relation to the assessment of any firm and its partners for the assessment
year commencing on the 1st day of April, 1992, or any earlier assessment year, the
provisions of this Chapter as they stood immediately before the 1st day of April, 1993,
shall continue to apply.]
CHAPTERXVII
COLLECTIONANDRECOVERYOFTAX
A.General
Deduction at source and advance payment.
38
190. (1) Notwithstanding that the regular assessment in respect of any income is to
be made in a later assessment year, the tax on such income shall be payable by
deduction 39[or collection] at source or by advance payment 40[or by payment under
sub-section (1A) of section 192], as the case may be, in accordance with the
provisions of this Chapter.
(2) Nothing in this section shall prejudice the charge of tax on such income under the
provisions of sub-section (1) of section 4.
Direct payment.
41
191. 42[***] In the case of income in respect of which provision is not made under
this Chapter for deducting income-tax at the time of payment, and in any case where

income-tax has not been deducted in accordance with the provisions of this Chapter,
income-tax shall be payable by the assessee direct.
43
[***]
44
[Explanation.For the removal of doubts, it is hereby declared that if any person
referred to in section 200 and in the cases referred to in section 194, the principal
officer and the company of which he is the principal officer does not deduct the whole
or any part of the tax and such tax has not been paid by the assessee direct, then, such
person, the principal officer and the company shall, without prejudice to any other
consequences which he or it may incur, be deemed to be an assessee in default as referred to in sub-section (1) of section 201 in respect of such tax.]
B.Deduction at source
Salary.
45
192. 46(1) Any person responsible for paying any income chargeable under the head
Salaries shall, at the time of payment, deduct income-tax 47[***] on the amount
payable at the average rate of income-tax 48[***] computed on the basis of the 49[rates
in force] for the financial year in which the payment is made, on the estimated income
of the assessee under this head for that financial year.
50
[(1A) Without prejudice to the provisions contained in sub-section (1), the person
responsible for paying any income in the nature of a perquisite which is not provided
for by way of monetary payment, referred to in clause (2) of section 17, may pay, at
his option, tax on the whole or part of such income without making any deduction
therefrom at the time when such tax was otherwise deductible under the provisions of
sub-section (1).
(1B) For the purpose of paying tax under sub-section (1A), tax shall be determined at
the average of income-tax computed on the basis of the rates in force for the financial
year, on the income chargeable under the head Salaries including the income
referred to in sub-section (1A), and the tax so payable shall be construed as if it were,
a tax deductible at source, from the income under the head Salaries as per the
provisions of sub-section (1), and shall be subject to the provisions of this Chapter.]
51
[(2) Where, during the financial year, an assessee is employed simultaneously under
more than one employer, or where he has held successively employment under more
than one employer, he may furnish to the person responsible for making the payment
referred to in sub-section (1) (being one of the said employers as the assessee may,
having regard to the circumstances of his case, choose), such details of the income
under the head Salaries due or received by him from the other employer or
employers, the tax deducted at source therefrom and such other particulars, in such
form and verified in such manner as may be prescribed 52, and thereupon the person
responsible for making the payment referred to above shall take into account the
details so furnished for the purposes of making the deduction under sub-section (1).]
53
[(2A) Where the assessee, being a Government servant or an employee in a
54
[company, co-operative society, local authority, university, institution, association or
body] is entitled to the relief under sub-section (1) of section 89, he may furnish to the
person responsible for making the payment referred to in sub-section (1), such
particulars, in such form and verified in such manner as may be prescribed, and
thereupon the person responsible as aforesaid shall compute the relief on the basis of
such particulars and take it into account in making the deduction under sub-section
(1).]

55

[Explanation.For the purposes of this sub-section, University means a

University established or incorporated by or under a Central, State or Provincial Act,
and includes an institution declared under section 3 of the University Grants
Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act.]
56
[(2B) Where an assessee who receives any income chargeable under the head
Salaries has, in addition, any income chargeable under any other head of income
(not being a loss under any such head other than the loss under the head Income from
house property) for the same financial year, he may send to the person responsible
for making the payment referred to in sub-section (1) the particulars of
(a) such other income and of any tax deducted thereon under any other
provision of this Chapter;
(b) the loss, if any, under the head Income from house property,
in such form and verified in such manner as may be prescribed 57, and thereupon the
person responsible as aforesaid shall take
(i) such other income and tax, if any, deducted thereon; and
(ii) the loss, if any, under the head Income from house property,
also into account for the purposes of making the deduction under sub-section (1) :
Provided that this sub-section shall not in any case have the effect of reducing the tax
deductible except where the loss under the head Income from house property has
been taken into account, from income under the head Salaries below the amount
that would be so deductible if the other income and the tax deducted thereon had not
been taken into account.]
58
[(2C) A person responsible for paying any income chargeable under the head
Salaries shall furnish to the person to whom such payment is made a statement
giving correct and complete particulars of perquisites or profits in lieu of salary
provided to him and the value thereof in such form and manner as may be
prescribed59.]
(3) The person responsible for making the payment referred to in sub-section (1) 60[or
sub-section (1A)] 61[or sub-section (2) or sub-section (2A) or sub-section (2B)] may,
at the time of making any deduction, increase or reduce the amount to be deducted
under this section for the purpose of adjusting any excess or deficiency arising out of
any previous deduction or failure to deduct during the financial year.
(4) The trustees of a recognised provident fund, or any person authorised by the
regulations of the fund to make payment of accumulated balances due to employees,
shall, in cases where sub-rule (1) of rule 9 of Part A of the Fourth Schedule applies, at
the time an accumulated balance due to an employee is paid, make therefrom the
deduction provided in rule 10 of Part A of the Fourth Schedule.
62
(5) Where any contribution made by an employer, including interest on such
contributions, if any, in an approved superannuation fund is paid to the employee,
63
[tax] on the amount so paid shall be deducted by the trustees of the fund to the extent
provided in rule 6 of Part B of the Fourth Schedule.
64
(6) For the purposes of deduction of tax on salary payable in foreign currency, the
value in rupees of such salary shall be calculated at the prescribed rate of exchange.
65
[***]
66

Interest on securities.

67

193. The person responsible for paying 68[to a resident] any income 69[by way of
interest on securities] shall, 70[at the time of credit of such income to the account of
the payee or at the time of payment thereof in cash or by issue of a cheque or draft or
by any other mode, whichever is earlier], deduct income-tax 71[***] at the rates in
force on the amount of the interest payable :
72
[***]
73
[Provided 74[***] that no tax shall be deducted from
(i) any interest payable on 4 per cent National Defence Bonds, 1972, where
the bonds are held by an individual, not being a non-resident; or
75
[(ia) any interest payable to an individual on 4 per cent National Defence Loan,
1968, or 4 per cent National Defence Loan, 1972; or]
76
[(ib) any interest payable on National Development Bonds; or]
(ii) 77[***]
78
[(iia) any interest payable on 7-Year National Savings Certificates (IV Issue); or]
79
[(iib) any interest payable on such debentures, issued by any institution or
authority, or any public sector company, or any co-operative society
(including a co-operative land mortgage bank or a co-operative land
development bank), as the Central Government may, by notification80 in the
Official Gazette, specify in this behalf;]
81
[***]]
(iii) any interest payable on 6 per cent Gold Bonds, 1977, or 7 per cent Gold
Bonds, 1980, where the Bonds are held by an individual not being a nonresident, and the holder thereof makes a declaration in writing before the
person responsible for paying the interest that the total nominal value of the
6 per cent Gold Bonds, 1977, or, as the case may be, the 7 per cent Gold
Bonds, 1980, held by him (including such bonds, if any, held on his behalf
by any other person) did not in either case exceed ten thousand rupees at
any time during the period to which the interest relates;
(iiia) 82[* * *]
83
[(iv) any interest payable on any security of the Central Government or a State
Government;]
84
[(v) any interest payable to an individual, who is resident in India, on debentures
issued by a company in which the public are substantially interested, being
debentures listed on a recognised stock exchange in India in accordance
with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any
rules made thereunder, if
(a) the interest is paid by the company by an account payee cheque; and
(b) the amount of such interest or, as the case may be, the aggregate of the
amounts of such interest paid or likely to be paid during the financial
year by the company to such individual does not exceed 85[two thousand
and five hundred rupees];]
86
[(vi) any interest payable to the Life Insurance Corporation of India established
under the Life Insurance Corporation Act, 1956 (31 of 1956), in respect of
any securities owned by it or in which it has full beneficial interest; or
(vii) any interest payable to the General Insurance Corporation of India
(hereafter in this clause referred to as the Corporation) or to any of the four
companies (hereafter in this clause referred to as such company), formed by

virtue of the schemes framed under sub-section (1) of section 16 of the

General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), in
respect of any securities owned by the Corporation or such company or in
which the Corporation or such company has full beneficial interest; or
(viii) any interest payable to any other insurer in respect of any securities owned
by it or in which it has full beneficial interest.]
87
[Explanation 88[***].For the purposes of this section, where any income by way
of interest on securities is credited to any account, whether called Interest payable
account or Suspense account or by any other name, in the books of account of the
person liable to pay such income, such crediting shall be deemed to be credit of such
income to the account of the payee and the provisions of this section shall apply
accordingly.]
Explanation 2.89[Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.]
Dividends.
90
194. 91The principal officer of an Indian company or a company which has made
the prescribed arrangements for the declaration and payment of dividends (including
dividends on preference shares) within India, shall, before making any payment in
cash or before issuing any cheque or warrant in respect of any dividend or before
making any distribution or payment to a shareholder, 92[who is resident in India,] of
any dividend 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, deduct from the amount
of such dividend, income-tax 93[***] at the rates in force :
94
[Provided that no such deduction shall be made in the case of a shareholder, being
an individual, if
(a) the dividend is paid by the company by an account payee cheque; and
(b) the amount of such dividend or, as the case may be, the aggregate of the
amounts of such dividend distributed or paid or likely to be distributed or
paid during the financial year by the company to the shareholder, does not
exceed 95[two thousand five hundred] rupees:
Provided further that the provisions of this section shall not apply to such income
credited or paid to
(a) the Life Insurance Corporation of India established under the Life Insurance
Corporation Act, 1956 (31 of 1956), in respect of any shares owned by it or
in which it has full beneficial interest;
(b) the General Insurance Corporation of India (hereafter in this proviso
referred to as the Corporation) or to any of the four companies (hereafter in
this proviso referred to as such company), formed by virtue of the schemes
framed under sub-section (1) of section 16 of the General Insurance
Business (Nationalisation) Act, 1972 (57 of 1972), in respect of any shares
owned by the Corporation or such company or in which the Corporation or
such company has full beneficial interest;
(c) any other insurer in respect of any shares owned by it or in which it has full
beneficial interest :]
96
[Provided also that no such deduction shall be made in respect of any dividends
referred to in section 115-O.]
97

[Interest other than Interest on securities.

98

194A. 99(1) Any person1, not being an individual or a Hindu undivided family, who is
responsible for paying1 to a resident any income by way of interest other than income
2
[by way of interest on securities], shall, at the time of credit of such income to the
account of the payee3 or at the time of payment thereof in cash or by issue of a cheque
or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the
rates in force :
4
[Provided that an individual or a Hindu undivided family, whose total sales, gross
receipts or turnover from the business or profession carried on by him exceed the
monetary limits specified under clause (a) or clause (b) of section 44AB during the
financial year immediately preceding the financial year in which such interest is
credited or paid, shall be liable to deduct income-tax under this section.]
5
[Explanation.For the purposes of this section, where any income by way of interest
as aforesaid is credited to any account, whether called Interest payable account or
Suspense account or by any other name, in the books of account of the person liable
to pay such income, such crediting shall be deemed to be credit of such income to the
account of the payee and the provisions of this section shall apply accordingly.]
(2) 6[Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.]
(3) The provisions of sub-section (1) shall not apply
7
[(i) where the amount of such income or, as the case may be, the aggregate of
the amounts of such income credited or paid or likely to be credited or paid
during the financial year by the person referred to in sub-section (1) to the
account of, or to, the payee, does not exceed 8[five thousand rupees]:]
9
[Provided that in respect of the income credited or paid in respect of
(a) time deposits with 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); or
(b) time deposits with a co-operative society engaged in carrying on the
business of banking;
(c) deposits with a public company which is 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 10[and which is eligible for deduction under clause (viii) of
sub-section (1) of section 36] 11[***],
12
[* * *] the aforesaid amount shall be computed with reference to the
income credited or paid by a branch of the banking company or the cooperative society or the public company, as the case may be;]
(ii) 13[***]
(iii) to such income credited or paid to
(a) any banking company to which the Banking Regulation Act, 1949 (10 of
1949), applies, or any co-operative society engaged in carrying on the
business of banking (including a co-operative land mortgage bank), or
(b) any financial corporation established by or under a Central, State or
Provincial Act, or
(c) the Life Insurance Corporation of India established under the Life
Insurance Corporation Act, 1956 (31 of 1956), or
(d) the Unit Trust of India established under the Unit Trust of India Act,
1963 (52 of 1963), or

(e) any company or co-operative society carrying on the business of

insurance, or
(f) such other institution, association or body 14[or class of institutions,
associations or bodies] which the Central Government may, for reasons
to be recorded in writing, notify15 in this behalf in the Official Gazette;
16
[(iv) to such income credited or paid by a firm to a partner of the firm;]
(v) to such income credited or paid by a co-operative society 17[to a member
thereof or] to any other co-operative society;]
18
[(vi) to such income credited or paid in respect of deposits under any scheme
framed by the Central Government and notified19 by it in this behalf in the
Official Gazette;
20
[(vii) to such income credited or paid in respect of deposits (other than time
deposits made on or after the 1st day of July, 1995) with 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);
(viia) to such income credited or paid in respect of,
(a) deposits with a primary agricultural credit society or a primary credit
society or a co-operative land mortgage bank or a co-operative land
development bank;
(b) deposits (other than time deposits made on or after the 1st day of July,
1995) with a co-operative society, other than a co-operative society or
bank referred to in sub-clause (a), engaged in carrying on the business
of banking;]
21
[(viii) to such income credited or paid by the Central Government under any
provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the
Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of
1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act,
1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964),
or the Interest-tax Act, 1974 (45 of 1974);]
22
[(ix) to such income credited or paid by way of interest on the compensation
amount awarded by the Motor Accidents Claims Tribunal where the amount
of such income or, as the case may be, the aggregate of the amounts of such
income credited or paid during the financial year does not exceed fifty
thousand rupees.]
23
[Explanation.For the purposes of clauses (i), (vii) and (viia), time deposits
means deposits (excluding recurring deposits) repayable on the expiry of fixed
periods.]
24
[(4) The person responsible for making the payment referred to in sub-section (1)
may, at the time of making any deduction, increase or reduce the amount to be
deducted under this section for the purpose of adjusting any excess or deficiency
arising out of any previous deduction or failure to deduct during the financial year.]
Explanation.25[Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.]
26

[Winnings from lottery or crossword puzzle.

194B. 28The person responsible for paying to any person any income by way of
winnings from any lottery or crossword puzzle 29[or card game and other game of any
27

sort] in an amount exceeding 30[five thousand rupees] shall, at the time of payment
thereof, deduct income-tax thereon at the rates in force :
31
[***]]
32
[Provided 33[***] that in a case where the winnings are wholly in kind or partly in
cash and partly in kind but the part in cash is not sufficient to meet the liability of
deduction of tax in respect of whole of the winnings, the person responsible for
paying shall, before releasing the winnings, ensure that tax has been paid in respect of
the winnings.]
34

[Winnings from horse race.

194BB. 35Any person, being a bookmaker or a person to whom a licence has been
granted by the Government under any law for the time being in force for horse racing
in any race course or for arranging for wagering or betting in any race course, who is
responsible for paying to any person any income by way of winnings from any horse
race in an amount exceeding 36[two thousand five hundred rupees] shall, at the time of
payment thereof, deduct income-tax thereon at the rates in force.
37
[***]]
38

[Payments to contractors and sub-contractors.

194C. 40(1) Any person responsible for paying any sum to any resident (hereafter in
this section referred to as the contractor) for carrying out any work 41 (including supply
of labour for carrying out any work) in pursuance of a contract between the
contractor41 and
(a) the Central Government or any State Government; or
(b) any local authority; or
(c) any corporation established by or under a Central, State or Provincial Act;
or
(d) any company; 42[or]
42
[(e) any co-operative 43[society; or]]
44
[(f) any authority, constituted in India by or under any law, engaged 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; or
(g) any society 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; or
(h) any trust; or
(i) any 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 (3 of 1956); 45[or]
45
[(j) any firm,]
shall, at the time of credit of such sum to the account of the contractor or at the time
of payment thereof in cash or by issue of a cheque or draft or by any other mode,
whichever is earlier, 46[deduct an amount equal to
(i) one per cent in case of advertising,
(ii) in any other case two per cent,
39

of such sum as income-tax on income comprised therein.]

(2) Any person (being a contractor and not being an individual or a Hindu undivided
family) responsible for paying any sum to any resident (hereafter in this section
referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for
carrying out, or for the supply of labour for carrying out, the whole or any part of the
work undertaken by the contractor or for supplying whether wholly or partly any
labour which the contractor has undertaken to supply shall, at the time of credit of
such sum to the account of the sub-contractor or at the time of payment thereof in
cash or by issue of a cheque or draft or by any other mode, whichever is earlier,
deduct an amount equal to one per cent of such sum as income-tax on income
comprised therein:
47
[Provided that an individual or a Hindu undivided family, whose total sales, gross
receipts or turnover from the business or profession carried on by him exceed the
monetary limits specified under clause (a) or clause (b) of section 44AB during the
financial year immediately preceding the financial year in which such sum is credited
or paid to the account of the sub-contractor, shall be liable to deduct income-tax
under this sub-section.]
48
[Explanation I.For the purposes of sub-section (2), the expression contractor
shall also include a contractor who is carrying out any work (including supply of
labour for carrying out any work) in pursuance of a contract between the contractor
and the Government of a foreign State or a foreign enterprise or any association or
body established outside India.]
49 50
[ [Explanation II].For the purposes of this section, where any sum referred to in
sub-section (1) or sub-section (2) is credited to any account, whether called Suspense
account or by any other name, in the books of account of the person liable to pay
such income, such crediting shall be deemed to be credit of such income to the
account of the payee and the provisions of this section shall apply accordingly.]
51
[Explanation III.For the purposes of this section, the expression work shall also
include
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such
broadcasting or telecasting;
(c) carriage of goods and passengers by any mode of transport other than by
railways;
(d) catering.]
(3) No deduction shall be made under sub-section (1) or sub-section (2) from
52
[(i) the amount of any sum credited or paid or likely to be credited or paid to
the account of, or to, the contractor or sub-contractor, if such sum does not
exceed twenty thousand rupees:
Provided that where the aggregate of the amounts of such sums credited or
paid or likely to be credited or paid during the financial year exceeds fifty
thousand rupees, the person responsible for paying such sums referred to in
sub-section (1) or, as the case may be, sub-section (2) shall be liable to
deduct income-tax under this section; or]
(ii) any sum credited or paid before the 1st day of June, 1972; 53[or]
53
[(iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a
contract between the contractor and a co-operative society or in pursuance

of a contract between such contractor and the sub-contractor in relation to

any work (including supply of labour for carrying out any work) undertaken
by the contractor for the co-operative society.]
54
(4) [***]
(5) 54[***]]
55

[Insurance commission.
194D. 57Any person responsible for paying to a resident any income by way of
remuneration or reward, whether by way of commission or otherwise, for soliciting or
procuring insurance business (including business relating to the continuance, renewal
or revival of policies of insurance) shall, at the time of credit of such income to the
account of the payee or at the time of payment thereof in cash or by issue of a cheque
or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the
rates in force :
Provided that no deduction shall be made under this section from any such income
credited or paid before the 1st day of June, 1973:]
58
[Provided further that no deduction shall be made under this section in a case
where the amount of such income or, as the case may be, the aggregate of the amounts
of such income credited or paid or likely to be credited or paid during the financial
year to the account of, or to, the payee, does not exceed five thousand rupees.]
56

59

[Payments to non-resident sportsmen or sports associations.60

194E. Where any income referred to in section 115BBA is payable to a non-resident
sportsman (including an athlete) who is not a citizen of India or a non-resident sports
association or institution, the person responsible for making the payment shall, at the
time of credit of such income to the account of the payee or at the time of payment
thereof in cash or by issue of a cheque or draft or by any other mode, whichever is
earlier, deduct income-tax thereon at the rate of ten per cent.]
61

[Payments in respect of deposits under National Savings Scheme, etc.62

194EE. The person responsible for paying to any person any amount referred to in
clause (a) of sub-section (2) of section 80CCA shall, at the time of payment thereof,
deduct income-tax thereon at the rate of twenty per cent :
Provided that no deduction shall be made under this section where the amount of
such payment or, as the case may be, the aggregate amount of such payments to the
payee during the financial year is less than two thousand five hundred rupees :
Provided further that nothing contained in this section shall apply to the payment of
the said amount to the heirs of the assessee.]
63

[Payments on account of repurchase of units by Mutual Fund or Unit Trust of

India.64
194F. The person responsible for paying to any person any amount referred to in
sub-section (2) of section 80CCB shall, at the time of payment thereof, deduct
income-tax thereon at the rate of twenty per cent.]
65

[Commission, etc., on the sale of lottery tickets.66

194G. 67[(1)] Any person who is responsible for paying, on or after the 1st day of
October, 1991 to any person, who is or has been stocking, distributing, purchasing or
selling lottery tickets, any income by way of commission, remuneration or prize (by
whatever name called) on such tickets in an amount exceeding one thousand rupees
shall, at the time of credit of such income to the account of the payee or at the time of
payment of such income in cash or by the issue of a cheque or draft or by any other
mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.
(2) 68[***]
(3) 68[***]
Explanation.For the purposes of this section, where any income is credited to any
account, whether called Suspense Account or by any other name, in the books of
account of the person liable to pay such income, such crediting shall be deemed to be
credit of such income to the account of the payee and the provisions of this section
shall apply accordingly.]
69

[Commission or brokerage70.
194H. Any person, not being an individual or a Hindu undivided family, who is
responsible for paying, on or after the 1st day of June, 2001, to a resident, any income
by way of commission (not being insurance commission referred to in section 194D)
or brokerage, shall, at the time of credit of such income to the account of the payee or
at the time of payment of such income in cash or by the issue of a cheque or draft or
by any other mode, whichever is earlier, deduct income-tax thereon at the rate of
71
[five] per cent :
Provided that no deduction shall be made under this section in a case where the
amount of such income or, as the case may be, the aggregate of the amounts of such
income credited or paid or likely to be credited or paid during the financial year to the
account of, or to, the payee, does not exceed two thousand five hundred rupees :
72
[Provided further that an individual or a Hindu undivided family, whose total sales,
gross receipts or turnover from the business or profession carried on by him exceed
the monetary limits specified under clause (a) or clause (b) of section 44AB during
the financial year immediately preceding the financial year in which such commission
or brokerage is credited or paid, shall be liable to deduct income-tax under this
section.]
Explanation.For the purposes of this section,
(i) commission or brokerage includes any payment received or receivable,
directly or indirectly, by a person acting on behalf of another person for
services rendered (not being professional services) or for any services in the
course of buying or selling of goods or in relation to any transaction relating
to any asset, valuable article or thing, not being securities;
(ii) the expression professional services means services rendered by a person
in the course of carrying on a legal, medical, engineering or architectural
profession or the profession of accountancy or technical consultancy or
interior decoration or such other profession as is notified by the Board for
the purposes of section 44AA;
(iii) the expression securities shall have the meaning assigned to it in clause
(h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of
1956)73 ;

(iv) where any income is credited to any account, whether called Suspense
account or by any other name, in the books of account of the person liable
to pay such income, such crediting shall be deemed to be credit of such
income to the account of the payee and the provisions of this section shall
apply accordingly.]
74

[Rent.
194-I. Any person, not being an individual or a Hindu undivided family, who is
responsible for paying to 76[a resident] any income by way of rent 77, shall, at the time
of credit of such income to the account of the payee or at the time of payment thereof
in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier,
78
[deduct income-tax thereon at the rate of
(a) fifteen per cent if the payee is an individual or a Hindu undivided family;
and
(b) twenty per cent in other cases :]
Provided that no deduction shall be made under this section where the amount of
such income or, as the case may be, the aggregate of the amounts of such income
credited or paid or likely to be credited or paid during the financial year by the
aforesaid person to the account of, or to, the payee, does not exceed one hundred and
twenty thousand rupees :
79
[Provided further that an individual or a Hindu undivided family, whose total sales,
gross receipts or turnover from the business or profession carried on by him exceed
the monetary limits specified under clause (a) or clause (b) of section 44AB during
the financial year immediately preceding the financial year in which such income by
way of rent is credited or paid, shall be liable to deduct income-tax under this section.]
Explanation.For the purposes of this section,
(i) rent means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of any
land or any building (including factory building), together with furniture,
fittings and the land appurtenant thereto, whether or not such building is
owned by the payee;
(ii) where any income is credited to any account, whether called Suspense
account or by any other name, in the books of account of the person liable
to pay such income, such crediting shall be deemed to be credit of such
income to the account of the payee and the provisions of this section shall
apply accordingly.]
75

80

[Fees for professional or technical services.81

82
194J. (1) Any person, not being an individual or a Hindu undivided family, who is
responsible for paying to a resident any sum by way of
(a) fees for professional services, or
(b) fees for technical services,
shall, at the time of credit of such sum to the account of the payee or at the time of
payment thereof in cash or by issue of a cheque or draft or by any other mode,
whichever is earlier, deduct an amount equal to five per cent of such sum as incometax on income comprised therein :
Provided that no deduction shall be made under this section

(A) from any sums as aforesaid credited or paid before the 1st day of July, 1995;
or
(B) where the amount of such sum or, as the case may be, the aggregate of the
amounts of such sums credited or paid or likely to be credited or paid during
the financial year by the aforesaid person to the account of, or to, the payee,
does not exceed
(i) twenty thousand rupees, in the case of fees for professional services
referred to in clause (a), or
(ii) twenty thousand rupees, in the case of fees for technical services referred
to in clause (b) :
83
[Provided further that an individual or a Hindu undivided family, whose total sales,
gross receipts or turnover from the business or profession carried on by him exceed
the monetary limits specified under clause (a) or clause (b) of section 44AB during
the financial year immediately preceding the financial year in which such sum by way
of fees for professional services or technical services is credited or paid, shall be liable
to deduct income-tax under this section :]
84
[Provided also that no individual or a Hindu undivided family referred to in the
second proviso shall be liable to deduct income-tax on the sum by way of fees for
professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.]
(2) 85[***]
(3) 85[***]
Explanation.For the purposes of this section,
(a) professional services means services rendered by a person in the course of
carrying on legal, medical, engineering or architectural profession or the
profession of accountancy or technical consultancy or interior decoration or
advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;
(b) fees for technical services shall have the same meaning as in Explanation
2 to clause (vii) of sub-section (1) of section 9;
(c) where any sum referred to in sub-section (1) is credited to any account,
whether called suspense account or by any other name, in the books of
account of the person liable to pay such sum, such crediting shall be deemed
to be credit of such sum to the account of the payee and the provisions of
this section shall apply accordingly.
86

[Income in respect of units.87

194K. Where any income is payable to a resident in respect of units of a Mutual Fund
specified under clause (23D) of section 10 or of the Unit Trust of India, the person
responsible for making the payment shall, at the time of credit of such income to the
account of payee or at the time of payment thereof in cash or by issue of a cheque or
draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate
of ten per cent :
Provided that the provisions of this section shall not apply where the amount of such
income or, as the case may be, the aggregate of the amounts of such income credited
or paid or likely to be credited or paid during the financial year by the person

responsible for making the payment to the account of, or to, the payee does not exceed
88
[two thousand five hundred] rupees :
Provided further that the amount of one thousand* rupees shall be computed with
reference to the income credited or paid
(a) in respect of a branch office of the Mutual Fund or of the Unit Trust of
India, as the case may be, and
(b) under a particular scheme under which the units have been issued :
89
[Provided also that no deduction shall be made under this section from any such
income credited or paid on or after the 1st day of April, 2003.]
Explanation.For the purposes of this section,
(a) Unit Trust of India means the Unit Trust of India established under the
Unit Trust of India Act, 1963 (52 of 1963);
(b) where any income as aforesaid is credited to any account, whether called
Suspense account or by any other name, in the books of account of the
person liable to pay such income, such crediting shall be deemed to be
credit of such income to the account of the payee and the provisions of this
section shall apply accordingly.]
90

[Payment of compensation on acquisition of capital asset.

194L.Any person responsible for paying to a resident any sum being in the nature of
compensation or the enhanced compensation or the consideration or the enhanced
consideration on account of compulsory acquisition, under any law for the time being
in force, of any capital asset shall, at the time of payment of such sum in cash or by
issue of a cheque or draft or by any other mode, whichever is earlier, deduct an
amount equal to ten per cent of such sum as income-tax on income comprised therein
:
Provided that no deduction shall be made under this section where the amount of
such payment or, as the case may be, the aggregate amount of such payments to a
resident during the financial year does not exceed one hundred thousand rupees:]
91
[Provided further that no deduction shall be made under this section from any
payment made on or after the 1st day of June, 2000.]
91a

[Payment of compensation on acquisition of certain immovable property.

194LA. Any person responsible for paying to a resident any sum, being in the
nature of compensation or the enhanced compensation or the consideration or the
enhanced consideration on account of compulsory acquisition, under any law for the
time being in force, of any immovable property (other than agricultural land), shall,
at the time of payment of such sum in cash or by issue of a cheque or draft or by any
other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum
as income-tax thereon:
Provided that no deduction shall be made under this section where the amount of
such payment or, as the case may be, the aggregate amount of such payments to a
resident during the financial year does not exceed one hundred thousand rupees.
Explanation.For the purposes of this section,

(i) agricultural land means agricultural land in India including land situate
in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14)
of section 2;
(ii) immovable property means any land (other than agricultural land) or
any building or part of a building.]
Other sums.
92
195. 93[(1) 94Any person responsible for paying to a non-resident, not being a
company, or to a foreign company, any interest 95[***] or any other sum chargeable
under the provisions of this Act (not being income chargeable under the head
Salaries 96[***]) shall, at the time of credit of such income to the account of the
payee or at the time of payment thereof in cash or by the issue of a cheque or draft or
by any other mode, whichever is earlier, deduct income-tax thereon at the rates in
force :
97
[Provided that in the case of interest payable by the Government or a public sector
bank within the meaning of clause (23D) of section 10 or a public financial institution
within the meaning of that clause, deduction of tax shall be made only at the time of
payment thereof in cash or by the issue of a cheque or draft or by any other mode :]
98
[Provided further that no such deduction shall be made in respect of any dividends
referred to in section 115-O.]
Explanation.For the purposes of this section, where any interest or other sum as
aforesaid is credited to any account, whether called Interest payable account or
Suspense account or by any other name, in the books of account of the person liable
to pay such income, such crediting shall be deemed to be credit of such income to the
account of the payee and the provisions of this section shall apply accordingly.]
(2) Where the person responsible for paying any such sum chargeable under this Act
(other than 99[***] 1[***] 2[***] 3[***] salary) to a non-resident considers that the
whole of such sum would not be income chargeable in the case of the recipient, he
may make an application to the 4[Assessing] Officer to determine, 5[by general or
special order], the appropriate proportion of such sum so chargeable, and upon such
determination, tax shall be deducted under sub-section (1) only on that proportion of
the sum which is so chargeable.
6
[***]
7
[(3) Subject to rules8 made under sub-section (5), any person entitled to receive any
interest or other sum on which income-tax has to be deducted under sub-section (1)
may make an application in the prescribed form to the 9-10[Assessing] Officer for the
grant of a certificate authorising him to receive such interest or other sum without
deduction of tax under that sub-section, and where any such certificate is granted,
every person responsible for paying such interest or other sum to the person to whom
such certificate is granted shall, so long as the certificate is in force, make payment of
such interest or other sum without deducting tax thereon under sub-section (1).
(4) A certificate granted under sub-section (3) shall remain in force till the expiry of
the period specified therein or, if it is cancelled by the 9-10[Assessing] Officer before
the expiry of such period, till such cancellation.
(5) The Board may, having regard to the convenience of assessees and the interests of
revenue, by notification in the Official Gazette, make rules specifying the cases in
which, and the circumstances under which, an application may be made for the grant

of a certificate under sub-section (3) and the conditions subject to which such
certificate may be granted and providing for all other matters connected therewith.]
11

[Income payable net of tax.12

195A. 13[In a case other than that referred to in sub-section (1A) of section 192,
where under an agreement] or other arrangement, the tax chargeable on any income
referred to in the foregoing provisions of this Chapter is to be borne by the person by
whom the income is payable, then, for the purposes of deduction of tax under those
provisions such income shall be increased to such amount as would, after deduction of
tax thereon at the rates in force for the financial year in which such income is payable,
be equal to the net amount payable under such agreement or arrangement.]
14

[Interest or dividend or other sums payable to Government, Reserve Bank or

certain corporations.
196. Notwithstanding anything contained in the foregoing provisions of this Chapter,
no deduction of tax shall be made by any person from any sums payable to
(i) the Government, or
(ii) the Reserve Bank of India, or
(iii) a corporation established by or under a Central Act which is, under any law
for the time being in force, exempt from income-tax on its income, or
(iv) a Mutual Fund specified under clause (23D) of section 10,
where such sum is payable to it by way of interest or dividend in respect of any
securities or shares owned by it or in which it has full beneficial interest, or any other
income accruing or arising to it.]
15

[Income in respect of units of non-residents.16

196A. (1) Any person responsible for paying to a non-resident, not being a company,
or to a foreign company, any income in respect of units of a Mutual Fund specified
under clause (23D) of section 10 or of the Unit Trust of India shall, at the time of
credit of such income to the account of the payee or at the time of payment thereof in
cash or by the issue of a cheque or draft or by any other mode, whichever is earlier,
deduct income-tax thereon at the rate of twenty per cent :
17
[Provided that no deduction shall be made under this section from any such income
credited or paid on or after the 1st day of April, 2003.]
(2) Notwithstanding anything contained in sub-section (1), no deduction of tax shall
be made from any income payable in respect of units of the Unit Trust of India to a
non-resident Indian or a non-resident Hindu undivided family, where the units have
been acquired from the Unit Trust of India out of the funds in a Non-resident
(External) Account maintained with any bank in India or by remittance of funds in
foreign currency, in accordance, in either case, with the provisions of the Foreign
Exchange Regulation Act, 1973 (46 of 1973), and the rules made thereunder.
Explanation.For the purposes of this section
(a) 18 foreign currency shall have the meaning assigned to it in the Foreign
Exchange Regulation Act, 1973 (46 of 1973);
(b) non-resident Indian shall have the meaning assigned to it in clause (e) of
section 115C;

(c) Unit Trust of India means the Unit Trust of India established under the
Unit Trust of India Act, 1963 (52 of 1963);
(d) where any income as aforesaid is credited to any account, whether called
Suspense account or by any other name, in the books of account of the
person liable to pay such income, such crediting shall be deemed to be
credit of such income to the account of the payee and the provisions of this
section shall apply accordingly.]
19

[Income from units.20

196B. 21[Where any income in respect of units referred to in section 115AB or by
way of long-term capital gains arising from the transfer of such units is payable to an
Offshore Fund], the person responsible for making the payment shall, at the time of
credit of such income to the account of the payee or at the time of payment thereof in
cash or by the issue of a cheque or draft or by any other mode, whichever is earlier,
deduct income-tax thereon at the rate of ten per cent.]
22

[Income from foreign currency bonds or shares23 of Indian company.24

196C. 25[Where any income by way of interest or dividends in respect of 26[bonds or
Global Depository Receipts] referred to in section 115AC or by way of long-term
capital gains arising from the transfer of such 26[bonds or Global Depository Receipts]
is payable to a non-resident], the person responsible for making the payment shall, at
the time of credit of such income to the account of the payee or at the time of payment
thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is
earlier, deduct income-tax thereon at the rate of ten per cent :
27
[Provided that no such deduction shall be made in respect of any dividends referred
to in section 115-O.]
28

[Income of Foreign Institutional Investors from securities.29

196D. (1) Where any income in respect of securities referred to in clause (a) of subsection (1) of section 115AD is payable to a Foreign Institutional Investor, the person
responsible for making the payment shall, at the time of credit of such income to the
account of the payee or at the time of payment thereof in cash or by issue of a cheque
or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the
rate of twenty per cent :
30
[Provided that no such deduction shall be made in respect of any dividends referred
to in section 115-O.]
(2) No deduction of tax shall be made from any income, by way of capital gains
arising from the transfer of securities referred to in section 115AD, payable to a
Foreign Institutional Investor.]
Certificate for deduction at lower rate.
197. 31(1) 32[Subject to rules made under sub-section (2A), 33[where, in the case of
any income of any person 34[or sum payable to any person], income-tax is required to
be deducted at the time of credit or, as the case may be, at the time of payment at the
rates in force under the provisions of sections 192, 193, 35[194,] 194A, 36[194C,]
194D, 36[194G] 37[, 194H] 38[, 194-I] 39[, 194J] 40[, 194K] 41[***] 41a[, 194LA] and 195,
the Assessing Officer is satisfied] that the total income 42[***] of the recipient justifies

the deduction of income-tax 43[***] at any lower rates or no deduction of income-tax

44
[***], as the case may be, the 45[Assessing] Officer shall, on an application made by
the assessee in this behalf, give to him such certificate as may be appropriate.
(2) Where any such certificate is given, the person responsible for paying the income
shall, until such certificate is cancelled by the 46[Assessing] Officer, deduct incometax 47[***] at the rates specified in such certificate or deduct no tax, as the case may
be.
48
[(2A) The Board may, having regard to the convenience of assessees and the
interests of revenue, by notification in the Official Gazette, make rules specifying the
cases in which, and the circumstances under which, an application may be made for
the grant of a certificate under sub-section (1) and the conditions subject to which
such certificate may be granted and providing for all other matters connected
therewith.]
(3) 49[***]
50

[No deduction to be made in certain cases.

197A. 52(1) Notwithstanding anything contained in 53[***] section 194 54[***] 55[or
section 194EE], no deduction of tax shall be made under any of the said sections in
the case of an individual, who is resident in India, if such individual furnishes to the
person responsible for paying any income of the nature referred to in 53[***] section
194 56[57[***] or, as the case may be, section 194EE], a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that
58
[the tax on his estimated total income of the previous year in which such income is
to be included in computing his total income will be nil.]
59
[(1A) Notwithstanding anything contained in 60[section 193 or] section 194A or
section 194K, no deduction of tax shall be made under 61[any] of the said sections in
the case of a person (not being a company or a firm), if such person furnishes to the
person responsible for paying any income of the nature referred to in 60[section 193
or] section 194A or section 194K, as the case may be, a declaration in writing in
duplicate in the prescribed form and verified in the prescribed manner to the effect
that the tax on his estimated total income of the previous year in which such income is
to be included in computing his total income will be nil.]
62
[(1B) The provisions of this section shall not apply where the amount of any income
of the nature referred to in sub-section (1) or sub-section (1A), as the case may be, or
the aggregate of the amounts of such incomes credited or paid or likely to be credited
or paid during the previous year in which such income is to be included exceeds the
maximum amount which is not chargeable to income-tax.]
63
[(1C) Notwithstanding anything contained in section 193 or section 194 or section
194A or section 194EE or section 194K or sub-section (1B) of this section, no
deduction of tax shall be made in the case of an individual resident in India, who is of
the age of sixty-five years or more at any time during the previous year and is entitled
to a deduction from the amount of income-tax on his total income referred to in
section 88B, if such individual furnishes to the person responsible for paying any
income of the nature referred to in section 193 or section 194 or section 194A or
section 194EE or section 194K, as the case may be, a declaration in writing in
duplicate in the prescribed form63a and verified in the prescribed manner to the effect
that the tax on his estimated total income of the previous year in which such income is
to be included in computing his total income will be nil.]
51

(2) The person responsible for paying any income of the nature referred to in subsection (1) 64[or sub-section (1A)] 63[or sub-section (1C)] shall deliver or cause to be
delivered to the 65[Chief Commissioner or Commissioner] one copy of the declaration
referred to in sub-section (1) 66[or sub-section (1A)] 67[or sub-section (1C)] on or
before the seventh day of the month next following the month in which the
declaration is furnished to him.]
Tax deducted is income received.
198. All sums deducted in accordance with 68-78[the foregoing provisions of this
Chapter] shall, for the purpose of computing the income of an assessee, be deemed to
be income received :
79
[Provided that the sum being the tax paid, under sub-section (1A) of section 192 for
the purpose of computing the income of an assessee, shall not be deemed to be
income received.]
Credit for tax deducted.
80
199. 81[(1)] Any deduction made in accordance with 82-92[the foregoing provisions of
this Chapter] and paid to the Central Government shall be treated as a
payment of 93[tax] on behalf of the person from whose income the deduction
was made, or of the owner of the security 94[, or depositor or owner of property
or of unit-holder] or of the shareholder, as the case may be, and credit shall be
given to him for the amount so deducted on the production of the certificate
furnished under section 203 in the assessment 95[***] 96[made under this Act
for the assessment year for which such income is assessable] :
97
[Provided that
(i) in a case where such person or owner 98[or depositor or unit-holder] or
shareholder is a person, whose income is included under the provisions of
section 60, section 61, section 64, section 93 or section 94 in the total
income of another person, the payment shall be deemed to have been made
on behalf of, and the credit shall be given to, such other person;
(ii) in any other case, where the dividend on any share is assessable as the
income of a person other than the shareholder, the payment shall be deemed
to have been made on behalf of, and the credit shall be given to, such other
person in such circumstances as may be prescribed :
99
[Provided further that where any property, deposit, security, unit or share is owned
jointly by two or more persons not constituting a partnership, the payment shall be
deemed to have been made on behalf of, and credit shall be given to, each such person
in the same proportion in which rent, interest on deposit or on security or income in
respect of unit or dividend on share is assessable as his income.]]
1-2
[(2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central
Government shall be treated as the tax paid on behalf of the person in respect of
whose income, such payment of tax has been made and credit shall be given to him
for the amount so paid on production of the certificate furnished under section 203 in
the assessment under this Act for the assessment year for which such income is
assessable.]
The following sub-section (3) shall be inserted after sub-section (2) of section 199
by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :

(3) Where any deduction is made in accordance with the foregoing provisions of this
Chapter on or after the 1st day of April, 2005 and paid to the Central Government,
the amount of tax deducted and specified in the statement referred to in section 203AA
shall be treated as tax paid on behalf of the persons referred to in sub-section (1) or,
as the case may be, sub-section (2) and credit shall be given to him for the amount so
deducted in the assessment made under this Act for the assessment year for which
such income is assessable without the production of certificate.
Duty of person deducting tax.
200. 3[(1)] 4Any person deducting any sum in accordance with 5-15[the foregoing
provisions of this Chapter] shall pay within the prescribed time, the sum so deducted
to the credit of the Central Government or as the Board directs.
16
[(2) Any person being an employer, referred to in sub-section (1A) of section 192
shall pay, within the prescribed time, the tax to the credit of the Central Government
or as the Board directs.]
The following sub-section (3) shall be inserted after sub-section (2) of section 200
by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(3) Any person deducting any sum on or after the 1st day of April, 2005 in accordance
with the foregoing provisions of this Chapter or, as the case may be, any person being
an employer referred to in sub-section (1A) of section 192 shall, after paying the tax
deducted to the credit of the Central Government within the prescribed time, prepare
quarterly statements for the period ending on the 30th June, the 30th September, the
31st December and the 31st March in each financial year and deliver or cause to be
delivered to the prescribed income-tax authority or the person authorised by such
authority such statement in such form and verified in such manner and setting forth
such particulars and within such time as may be prescribed.
Consequences of failure to deduct or pay.17
201. (1) If any such person 18[referred to in section 200] and in the cases referred to
in section 194, the principal officer and the company of which he is the principal
officer does not deduct 19[the whole or any part of the tax] or after deducting fails to
pay the tax as required by or under this Act, he or it shall, without prejudice to any
other consequences which he or it may incur, be deemed to be an assessee in default
in respect of the tax :
Provided that no penalty shall be charged under section 221 from such person,
principal officer or company unless the 20[Assessing] Officer is satisfied that such
person or principal officer or company, as the case may be, has 21[without good and
sufficient reasons] failed to deduct and pay the tax.
22
[(1A) 23Without prejudice to the provisions of sub-section (1), if any such person,
principal officer or company as is referred to in that sub-section does not deduct 24[the
whole or any part of the tax] or after deducting fails to pay the tax as required by or
under this Act, he or it shall be liable to pay simple interest at 25[twelve] per cent per
annum on the amount of such tax from the date on which such tax was deductible to
the date on which such tax is actually paid.]
(2) Where the tax has not been paid as aforesaid after it is deducted, 26[the amount of
the tax together with the amount of simple interest thereon referred to in sub-section

(1A)] shall be a charge upon all the assets of the person, or the company, as the case
may be, referred to in sub-section (1).
Deduction only one mode of recovery.
202. The power to 27[recover] tax by deduction under 28[the foregoing provisions of
this Chapter] shall be without prejudice to any other mode of recovery.
29

[Certificate for tax deducted.

30
203. 31[(1)] 32Every person deducting tax in accordance with 33-53[the foregoing
provisions of this Chapter] 54[shall, within such period as may be prescribed from the
time of credit or payment of the sum, or, as the case may be, from the time of issue of
a cheque or warrant for payment of any dividend to a shareholder], furnish to the
person to whose account such credit is given or to whom such payment is made or the
cheque or warrant is issued, a certificate to the effect that tax has been deducted, and
specifying the amount so deducted, the rate at which the tax has been deducted and
such other particulars as may be prescribed.]
55
[(2) Every person, being an employer, referred to in sub-section (1A) of section 192
shall, within such period, as may be prescribed, furnish to the person in respect of
whose income such payment of tax has been made, a certificate to the effect that tax
has been paid to the Central Government, and specify the amount so paid, the rate at
which the tax has been paid and such other particulars as may be prescribed.]
The following sub-section (3) shall be inserted after sub-section (2) of section 203
by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(3) Where the tax has been deducted or paid in accordance with the foregoing
provisions of this Chapter on or after the 1st day of April, 2005, there shall be no
requirement to furnish a certificate referred to in sub-section (1) or, as the case may
be, sub-section (2).
56-65

[Tax deduction and collection account number.

203A. (1) Every person, deducting tax or collecting tax in accordance with the
provisions of this Chapter, who has not been allotted a tax deduction account number
or, as the case may be, a tax collection account number, shall, within such time as
may be prescribed66, apply to the Assessing Officer for the allotment of a tax
deduction and collection account number.
(2) Where a tax deduction account number or, as the case may be, a tax collection
account number or a tax deduction and collection account number has been
allotted to a person, such person shall quote such number
(a) in all challans for the payment of any sum in accordance with the
provisions of section 200 or sub-section (3) of section 206C;
(b) in all certificates furnished under section 203 or sub-section (5) of section
206C;
(c) in all the returns, delivered in accordance with the provisions of section 206
or sub-section (5A) or sub-section (5B) of section 206C to any income-tax
authority; and
(d) in all other documents pertaining to such transactions as may be prescribed
in the interests of revenue.]

The following section 203AA shall be inserted after section 203A by the Finance
(No. 2) Act, 2004, w.e.f. 1-4-2005 :
Furnishing of statement of tax deducted, etc.
203AA. The prescribed income-tax authority or the person authorised by such
authority referred to in sub-section (3) of section 200, shall, within the prescribed
time after the end of each financial year beginning on or after the 1st day of April,
2005 prepare and deliver to every person from whose income the tax has been deducted or in respect of whose income the tax has been paid a statement in the
prescribed form specifying the amount of tax deducted or paid and such other
particulars as may be prescribed.
Meaning of person responsible for paying.
204. For the purposes of 67-76[the foregoing provisions of this Chapter] and 77 section
285, the expression person responsible for paying means
(i) in the case of payments of income chargeable under the head Salaries,
other than payments by the Central Government or the Government of a
State, the employer himself or, if the employer is a company, the company
itself, including the principal officer thereof;
(ii) in the case of payments of income chargeable under the head Interest on
securities, other than payments made by or on behalf of the Central
Government or the Government of a State, the local authority, corporation
or company, including the principal officer thereof;
78
[(iia) in the case of any sum payable to a non-resident Indian, being any sum
representing consideration for the transfer by him of any foreign exchange
asset, which is not a short-term capital asset, the authorised dealer
responsible for remitting such sum to the non-resident Indian or for
crediting such sum to his Non-resident (External) Account maintained in
accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973),
and any rules made thereunder;]
(iii) 79[in the case of credit, or, as the case may be, payment] of any other sum
chargeable under the provisions of this Act, the payer himself, or, if the
payer is a company, the company itself including the principal officer
thereof.
80
[Explanation.For the purposes of this section,
(a) non-resident Indian and foreign exchange asset shall have the meanings
assigned to them in Chapter XII-A;
(b) authorised dealer81 shall have the meaning assigned to it in clause (b) of
section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973).]
Bar against direct demand on assessee.
205. Where tax is deductible at the source under 82-92.[the foregoing provisions of this
Chapter], the assessee shall not be called upon to pay the tax himself to the
extent to which tax has been deducted from that income.
93

[Persons deducting tax to furnish prescribed returns.

94

206. 95[(1)] The prescribed person96 in the case of every office of Government, the
principal officer in the case of every company, the prescribed person96 in the case of
every local authority or other public body or association, every private employer and
every other person responsible for deducting tax under the foregoing provisions of
this Chapter 97[shall, within the prescribed time after the end of each financial year,
prepare and deliver or cause to be delivered] to the prescribed income-tax authority 98
98a
[or such other authority or agency as may be prescribed], such returns99 in such
form and verified in such manner and setting forth such particulars as may be
prescribed:]
98a
[Provided that the Board may, if it considers necessary or expedient so to do, frame
a scheme for the purposes of filing such returns with such other authority or agency
referred to in this sub-section.]
1
[(2) Without prejudice to the provisions of sub-section (1), the person responsible for
deducting tax under the foregoing provisions of this Chapter other than 1a[the
prescribed person in the case of every office of the Government and] the principal
officer in the case of every company may, at his option, deliver or cause to be
delivered such return to the prescribed income-tax authority in accordance with such
scheme as may be specified by the Board in this behalf, by notification in the Official
Gazette2, and subject to such conditions as may be specified therein, on or before the
prescribed time after the end of each financial year, on a floppy, diskette, magnetic
cartridge tape, CD-ROM or any other computer readable media (hereinafter referred
to as the computer media) and in the manner as may be specified in that scheme :
Provided that the principal officer shall, in the case of every company responsible for
deducting tax under the foregoing provisions of this Chapter, deliver or cause to be
delivered, within the prescribed time after the end of each financial year, such returns
on computer media under the said scheme.
The following proviso shall be substituted for the existing proviso to sub-section
(2) of section 206 by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Provided that the prescribed person in the case of every office of Government and the
principal officer in the case of every company responsible for deducting tax under the
foregoing provisions of this Chapter shall, deliver or cause to be delivered, within the
prescribed time after the end of each financial year, such returns on computer media
under the said scheme.
(3) Notwithstanding anything contained in any other law for the time being in force, a
return filed on computer media shall be deemed to be a return for the purposes of this
section and the rules made thereunder and shall be admissible in any proceedings
thereunder, without further proof of production of the original, as evidence of any
contents of the original or of any fact stated therein.
(4) Where the Assessing Officer considers that the return delivered or caused to be
delivered under sub-section (2) is defective, he may intimate the defect to the person
responsible for deducting tax or the principal officer in the case of a company, as the
case may be, and give him an opportunity of rectifying the defect within a period of
fifteen days from the date of such intimation or within such further period which, on
an application made in this behalf, the Assessing Officer may, in his discretion, allow;
and if the defect is not rectified within the said period of fifteen days or, as the case
may be, the further period so allowed, then, notwithstanding anything contained in
any other provision of this Act, such return shall be treated as an invalid return and the
provisions of this Act shall apply as if such person had failed to deliver the return.]

[BB.Collection at source
Profits and gains from the business of trading in alcoholic liquor, forest produce,
scrap, etc.
6
206C. 7[8(1) Every person, being a seller shall, at the time of debiting of the amount
payable by the buyer to the account of the buyer or at the time of receipt of such
amount9 from the said buyer in cash or by the issue of a cheque or draft or by any
other mode, whichever is earlier, collect from the buyer of any goods of the nature
specified in column (2) of the Table below, a sum equal to the percentage, specified in
the corresponding entry in column (3) of the said Table, of such amount as incometax:
10
[TABLE
Sl. No.
Nature of goods
Percentage
(1)
(2)
(3)
(i)
Alcoholic Liquor for human consumption
One per cent
(ii)
Tendu leaves
Five per cent
(iii)
Timber obtained under a forest lease
Two and one-half
per cent
(iv)
Timber obtained by any mode other than Two and one-half
under a forest lease
per cent
(v)
Any other forest produce not being timber or Two and one-half
tendu leaves
per cent
(vi)
Scrap
One per cent:]
11
[Provided that every person, being a seller shall at the time, during the period
beginning on the 1st day of June, 2003 and ending on the day immediately preceding
the date on which the Taxation Laws (Amendment) Act, 2003 comes into force, of
debiting of the amount payable by the buyer to the account of the buyer or of receipt
of such amount from the said buyer in cash or by the issue of a cheque or draft or by
any other mode, whichever is earlier, collect from the buyer of any goods of the
nature specified in column (2) of the Table as it stood immediately before the 1st day
of June, 2003, a sum equal to the percentage, specified in the corresponding entry in
column (3) of the said Table, of such amount as income-tax in accordance with the
provisions of this section as they stood immediately before the 1st day of June,
2003.]]
12
[(1A) Notwithstanding anything contained in sub-section (1), no collection of tax
shall be made in the case of a buyer, who is resident in India, if such buyer furnishes
to the person responsible for collecting tax, a declaration in writing in duplicate in the
prescribed form12a and verified in the prescribed manner to the effect that the goods
referred to in column (2) of the aforesaid Table are to be utilised for the purposes of
manufacturing, processing or producing articles or things and not for trading
purposes.
(1B) The person responsible for collecting tax under this section shall deliver or cause
to be delivered to the Chief Commissioner or Commissioner one copy of the
declaration referred to in sub-section (1A) on or before the seventh day of the month
next following the month in which the declaration is furnished to him.]

12b

[(1C) Every person, who grants a lease or a licence or enters into a contract
or otherwise transfers any right or interest either in whole or in part in
any parking lot or toll plaza or mine or quarry, to another person, other
than a public sector company (hereafter in this section referred to as
licensee or lessee) for the use of such parking lot or toll plaza or
mine or quarry for the purpose of business shall, at the time of debiting
of the amount payable by the licensee or lessee to the account of the
licensee or lessee or at the time of receipt of such amount from the
licensee or lessee in cash or by the issue of a cheque or draft or by any
other mode, whichever is earlier, collect from the licensee or lessee of
any such licence, contract or lease of the nature specified in column (2)
of the Table below, a sum equal to the percentage, specified in the
corresponding entry in column (3) of the said Table, of such amount as
income-tax:
TABLE
Sl. No.
Nature of contract or licence or lease, etc.
(1)
(2)
(i)
Parking lot
(ii)
Toll plaza
(iii)
Mining and quarrying
(2) The power to recover tax by collection under sub-section (1) 12c[or sub-section
(1C)] shall be without prejudice to any other mode of recovery.
(3) Any person collecting any amount under sub-section (1) 12c[or sub-section (1C)]
shall pay within 13[the prescribed time] the amount so collected to the credit of the
Central Government or as the Board directs.
The following proviso shall be inserted to sub-section (3) of section 206C by the
Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Provided that the person collecting tax on or after the 1st day of April, 2005 in
accordance with the foregoing provisions of this section shall, after
paying the tax collected to the credit of the Central Government within
the prescribed time, prepare quarterly statements for the period ending
on the 30th June, the 30th September, the 31st December and the 31st
March in each financial year and deliver or cause to be delivered to the
prescribed income-tax authority, or the person authorised by such
authority, such statement in such form and verified in such manner and
setting forth such particulars and within such time as may be
prescribed.
(4) Any amount collected in accordance with the provisions of this section and paid
under sub-section (3) shall be deemed as payment of tax on behalf of the person from
whom the amount has been collected and credit shall be given to him for the amount
so collected on the production of the certificate furnished under sub-section (5) in the
assessment made under this Act for the assessment year for which such income is
assessable.
The following proviso shall be inserted to sub-section (4) of section 206C by the
Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Provided that where any amount is collected in accordance with the provisions
of this section on or after the 1st day of April, 2005 and paid under sub-

Percentage
(3)
TWO PER C
Two per cen
Two per cen

section (3) to the credit of the Central Government, the amount of tax
collected and specified in the statement referred to in the second proviso
to sub-section (5) shall be deemed as payment of tax on behalf of the
person from whom the amount has been collected and credit shall be
given to him for the amount so collected in the assessment made under
this Act for the assessment year for which such income is assessable
without the production of certificate.
(5) Every person collecting tax in accordance with the provisions of this section shall
within 14[such period as may be prescribed15 from the time of debit] or receipt of the
amount furnish to the buyer 15a[or licensee or lessee] to whose account such amount is
debited or from whom such payment is received, a certificate to the effect that tax has
been collected, and specifying the sum so collected, the rate at which the tax has been
collected and such other particulars as may be prescribed15.
The following first and second provisos shall be inserted to sub-section (5) of
section 206C by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Provided that no certificate may be furnished in a case where tax has been
collected in accordance with the foregoing provisions of this section on
or after the 1st day of April, 2005:
Provided further that the prescribed income-tax authority or the person
authorised by such authority referred to in sub-section (3) shall, within
the prescribed time after the end of each financial year, prepare and
deliver to the buyer referred to in sub-section (1) or, as the case may be,
to the licensee or lessee referred to in sub-section (1C), a statement in
the prescribed form specifying the amount of tax collected and such
other particulars as may be prescribed.
16
[(5A) Every person collecting tax in accordance with the provisions of this section
shall 16a[prepare within the prescribed time after the end of each financial year], and
deliver or cause to be delivered to the prescribed income-tax authority 17 17a[or such
other authority or agency as may be prescribed] such returns in such form and
verified in such manner and setting forth such particulars and within such time as may
be prescribed18 :]
18a
[Provided that the Board may, if it considers necessary or expedient so to do,
frame a scheme for the purposes of filing such returns with such other
authority or agency referred to in this sub-section.]
19
[(5B) Notwithstanding anything contained in any other law for the time being
in force, a return filed on a floppy, diskette, magnetic cartridge tape,
CD-ROM or any other computer readable media as may be specified 20
by the Board (hereinafter referred to as the computer media) shall be
deemed to be a return for the purposes of sub-section (5A) and the rules
made thereunder and shall be admissible in any proceedings thereunder,
without further proof of production of the original, as evidence of any
contents of the original or of any fact stated therein.
(5C) A return filed under sub-section (5B) shall fulfil the following conditions,
namely:
(a) while receiving returns on computer media, necessary checks by scanning
the documents filed on computer media will be carried out and the media
will be duly authenticated by the Assessing Officer; and

(b) the Assessing Officer shall also take due care to preserve the computer
media by duplicating, transferring, mastering or storage without loss of
data.]
The following sub-sections (5B), (5C) and (5D) shall be substituted for the
existing sub-sections (5B) and (5C) of section 206C by the Finance (No. 2) Act,
2004, w.e.f. 1-4-2005 :
(5B) Without prejudice to the provisions of sub-section (5A), any person
collecting tax, other than in a case where the seller is a company, the
Central Government or a State Government, may at his option, deliver
or cause to be delivered such return to the prescribed income-tax
authority in accordance with such scheme as may be specified by the
Board in this behalf, by notification in the Official Gazette, and subject
to such conditions as may be specified therein, on or before the
prescribed time after the end of each financial year, on a floppy,
diskette, magnetic cartridge tape, CD-ROM or any other computer
readable media (hereinafter referred to as the computer media) and in
the manner as may be specified in that scheme:
Provided that where the person collecting tax is a company or the Central
Government or a State Government, such person shall, in accordance
with the provisions of this section, deliver or cause to be delivered,
within the prescribed time after the end of each financial year, such
returns on computer media under the said scheme.
(5C) Notwithstanding anything contained in any other law for the time being in
force, a return filed on computer media shall be deemed to be a return
for the purposes of sub-section (5A) and the rules made thereunder and
shall be admissible in any proceedings made thereunder, without further
proof of production of the original, as evidence of any contents of the
original or of any facts stated therein.
(5D) Where the Assessing Officer considers that the return delivered or caused
to be delivered under sub-section (5B) is defective, he may intimate the
defect to the person collecting tax and give him an opportunity of
rectifying the defect within a period of fifteen days from the date of such
intimation or within such further period which, on an application made
in this behalf, the Assessing Officer may, in his discretion, allow; and if
the defect is not rectified within the said period of fifteen days or, as the
case may be, the further period so allowed, then, notwithstanding
anything contained in any other provision of this Act, such return shall
be treated as an invalid return and the provisions of this Act shall apply
as if such person had failed to deliver the return.
(6) Any person responsible for collecting the tax who fails to collect the tax in
accordance with the provisions of this section, shall, notwithstanding such failure, be
liable to pay the tax to the credit of the Central Government in accordance with the
provisions of sub-section (3).
(7) Without prejudice to the provisions of sub-section (6), if the seller does not collect
the tax or after collecting the tax fails to pay it as required under this section, he shall
be liable to pay simple interest at the rate of 21[one] per cent per month or part thereof
on the amount of such tax from the date on which such tax was collectible to the date
on which the tax was actually paid.

(8) Where the tax has not been paid as aforesaid, after it is collected, the amount of
the tax together with the amount of simple interest thereon referred to in sub-section
(7) shall be a charge upon all the assets of the seller.]
22
[(9) Where the Assessing Officer is satisfied that the total income of the buyer 22a[or
licensee or lessee] justifies the collection of the tax at any lower rate than the relevant
rate specified in sub-section (1) 22a[or sub-section (1C)], the Assessing Officer shall,
on an application23 made by the buyer 22a[or licensee or lessee] in this behalf, give to
him a certificate for collection of tax at such lower rate than the relevant rate specified
in sub-section (1) 22a[or sub-section (1C)].
(10) Where a certificate under sub-section (9) is given, the person responsible
for collecting the tax shall, until such certificate is cancelled by the
Assessing Officer, collect the tax at the rates specified in such
certificate.
(11) The Board may, having regard to the convenience of assessees and the
interests of revenue, by notification in the Official Gazette, make rules
specifying the cases in which, and the circumstances under which, an
application may be made for the grant of a certificate under sub-section
(9) and the conditions subject to which such certificate may be granted
and providing for all other matters connected therewith.]
24
[Explanation.For the purposes of this section,
(a) buyer means a person who obtains in any sale, by way of auction, tender
or any other mode, goods of the nature specified in the Table in sub-section
(1) or the right to receive any such goods but does not include,
25
[(i) a public sector company, the Central Government, a State Government,
and an embassy, a high commission, legation, commission, consulate
and the trade representation, of a foreign State and a club; or
(ii) a buyer in the retail sale of such goods purchased by him for personal
consumption;]
26
[(b) scrap means waste and scrap from the manufacture or mechanical
working of materials which is definitely not usable as such because of
breakage, cutting up, wear and other reasons;
(c) seller means the Central Government, a State Government or any local
authority or corporation or authority established by or under a Central, State
or Provincial Act, or any company or firm or co-operative society and also
includes an individual or a Hindu undivided family whose total sales, gross
receipts or turnover from the business or profession carried on by him
exceed the monetary limits specified under clause (a) or clause (b) of
section 44AB during the financial year immediately preceding the financial
year in which the goods of the nature specified in the Table in sub-section
(1) are sold.]]
27

[Tax collection account number.

206CA. (1) Every person collecting tax in accordance with the provisions of section
206C, shall, within such time as may be prescribed28, apply to the Assessing Officer
for the allotment of a tax-collection account number29.
(2) Where a tax collection account number has been allotted to a person, such person
shall quote such number

(a) in all challans for the payment of any sum in accordance with the provisions
of sub-section (3) of section 206C;
(b) in all certificates furnished under sub-section (5) of section 206C;
(c) in all the returns delivered in accordance with the provisions of sub-section
(5A) or sub-section (5B) of section 206C to any income-tax authority; and
(d) in all other documents pertaining to such transactions as may be prescribed
in the interest of revenue:]
29a
[Provided that the provisions of this section shall not apply on or after the 1st day
of October, 2004.]
C.Advance payment of tax
[Liability for payment of advance tax.
207. Tax shall be payable in advance during any financial year, in accordance with
the provisions of sections 208 to 219 (both inclusive), in respect of the total income of
the assessee which would be chargeable to tax for the assessment year immediately
following that financial year, such income being hereafter in this Chapter referred to
as current income30a.]
30

31

[Conditions of liability to pay advance tax.

208. Advance tax shall be payable during a financial year in every case where the
amount of such tax payable by the assessee during that year, as computed in
accordance with the provisions of this Chapter, is 32[five thousand] rupees or more.]
Computation of advance tax.
209. 33[(1) The amount of advance tax payable by an assessee in the financial year
shall, subject to the provisions of sub-sections (2) and (3), be computed as follows,
namely :
(a) where the calculation is made by the assessee for the purposes of payment
of advance tax under sub-section (1) or sub-section (2) or sub-section (5) or
sub-section (6) of section 210, he shall first estimate his current income and
income-tax thereon shall be calculated at the rates in force in the financial
year;
(b) where the calculation is made by the Assessing Officer for the purpose of
making an order under sub-section (3) of section 210, the total income of
the latest previous year in respect of which the assessee has been assessed
by way of regular assessment or the total income returned by the assessee in
any return of income furnished by him for any subsequent previous year,
whichever is higher, shall be taken and income-tax thereon shall be
calculated at the rates in force in the financial year;
(c) where the calculation is made by the Assessing Officer for the purpose of
making an amended order under sub-section (4) of section 210, the total
income declared in the return furnished by the assessee for the later
previous year, or, as the case may be, the total income in respect of which
the regular assessment, referred to in that sub-section has been made, shall
be taken and income-tax thereon shall be calculated at the rates in force in
the financial year;

(d) the income-tax calculated under clause (a) or clause (b) or clause (c) shall,
in each case, be reduced by the amount of income-tax which would be
deductible 34[or collectible] at source during the said financial year under
any provision of this Act from any income (as computed before allowing
any deductions admissible under this Act) which has been taken into
account in computing the current income or, as the case may be, the total
income aforesaid; and the amount of income-tax as so reduced shall be the
advance tax payable.]
35
[(2) Where the Finance Act of the relevant year provides that, in the case of any class
of assessees, net agricultural income (as defined in that Act) shall be taken into
account for the purposes of computing advance tax, then, the net agricul-tural income
to be taken into account in the case of any assessee falling in that class, shall be
(a) in cases 36[where the Assessing Officer makes an order under sub-section (3)
or sub-section (4) of section 210],
(i) if the total income of the latest previous year in respect of which the
assessee has been assessed by way of regular assessment forms the basis
of computation of advance tax payable by him, the net agricultural
income which has been taken into account for the purposes of charging
income-tax for the assessment year relevant to that previous year; or
37
[(ii) if the total income declared by the assessee for the later previous year
referred to in sub-section (4) of section 210 forms the basis of
computation of advance tax, the net agricultural income as returned by
the assessee in the return of income for the assessment year relevant to
such later previous year;]
38
[(b) in cases where the advance tax is paid by the assessee on the basis of his
estimate of his current income under sub-section (1) or sub-section (2) or
sub-section (5) or sub-section (6) of section 210, the net agricultural
income, as estimated by him, of the period which would be the previous
year for the immediately following assessment year.]
(3) Where the Finance Act of the relevant year specifies any separate rate or rates for
the purposes of computing advance tax in the case of every Hindu undivided family
which has at least one member whose total income of the previous year exceeds the
maximum amount not chargeable to income-tax in his case, then, the 39[Assessing]
Officer shall, for making an order under 40[sub-section (3) or sub-section (4) of]
section 210 in the case of any such Hindu undivided family, compute (subject to the
provisions of section 164) the advance tax at such rate or rates
(a) in a case where the total income of the latest previous year in respect of
which the Hindu undivided family has been assessed by way of regular
assessment forms the basis of computation of advance tax, if the total
income of any member of the family for the assessment year relevant to
such latest previous year exceeds the maximum amount not chargeable to
income-tax in his case;
(b) in a case where the total income of the previous year 41[in respect of which a
return of income is furnished by the Hindu undivided family under section
139 or in response to a notice under sub-section (1) of section 142] forms
the basis of computation of advance tax, if the total income of any member
of the family for the assessment year relevant to such previous year exceeds
the maximum amount not chargeable to income-tax in his case.

43-44

[Payment of advance tax by the assessee of his own accord or in pursuance of

order of Assessing Officer.
210. (1) Every person who is liable to pay advance tax under section 208 (whether or
not he has been previously assessed by way of regular assessment) shall, of his own
accord, pay, on or before each of the due dates specified in section 211, the appropriate percentage, specified in that section, of the advance tax on his current income,
calculated in the manner laid down in section 209.
(2) A person who pays any instalment or instalments of advance tax under sub-section
(1), may increase or reduce the amount of advance tax payable in the remaining
instalment or instalments to accord with his estimate of his current income and the
advance tax payable thereon, and make payment of the said amount in the remaining
instalment or instalments accordingly.
(3) In the case of a person who has been already assessed by way of regular
assessment in respect of the total income of any previous year 45[***], the Assessing
Officer, if he is of opinion that such person is liable to pay advance tax, may, at any
time during the financial year but not later than the last day of February, by order in
writing, require such person to pay advance tax calculated in the manner laid down in
section 209, and issue to such person a notice of demand under section 156 specifying
the instalment or instalments in which such tax is to be paid.
(4) If, after the making of an order by the Assessing Officer under sub-section (3) and
at any time before the 1st day of March, a return of income is furnished by the
assessee under section 139 or in response to a notice under sub-section (1) of section
142, or a regular assessment of the assessee is made in respect of a previous year later
than that referred to in sub-section (3), the Assessing Officer may make an amended
order and issue to such assessee a notice of demand under section 156 requiring the
assessee to pay, on or before the due date or each of the due dates specified in section
211 falling after the date of the amended order, the appropriate percentage, specified
in section 211, of the advance tax computed on the basis of the total income declared
in such return or in respect of which the regular assessment aforesaid has been made.
(5) A person who is served with an order of the Assessing Officer under sub-section
(3) or an amended order under sub-section (4) may, if in his estimation the advance
tax payable on his current income would be less than the amount of the advance tax
specified in such order or amended order, send an intimation in the prescribed form46
to the Assessing Officer to that effect and pay such advance tax as accords with his
estimate, calculated in the manner laid down in section 209, at the appropriate
percentage thereof specified in section 211, on or before the due date or each of the
due dates specified in section 211 falling after the date of such intimation.
(6) A person who is served with an order of the Assessing Officer under sub-section
(3) or amended order under sub-section (4) shall, if in his estimation the advance tax
payable on his current income would exceed the amount of advance tax specified in
such order or amended order or intimated by him under sub-section (5), pay on or
before the due date of the last instalment specified in section 211, the appropriate part
or, as the case may be, the whole of such higher amount of advance tax as accords
with his estimate, calculated in the manner laid down in section 209.]

47

[Instalments of advance tax and due dates.48

211. 49[(1) Advance tax on the current income calculated in the manner laid down in
section 209 shall be payable by
(a) all the companies, who are liable to pay the same, in four instalments during
each financial year and the due date of each instalment and the amount of
such instalment shall be as specified in Table I below :
TABLE I
Due date of instalment
Amount payable
On or before the 15th June
Not less than fifteen per cent of
such advance tax.
On or before the 15th September
Not less than forty-five per cent of
such advance tax, as reduced by the
amount, if any, paid in the earlier
instalment.
On or before the 15th December
Not less than seventy-five per cent
of such advance tax, as reduced by
the amount or amounts, if any, paid
in the earlier instalment or
instalments.
On or before the 15th March
The whole amount of such advance
tax as reduced by the amount or
amounts, if any, paid in the earlier
instalment or instalments.
(b) all the assessees (other than companies), who are liable to pay the same, in
three instalments during each financial year and the due date of each
instalment and the amount of such instalment shall be as specified in Table
II below :
TABLE II
Due date of instalment
Amount payable
On or before the 15th September
Not less than thirty per cent of such
advance tax.
On or before the 15th December
Not less than sixty per cent of such
advance tax, as reduced by the
amount, if any, paid in the earlier
instalment.
On or before the 15th March
The whole amount of such advance
tax as reduced by the amount or
amounts, if any, paid in the earlier
instalment or instalments :
Provided that any amount paid by way of advance tax on or before the 31st day of
March shall also be treated as advance tax paid during the financial year ending on
that day for all the purposes of this Act.]
(2) If the notice of demand issued under section 156 in pursuance of an order of the
Assessing Officer under sub-section (3) or sub-section (4) of section 210 is served
after any of the due dates specified in sub-section (1), the appropriate part or, as the

case may be, the whole of the amount of the advance tax specified in such notice shall
be payable on or before each of such of those dates as fall after the date of service of
the notice of demand.]

51

Interest payable by Government.

214. (1) The Central Government shall pay simple interest at 53[fifteen] per cent per
annum on the amount by which the aggregate sum of any instalments of advance tax
paid during any financial year in which they are payable under sections 207 to 213
exceeds the amount of the 54[assessed tax] from the 1st day of April next following the
said financial year to the date of the regular assessment for the assessment year
immediately following the said financial year, and where any such instalment is paid
after the expiry of the financial year, during which it is payable by reason of the
provisions of section 213, interest as aforesaid shall also be payable on that instalment
from the date of its payment to the date of regular assessment :
55
[Provided that in respect of any amount refunded on a provisional assessment under
section 141A, no interest shall be paid for any period after the date of such provisional
assessment.]
56
[(1A) Where as a result of an order under section 147 or section 154 or section 155
or section 250 or section 254 or section 260 or section 262 or section 263 or section
264 57[or an order of the Settlement Commission under sub-section (4) of section
245D], the amount on which interest was payable under sub-section (1) has been
increased or reduced, as the case may be, the interest shall be increased or reduced
accordingly, and in a case where the interest is reduced, the 58[Assessing] Officer shall
serve on the assessee, a notice of demand in the prescribed form specifying the
amount of the excess interest payable and requiring him to pay such amount ; and
such notice of demand shall be deemed to be a notice under section 156 and the
provisions of this Act shall apply accordingly.]
(2) On any portion of such amount which is refunded under this Chapter, interest shall
be payable only up to the date on which the refund was made.
59
[(3) This section and sections 215, 216 and 217 shall not apply in respect of any
assessment for the assessment year commencing on the 1st day of April, 1989, or any
subsequent assessment year and, in the application of the said sections to the
assessment for any earlier assessment year, references therein [except in sub-section
(1A) and sub-section (3) of section 215] to the other provisions of this Act shall be
construed as references to those provisions as for the time being in force and
applicable to the relevant assessment year.]
60
[Explanation 1.In this section, assessed tax shall have the same meaning as in
sub-section (5) of section 215.
Explanation 2.Where, in relation to an assessment year, an assessment is made for
the first time under section 147, the assessment so made shall be regarded as a regular
assessment for the purposes of this section.]
52

Interest payable by assessee.

61

215. 62[63(1) Where, in any financial year, an assessee has paid 64[advance tax under
section 209A or section 212 on the basis of his own estimate (including revised
estimate)], and the advance tax so paid is less than seventy-five per cent of the
assessed tax, simple interest at the rate of 65[fifteen] per cent per annum from the 1st
day of April next following the said financial year up to the date of the regular
assessment shall be payable by the assessee upon the amount by which the advance
tax so paid falls short of the assessed tax :]
66
[Provided that in the case of an assessee, being a company, the provisions of this
sub-section shall have effect as if for the words seventy-five per cent, the words
eighty-three and one-third per cent had been substituted.]
67
[(2) Where before the date of completion of a regular assessment, tax is paid by the
assessee under section 140A or otherwise,
(i) interest shall be calculated in accordance with the foregoing provision up to
the date on which the tax is so paid ; and
(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by
which the tax as so paid (in so far as it relates to income subject to advance
tax) falls short of the assessed tax.]
68
[(3) Where as a result of an order under section 147 or section 154 or section 155 or
section 250 or section 254 or section 260 or section 262 or section 263 or section 264
69
[or an order of the Settlement Commission under sub-section (4) of section 245D],
the amount on which interest was payable under sub-section (1) has been increased or
reduced, as the case may be, the interest shall be increased or reduced accordingly,
and
(i) in a case where the interest is increased, the 70[Assessing] Officer shall serve
on the assessee, a notice of demand in the prescribed form specifying the
sum payable, and such notice of demand shall be deemed to be a notice
under section 156 and the provisions of this Act shall apply accordingly ;
(ii) in a case where the interest is reduced, the excess interest paid, if any, shall
be refunded.]
(4) In such cases and under such circumstances as may be prescribed71, the
70
[Assessing] Officer may reduce or waive the interest payable by the assessee under
this section.
72
[(5) In this section and sections 217 and 273, assessed tax means the tax
determined on the basis of the regular assessment (reduced by the amount of tax
deductible in accordance with the provisions of sections 192 to 194, section 194A 73[,
section 194C] 74[, section 194D] 75[, section 195 and section 196A] so far as such tax
relates to income subject to advance tax and so far as it is not due to variations in the
rates of tax made by the Finance Act enacted for the year for which the regular assessment is made.]
76
[(6) Where, in relation to an assessment year, an assessment is made for the first
time under section 147, the assessment so made shall be regarded as a regular
assessment for the purposes of this section and sections 216, 217 and 273.]
77

Interest payable by assessee in case of under-estimate, etc.

216. Where, on making the regular assessment, the 79[Assessing] Officer finds that
any assessee has
78

80

[(a) under 81[section 209A or section 212] under-estimated the advance tax
payable by him and thereby reduced the amount payable in either of the first
two instalments ; or]
(b) under section 213 wrongly deferred the payment of advance tax on a part of
his income ;
he may direct that the assessee shall pay simple interest at 82[fifteen] per cent per
annum
(i) in the case referred to in clause (a), for the period during which the payment
was deficient, on the difference between the amount paid in each such
instalment and the amount which should have been paid, having regard to
the aggregate advance tax actually paid during the year ; and
(ii) in the case referred to in clause (b), for the period during which the payment
of advance tax was so deferred.
Explanation.For the purposes of this section, any instalment due before the expiry
of six months from the commencement of the previous year in respect of which it is to
be paid shall be deemed to have become due fifteen days after the expiry of the said
six months.
Interest payable by assessee when no estimate made.
83
217. 84[(1) Where, on making the regular assessment, 85[the 86[Assessing] Officer
finds
(a) that any such person as is referred to in clause (a) of sub-section (1) of
section 209A has not sent the statement referred to in that clause or the
estimate in lieu of such statement referred to in sub-section (2) of that
section ; or
(b) that any such person as is referred to in clause (b) of sub-section (1) of
section 209A has not sent the estimate referred to in that clause,]
simple interest at the rate of 87[fifteen] per cent per annum from the 1st day of April
next following the financial year in which the advance tax was payable in accordance
with the said 88[sub-section (1) or sub-section (2)] up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the assessed tax as
defined in sub-section (5) of section 215.]
89
[(1A) Where, on making the regular assessment, the 90[Assessing] Officer finds that
91
[any person who is required to send an estimate under sub-section (4) of section
209A or] any such person as is referred to in sub-section (3A) of section 212 has not
sent the estimate referred to therein, simple interest at the rate of 92[fifteen] per cent
per annum from the 1st day of April next following the financial year in which the
advance tax was payable in accordance with the said 93[sub-section (4) or, as the case
may be, sub-section (3A)] up to the date of the regular assessment shall be payable by
the assessee upon the amount by which the advance tax paid by him falls short of the
assessed tax as defined in sub-section (5) of section 215.]
(2) The provisions of sub-sections (2), (3) and (4) of section 215 shall apply to interest
payable under this section as they apply to interest payable under that section.
When assessee deemed to be in default.
218. 94[If any assessee does not pay on the date specified in sub-section (1) of section
211, any instalment of the advance tax that he is required to pay by an order of the

Assessing Officer under sub-section (3) or sub-section (4) of section 210 and does
not, on or before the date on which any such instalment as is not paid becomes due,
send to the Assessing Officer an intimation under sub-section (5) of section 210 or
does not pay on the basis of his estimate of his current income the advance tax
payable by him under sub-section (6) of section 210, he shall be deemed to be an
assessee in default in respect of such instalment or instalments.]
Credit for advance tax.
219. Any sum, other than a penalty or interest, paid by or recovered from an assessee
as advance tax in pursuance of this Chapter shall be treated as a payment of tax in
respect of the income of the period which would be the previous year for an
assessment for the assessment year next following the financial year in which it was
payable, and credit therefor shall be given to the assessee in the regular assessment.
95
[***]
D.Collection and recovery
When tax payable and when assessee deemed in default.
96
220. (1) Any amount, otherwise than by way of advance tax, specified as payable in
a notice of demand under section 156 shall be paid within 97[thirty] days of the service
of the notice at the place and to the person mentioned in the notice :
Provided that, where the 98[Assessing] Officer has any reason to believe that it will be
detrimental to revenue if the full period of 99[thirty] days aforesaid is allowed, he may,
with the previous approval of the 1[Joint Commissioner], direct that the sum specified
in the notice of demand shall be paid within such period being a period less than the
period of 2[thirty] days aforesaid, as may be specified by him in the notice of demand.
3
(2) If the amount specified in any notice of demand under section 156 is not paid
within the period limited under sub-section (1), the assessee shall be liable to pay
simple interest at 4[5[one] per cent for every month or part of a month comprised in the
period commencing from the day immediately following the end of the period
mentioned in sub-section (1) and ending with the day on which the amount is paid :]
5a
[Provided that, where as a result of an order under section 154, or section 155, or
section 250, or section 254, or section 260, or section 262, or section 264 6[or an order
of the Settlement Commission under sub-section (4) of section 245D], the amount on
which interest was payable under this section had been reduced, the interest shall be
reduced accordingly and the excess interest paid, if any, shall be refunded :]
7
[Provided further that in respect of any period commencing on or before the 31st
day of March, 1989 and ending after that date, such interest shall, in respect of so
much of such period as falls after that date, be calculated at the rate of one and onehalf per cent, for every month or part of a month.]
8
[(2A) Notwithstanding anything contained in sub-section (2), 9[the 10[Chief
Commissioner or Commissioner] may] reduce or waive the amount of interest 11[paid
or] payable by an assessee under the said sub-section if 12[he is satisfied] that
(i) payment of such amount 13[has caused or] would cause genuine hardship to
the assessee ;
(ii) default in the payment of the amount on which interest 13[has been paid or]
was payable under the said sub-section was due to circumstances beyond
the control of the assessee ; and

(iii) the assessee has co-operated in any inquiry relating to the assessment or any
proceeding for the recovery of any amount due from him.]
(3) Without prejudice to the provisions contained in sub-section (2) 14, on an
application made by the assessee before the expiry of the due date under sub-section
(1), the 15[Assessing] Officer may extend the time for payment or allow payment by
instalments, subject to such conditions as he may think fit to impose in the
circumstances of the case.
(4) If the amount is not paid within the time limited under sub-section (1) or extended
under sub-section (3), as the case may be, at the place and to the person mentioned in
the said notice the assessee shall be deemed to be in default.
(5) If, in a case where payment by instalments is allowed under sub-section (3), the
assessee commits defaults in paying any one of the instalments within the time fixed
under that sub-section, the assessee shall be deemed to be in default as to the whole of
the amount then outstanding, and the other instalment or instalments shall be deemed
to have been due on the same date as the instalment actually in default.
(6) Where an assessee has presented an appeal under section 246 16[or section 246A]
the 17[Assessing] Officer may, in his discretion and subject to such conditions as he
may think fit to impose in the circumstances of the case, treat the assessee as not
being in default in respect of the amount in dispute in the appeal, even though the time
for payment has expired, as long as such appeal remains undisposed of.
(7) Where an assessee has been assessed in respect of income arising outside India in
a country the laws of which prohibit or restrict the remittance of money to India, the
17
[Assessing] Officer shall not treat the assessee as in default in respect of that part of
the tax which is due in respect of that amount of his income which, by reason of such
prohibition or restriction, cannot be brought into India, and shall continue to treat the
assessee as not in default in respect of such part of the tax until the prohibition or
restriction is removed.
Explanation.For the purposes of this section, income shall be deemed to have been
brought into India if it has been utilised or could have been utilised for the purposes of
any expenditure actually incurred by the assessee outside India or if the income,
whether capitalised or not, has been brought into India in any form.
Penalty payable when tax in default.
18
221. 19[(1) When an assessee is in default or is deemed to be in default in making a
payment of tax, he shall, in addition to the amount of the arrears 20 and the amount of
interest payable under sub-section (2) of section 220, be liable, by way of penalty, to
pay such amount as the 21[Assessing] Officer may direct20, and in the case of a
continuing default, such further amount or amounts as the 21[Assessing] Officer may,
from time to time, direct, so, however, that the total amount of penalty does not
exceed the amount of tax in arrears :
Provided that before levying any such penalty, the assessee shall be given a
reasonable opportunity of being heard :
22
[Provided further that where the assessee proves to the satisfaction of the
23
[Assessing] Officer that the default was for good and sufficient reasons 24, no penalty
shall be levied under this section.]

25

[Explanation.For the removal of doubt, it is hereby declared that an assessee shall

not cease to be liable to any penalty under this sub-section merely by reason of the
fact that before the levy of such penalty he has paid the tax.]
(2) Where as a result of any final order the amount of tax, with respect to the default
in the payment of which the penalty was levied, has been wholly reduced, the penalty
levied shall be cancelled and the amount of penalty paid shall be refunded.
Certificate to Tax Recovery Officer.
222. 26[(1) When an assessee is in default or is deemed to be in default in making a
payment of tax, the Tax Recovery Officer may draw up under his signature a
statement in the prescribed form27 specifying the amount of arrears due from the
assessee (such statement being hereafter in this Chapter and in the Second Schedule
referred to as certificate) and shall proceed to recover from such assessee the
amount specified in the certificate by one or more of the modes mentioned below, in
accordance with the rules laid down in the Second Schedule]
(a) attachment and sale of the assessees movable property ;
(b) attachment and sale of the assessees immovable property ;
(c) arrest of the assessee and his detention in prison ;
(d) appointing a receiver for the management of the assessees movable and
immovable properties.
28
[Explanation.For the purposes of this sub-section, the assessees movable or
immovable property shall include any property which has been transferred, directly or
indirectly on or after the 1st day of June, 1973, by the assessee to his spouse or minor
child or sons wife or sons minor child, otherwise than for adequate consideration,
and which is held by, or stands in the name of, any of the persons aforesaid; and so far
as the movable or immovable property so transferred to his minor child or his sons
minor child is concerned, it shall, even after the date of attainment of majority by such
minor child or sons minor child, as the case may be, continue to be included in the
assessees movable or immovable property for recovering any arrears due from the
assessee in respect of any period prior to such date.]
29
[(2) The Tax Recovery Officer may take action under sub-section (1),
notwithstanding that proceedings for recovery of the arrears by any other mode have
been taken.]
30

[Tax Recovery Officer by whom recovery is to be effected.

223. (1) The Tax Recovery Officer competent to take action under section 222 shall be

(a) the Tax Recovery Officer within whose jurisdiction the assessee carries on
his business or profession or within whose jurisdiction the principal place of
his business or profession is situate, or
(b) the Tax Recovery Officer within whose jurisdiction the assessee resides or
any movable or immovable property of the assessee is situate,
the jurisdiction for this purpose being the jurisdiction assigned to the Tax Recovery
Officer under the orders or directions issued by the Board, or by the Chief
Commissioner or Commissioner who is authorised in this behalf by the Board in
pursuance of section 120.

(2) Where an assessee has property within the jurisdiction of more than one Tax
Recovery Officer and the Tax Recovery Officer by whom the certificate is drawn up

(a) is not able to recover the entire amount by sale of the property, movable or
immovable, within his jurisdiction, or
(b) is of the opinion that, for the purpose of expediting or securing the recovery
of the whole or any part of the amount under this Chapter, it is necessary so
to do,
he may send the certificate or, where only a part of the amount is to be recovered, a
copy of the certificate certified in the prescribed manner 31 and specifying the amount
to be recovered to a Tax Recovery Officer within whose jurisdiction the assessee
resides or has property and, thereupon, that Tax Recovery Officer shall also proceed to
recover the amount under this Chapter as if the certificate or copy thereof had been
drawn up by him.]
32

[Validity of certificate and cancellation or amendment thereof.

224. It shall not be open to the assessee to dispute the correctness of any certificate
drawn up by the Tax Recovery Officer on any ground whatsoever, but it shall be
lawful for the Tax Recovery Officer to cancel the certificate if, for any reason, he
thinks it necessary so to do, or to correct any clerical or arithmetical mistake therein.]
33

[Stay of proceedings in pursuance of certificate and amendment or cancellation

thereof.
225. (1) It shall be lawful for the Tax Recovery Officer to grant time for the payment
of any tax and when he does so, he shall stay the proceedings for the recovery of such
tax until the expiry of the time so granted.
(2) Where the order giving rise to a demand of tax for which a certificate has been
drawn up is modified in appeal or other proceeding under this Act, and, as a
consequence thereof, the demand is reduced but the order is the subject-matter of
further proceeding under this Act, the Tax Recovery Officer shall stay the recovery of
such part of the amount specified in the certificate as pertains to the said reduction for
the period for which the appeal or other proceeding remains pending.
(3) Where a certificate has been drawn up and subsequently the amount of the
outstanding demand is reduced34 as a result of an appeal or other proceeding under
this Act, the Tax Recovery Officer shall, when the order which was the subject-matter
of such appeal or other proceeding has become final and conclusive, amend the
certificate, or cancel it, as the case may be.]
Other modes of recovery.
226. 35[(1) Where no certificate has been drawn up under section 222, the Assessing
Officer may recover the tax by any one or more of the modes provided in this section.
(1A) Where a certificate has been drawn up under section 222, the Tax Recovery
Officer may, without prejudice to the modes of recovery specified in that section,
recover the tax by any one or more of the modes provided in this section.]
(2) If any assessee is in receipt of any income chargeable under the head Salaries,
the 36[Assessing] Officer 37[or Tax Recovery Officer] may require any person paying
the same to deduct from any payment subsequent to the date of such requisition any

arrears of tax due from such assessee, and such person shall comply with any such
requisition and shall pay the sum so deducted to the credit of the Central Government
or as the Board directs :
Provided that any part of the salary exempt from attachment in execution of a decree
of a civil court under section 60 of the Code of Civil Procedure, 1908 (5 of 1908) 38,
shall be exempt from any requisition made under this sub-section.
(3) (i) The 39[Assessing] Officer 40[or Tax Recovery Officer] may, at any time or from
time to time, by notice in writing require any person from whom money is due or may
become due41 to the assessee or any person who holds or may subsequently hold
money42 for or on account of the assessee to pay to the 43[Assessing] Officer 44[or Tax
Recovery Officer] either forthwith upon the money becoming due or being held or at
or within the time specified in the notice (not being before the money becomes due or
is held) so much of the money as is sufficient to pay the amount due by the assessee in
respect of arrears or the whole of the money when it is equal to or less than that
amount.
(ii) A notice under this sub-section may be issued to any person who holds or may
subsequently hold any money for or on account of the assessee jointly with any other
person and for the purposes of this sub-section, the shares of the joint holders in such
account shall be presumed, until the contrary is proved, to be equal.
(iii) A copy of the notice shall be forwarded to the assessee at his last address known
to the 43[Assessing] Officer 44[or Tax Recovery Officer], and in the case of a joint
account to all the joint holders at their last addresses known to the 43[Assessing]
Officer 44[or Tax Recovery Officer].
(iv) Save as otherwise provided in this sub-section, every person to whom a notice is
issued under this sub-section shall be bound to comply with such notice, and, in
particular, where any such notice is issued to a post office, banking company or an
insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other
document to be produced for the purpose of any entry, endorsement or the like being
made before payment is made, notwithstanding any rule, practice or requirement to
the contrary.
(v) Any claim respecting any property in relation to which a notice under this subsection has been issued arising after the date of the notice shall be void as against any
demand contained in the notice.
(vi) Where a person to whom a notice under this sub-section is sent objects to it by a
statement on oath that the sum demanded or any part thereof is not due to the assessee
or that he does not hold any money for or on account of the assessee, then nothing
contained in this sub-section shall be deemed to require such person to pay any such
sum or part thereof, as the case may be, but if it is discovered that such statement was
false in any material particular, such person shall be personally liable to the
45
[Assessing] Officer 46[or Tax Recovery Officer] to the extent of his own liability to
the assessee on the date of the notice, or to the extent of the assessees liability for any
sum due under this Act, whichever is less.
(vii) The 45[Assessing] Officer 46[or Tax Recovery Officer] may, at any time or from
time to time, amend or revoke any notice issued under this sub-section or extend the
time for making any payment in pursuance of such notice.
(viii) The 45[Assessing] Officer 46[or Tax Recovery Officer] shall grant a receipt for
any amount paid in compliance with a notice issued under this sub-section, and the

person so paying shall be fully discharged from his liability to the assessee to the
extent of the amount so paid.
(ix) Any person discharging any liability to the assessee after receipt of a notice under
this sub-section shall be personally liable to the 45[Assessing] Officer 46[or Tax
Recovery Officer] to the extent of his own liability to the assessee so discharged or to
the extent of the assessees liability for any sum due under this Act, whichever is less.
(x) If the person to whom a notice under this sub-section is sent fails to make payment
in pursuance thereof to the 45[Assessing] Officer 46[or Tax Recovery Officer], he shall
be deemed to be an assessee in default in respect of the amount specified in the notice
and further proceedings may be taken against him for the realisation of the amount as
if it were an arrear of tax due from him, in the manner provided in sections 222 to 225
and the notice shall have the same effect as an attachment of a debt by the Tax
Recovery Officer in exercise of his powers under section 222.
(4) The 45[Assessing] Officer 46[or Tax Recovery Officer] may apply to the court in
whose custody there is money belonging to the assessee for payment to him of the
entire amount of such money, or, if it is more than the tax due, an amount sufficient to
discharge the tax.
47
[(5) The 45[Assessing] Officer 46[or Tax Recovery Officer] may, if so authorised by
the 48[Chief Commissioner or Commissioner] by general or special order, recover any
arrears of tax due from an assessee by distraint and sale of his movable property in the
manner laid down in the Third Schedule.]
Recovery through State Government.
227. If the recovery of tax in any area has been entrusted to a State Government
under clause (1) of article 258 of the Constitution, the State Government may direct,
with respect to that area or any part thereof; that tax shall be recovered therein with,
and as an addition to, any municipal tax or local rate, by the same person and in the
same manner as the municipal tax or local rate is recovered.

50

[Recovery of tax in pursuance of agreements with foreign countries.

228A. (1) Where an agreement is entered into by the Central Government with the
Government of any country outside India for recovery of income-tax under this Act
and the corresponding law in force in that country and the Government of that country
or any authority under that Government which is specified in this behalf in such
agreement sends to the Board a certificate for the recovery of any tax due under such
corresponding law from a person having any property in India, the Board may
forward such certificate to any Tax Recovery Officer within whose jurisdiction such
property is situated and thereupon such Tax Recovery Officer shall
(a) proceed to recover the amount specified in the certificate in the manner in
which he would proceed to recover the amount 51[specified in a certificate
drawn up by him under section 222]; and
(b) remit any sum so recovered by him to the Board after deducting his
expenses in connection with the recovery proceedings.
52
[(2) Where an assessee is in default or is deemed to be in default in making a
payment of tax, the Tax Recovery Officer may, if the assessee has property in a

country outside India (being a country with which the Central Government has
entered into an agreement for the recovery of income-tax under this Act and the
corresponding law in force in that country), forward to the Board a certificate drawn
up by him under section 222 and the Board may take such action thereon as it may
deem appropriate having regard to the terms of the agreement with such country.]
Recovery of penalties, fine, interest and other sums.
229. Any sum imposed by way of interest, fine, penalty, or any other sum payable
under the provisions of this Act, shall be recoverable in the manner provided in this
Chapter for the recovery of arrears of tax.
Tax clearance certificate.
53
230. 54[(1) Subject to such exceptions as the Central Government may, by
notification in the Official Gazette, specify in this behalf, no person,
(a) who is not domiciled in India;
(b) who has come to India in connection with business, profession or
employment; and
(c) who has income derived from any source in India,
shall leave the territory of India by land, sea or air unless he furnishes to such
authority55 as may be prescribed
(i) an undertaking in the prescribed form55a from his employer; or
(ii) through whom such person is in receipt of the income,
to the effect that tax payable by such person who is not domiciled in India shall be
paid by the employer referred to in clause (i) or the person referred to in clause (ii),
and the prescribed authority55 shall, on receipt of the undertaking, immediately give to
such person a no objection certificate55b, for leaving India:
Provided that nothing contained in sub-section (1) shall apply to a person who is not
domiciled in India but visits India as a foreign tourist or for any other purpose not
connected with business, profession or employment.
(1A) Subject to such exceptions as the Central Government may, by notification in the
Official Gazette, specify in this behalf, every person, who is domiciled in India at the
time of his departure from India, shall furnish, in the prescribed form55c to the incometax authority or such other authority as may be prescribed56
(a) the permanent account number allotted to him under section 139A:
Provided that in case no such permanent account number has been allotted
to him, or his total income is not chargeable to income-tax or he is not
required to obtain a permanent account number under this Act, such person
shall furnish a certificate in the prescribed form;
(b) the purpose of his visit outside India;
(c) the estimated period of his stay outside India:
57
Provided that no person
(i) who is domiciled in India at the time of his departure; and
(ii) in respect of whom circumstances exist which, in the opinion of an incometax authority render it necessary for such person to obtain a certificate under
this section,

shall leave the territory of India by land, sea or air unless he obtains a certificate from
the income-tax authority stating that he has no liabilities under this Act, or the Wealthtax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Expendituretax Act, 1987 (35 of 1987), or that satisfactory arrangements have been made for the
payment of all or any of such taxes which are or may become payable by that person :
Provided* that no income-tax authority shall make it necessary for any person who is
domiciled in India to obtain a certificate under this section unless he records the
reasons therefor and obtains the prior approval of the Chief Commissioner of Incometax.]
(2) If the owner or charterer of any ship or aircraft carrying persons from any place in
the territory of India to any place outside India allows any person to whom subsection (1) 57a[or the first proviso to sub-section (1A)] applies to travel by such ship or
aircraft without first satisfying himself that such person is in possession of a
certificate as required by that sub-section, he shall be personally liable to pay the
whole or any part of the amount of tax, if any, payable by such person as the
58
[Assessing] Officer may, having regard to the circumstances of the case, determine.
(3) In respect of any sum payable by the owner or charterer of any ship or aircraft
under sub-section (2), the owner or charterer, as the case may be, shall be deemed to
be an assessee in default for such sum, and such sum shall be recoverable from him in
the manner provided in this Chapter as if it were an arrear of tax.
59
(4) The Board may make rules for regulating any matter necessary for, or incidental
to, the purpose of carrying out the provisions of this section.
Explanation.For the purposes of this section, the expressions owner and
charterer include any representative, agent or employee empowered by the owner or
charterer to allow persons to travel by the ship or aircraft.

Recovery by suit or under other law not affected.

232. The several modes of recovery specified in this Chapter shall not affect in any
way
(a) any other law for the time being in force relating to the recovery of debts
due to Government; or
(b) the right of the Government to institute a suit for the recovery of the arrears
due from the assessee;
and it shall be lawful for the 62[Assessing] Officer or the Government, as the case may
be, to have recourse to any such law or suit, notwithstanding that the tax due is being
recovered from the assessee by any mode specified in this Chapter.

64

[F.Interest chargeable in certain cases65

Interest for defaults in furnishing return of income.
234A. (1) Where the return of income for any assessment year under sub-section (1)
or sub-section (4) of section 139, or in response to a notice under sub-section (1) of

section 142, is furnished after the due date, or is not furnished, the assessee shall 66 be
liable to pay simple interest at the rate of 67[one] per cent for every month or part of a
month comprised in the period commencing on the date immediately following the
due date, and,
(a) where the return is furnished after the due date, ending on the date of
furnishing of the return; or
(b) where no return has been furnished, ending on the date of completion of the
assessment under section 144,
on the amount of 68[the tax on the total income as determined under sub-section (1) of
section 143 or on regular assessment as reduced by the advance tax, if any, paid and
any tax deducted or collected at source].
Explanation 1.In this section, due date means the date specified in sub-section (1)
of section 139 as applicable in the case of the assessee.
69
[Explanation 2.In this sub-section, tax on the total income as determined under
sub-section (1) of section 143 shall not include the additional income-tax, if any,
payable under section 143.]
Explanation 3.Where, in relation to an assessment year, an assessment is made for
the first time under section 147 70[or section 153A], the assessment so made shall be
regarded as a regular assessment for the purposes of this section.
Explanation 4.71[* * *]
(2) The interest payable under sub-section (1) shall be reduced by the interest, if any,
paid under section 140A towards the interest chargeable under this section.
(3) Where the return of income for any assessment year, required by a notice under
section 148 72 [or section 153A] issued 73 [after the determination of income under
sub-section (1) of section 143 or] after the completion of an assessment under subsection (3) of section 143 or section 144 or section 147, is furnished after the expiry
of the time allowed under such notice, or is not furnished, the assessee shall be liable
to pay simple interest at the rate of 74[one] per cent for every month or part of a month
comprised in the period commencing on the day immediately following the expiry of
the time allowed as aforesaid, and,
(a) where the return is furnished after the expiry of the time aforesaid, ending
on the date of furnishing the return; or
(b) where no return has been furnished, ending on the date of completion of the
re-assessment or re-computation under section 147 75[or reassessment under
section 153A],
on the amount by which the tax on the total income determined on the basis of such
re-assessment or re-computation exceeds the tax on the total income determined
76
[under sub-section (1) of section 143 or] on the basis of the earlier assessment
aforesaid.
Explanation.77[* * *]
(4) Where as a result of an order under section 154 or section 155 or section 250 or
section 254 or section 260 or section 262 or section 263 or section 264 or an order of
the Settlement Commission under sub-section (4) of section 245D, the amount of tax
on which interest was payable under sub-section (1) or sub-section (3) of this section
has been increased or reduced, as the case may be, the interest shall be increased or
reduced accordingly, and

(i) in a case where the interest is increased, the Assessing Officer shall serve on
the assessee a notice of demand in the prescribed form specifying the sum
payable, and such notice of demand shall be deemed to be a notice under
section 156 and the provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the excess interest paid, if any, shall
be refunded.
(5) The provisions of this section shall apply in respect of assessments for the
assessment year commencing on the 1st day of April, 1989 and subsequent assessment
years.]
78

[Interest for defaults in payment of advance tax.

234B. (1) Subject to the other provisions of this section, where, in any financial year,
an assessee who is liable to pay advance tax under section 208 has failed to pay such
tax or, where the advance tax paid by such assessee under the provisions of section
210 is less than ninety per cent of the assessed tax, the assessee shall79 be liable to pay
simple interest at the rate of 80[one] per cent for every month or part of a month
comprised in the period from the 1st day of April next following such financial year
81
[to the date of determination of total income under sub-section (1) of section 143
82
[and where a regular assessment is made, to the date of such regular assessment, on
an amount]] equal to the assessed tax or, as the case may be, on the amount by which
the advance tax paid as aforesaid falls short of the assessed tax.
83
[Explanation 1.In this section, assessed tax means the tax on the total income
determined under sub-section (1) of section 143 or on regular assessment as reduced
by the amount of tax deducted or collected at source in accordance with the provisions
of Chapter XVII on any income which is subject to such deduction or collection and
which is taken into account in computing such total income.]
Explanation 2.Where, in relation to an assessment year, an assessment is made for
the first time under section 147 84[or section 153A], the assessment so made shall be
regarded as a regular assessment for the purposes of this section.
85
[Explanation 3.In Explanation 1 and in sub-section (3) tax on the total income
determined under sub-section (1) of section 143 shall not include the additional
income-tax, if any, payable under section 143.]
(2) Where, before the date of 86[determination of total income under sub-section (1) of
section 143 or] completion of a regular assessment, tax is paid by the assessee under
section 140A or otherwise,
(i) interest shall be calculated in accordance with the foregoing provisions of
this section up to the date on which the tax is so paid, and reduced by the
interest, if any, paid under section 140A towards the interest chargeable
under this section;
(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by
which the tax so paid together with the advance tax paid falls short of the
assessed tax.
(3) Where, as a result of an order of re-assessment or re-computation under section
147 87[or section 153A], the amount on which interest was payable under sub-section
(1) is increased, the assessee shall be liable to pay simple interest at the rate of 88[one]
per cent for every month or part of a month comprised in the period commencing on
the day following 89[the date of determination of total income under sub-section (1) of
section 143 90[and where a regular assessment is made as is referred to in sub-section

(1) following the date of such regular assessment]] and ending on the date of the reassessment or re-computation under section 147 87[or section 153A], on the amount by
which the tax on the total income determined on the basis of the re-assessment or recomputation exceeds the tax on the total income determined 89[under sub-section (1)
of section 143 or] on the basis of the regular assessment aforesaid.
Explanation.91[* * *]
(4) Where, as a result of an order under section 154 or section 155 or section 250 or
section 254 or section 260 or section 262 or section 263 or section 264 or an order of
the Settlement Commission under sub-section (4) of section 245D, the amount on
which interest was payable under sub-section (1) or sub-section (3) has been increased
or reduced, as the case may be, the interest shall be increased or reduced accordingly,
and
(i) in a case where the interest is increased, the Assessing Officer shall serve on
the assessee a notice of demand in the prescribed form specifying the sum
payable and such notice of demand shall be deemed to be a notice under
section 156 and the provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the excess interest paid, if any, shall
be refunded.
(5) The provisions of this section shall apply in respect of assessments for the
assessment year commencing on the 1st day of April, 1989 and subsequent assessment
years.]
92

[Interest for deferment of advance tax.

234C. (1) 93[Where in any financial year,
(a) the company which is liable to pay advance tax under section 208 has failed
to pay such tax or
(i) the advance tax paid by the company on its current income on or before
the 15th day of June is less than fifteen per cent of the tax due on the
returned income or the amount of such advance tax paid on or before the
15th day of September is less than forty-five per cent of the tax due on
the returned income or the amount of such advance tax paid on or before
the 15th day of December is less than seventy-five per cent of the tax
due on the returned income, then, the company shall 94 be liable to pay
simple interest at the rate of 95[one] per cent per month for a period of
three months on the amount of the shortfall from fifteen per cent or
forty-five per cent or seventy-five per cent, as the case may be, of the
tax due on the returned income;
(ii) the advance tax paid by the company on its current income on or before
the 15th day of March is less than the tax due on the returned income,
then, the company shall be liable to pay simple interest at the rate of
95
[one] per cent on the amount of the shortfall from the tax due on the
returned income:
Provided that if the advance tax paid by the company on its current income
on or before the 15th day of June or the 15th day of September, is not less
than twelve per cent or, as the case may be, thirty-six per cent of the tax due
on the returned income, then, it shall not be liable to pay any interest on the
amount of the shortfall on those dates;

(b) the assessee, other than a company, who is liable to pay advance tax under
section 208 has failed to pay such tax or,
(i) the advance tax paid by the assessee on his current income on or before
the 15th day of September is less than thirty per cent of the tax due on
the returned income or the amount of such advance tax paid on or before
the 15th day of December is less than sixty per cent of the tax due on the
returned income, then, the assessee shall be liable to pay simple interest
at the rate of 96[one] per cent per month for a period of three months on
the amount of the shortfall from thirty per cent or, as the case may be,
sixty per cent of the tax due on the returned income;
(ii) the advance tax paid by the assessee on his current income on or before
the 15th day of March is less than the tax due on the returned income,
then, the assessee shall be liable to pay simple interest at the rate of
96
[one] per cent on the amount of the shortfall from the tax due on the
returned income :]
97
[Provided that nothing contained in this sub-section shall apply to any shortfall in
the payment of the tax due on the returned income where such shortfall is on account
of under-estimate or failure to estimate
(a) the amount of capital gains; or
(b) income of the nature referred to in sub-clause (ix) of clause (24) of section
2,
and the assessee has paid the whole of the amount of tax payable in respect of income
referred to in clause (a) or clause (b), as the case may be, had such income been a
part of the total income, as part of the 98[remaining instalments of advance tax which
are due or where no such instalments are due], by the 31st day of March of the
financial year:]
99
[Provided further that nothing contained in this sub-section shall apply to any
shortfall in the payment of the tax due on the returned income where such shortfall is
on account of increase in the rate of surcharge under section 2 of the Finance Act,
2000 (10 of 2000), as amended by the Taxation Laws (Amendment) Act, 2000 (1 of
2001), and the assessee has paid the amount of shortfall, on or before the 15th day of
March, 2001 in respect of the instalment of advance tax due on the 15th day of June,
2000, the 15th day of September, 2000 and the 15th day of December, 2000 :]
1
[Provided also that nothing contained in this sub-section shall apply to any shortfall
in the payment of the tax due on the returned income where such shortfall is on
account of increase in the rate of surcharge under section 2 of the Finance Act, 2000
(10 of 2000) as amended by the Taxation Laws (Amendment) Act, 2001 (4 of 2001)
and the assessee has paid the amount of shortfall on or before the 15th day of March,
2001 in respect of the instalment of advance tax due on the 15th day of June, 2000,
the 15th day of September, 2000 and 15th day of December, 2000.]
Explanation.In this section, tax due on the returned income means the tax
chargeable on the total income declared in the return of income furnished by the
assessee for the assessment year commencing on the 1st day of April immediately
following the financial year in which the advance tax is paid 2[or payable], as reduced
by 3[the amount of tax deductible or collectible at source in accordance with the
provisions of Chapter XVII on any income which is subject to such deduction or
collection] and which is taken into account in computing such total income.

(2) The provisions of this section shall apply in respect of assessments for the
assessment year commencing on the 1st day of April, 1989 and subsequent assessment
years.]]
4

[Interest on excess refund.

234D. (1) Subject to the other provisions of this Act, where any refund is granted to
the assessee under sub-section (1) of section 143, and
(a) no refund is due on regular assessment; or
(b) the amount refunded under sub-section (1) of section 143 exceeds the
amount refundable on regular assessment,
the assessee shall be liable to pay simple interest at the rate of 5[one-half] per cent on
the whole or the excess amount so refunded, for every month or part of a month
comprised in the period from the date of grant of refund to the date of such regular
assessment.
(2) Where, as a result of an order under section 154 or section 155 or section 250 or
section 254 or section 260 or section 262 or section 263 or section 264 or an order of
the Settlement Commission under sub-section (4) of section 245D, the amount of
refund granted under sub-section (1) of section 143 is held to be correctly allowed,
either in whole or in part, as the case may be, then, the interest chargeable, if any,
under sub-section (1) shall be reduced accordingly.
Explanation.Where, in relation to an assessment year, an assessment is made for the
first time under section 147 or section 153A, the assessment so made shall be
regarded as a regular assessment for the purposes of this section.]

Relief to company in respect of dividend paid out of past taxed profits.

236. 6(1) Where in respect of any previous year relevant to the assessment year
commencing after the 31st day of March, 1960, an Indian company or a company
which has made the prescribed arrangements for the declaration and payment of
dividends within India, pays any dividend wholly or partly out of its profits and gains
actually charged to income-tax for any assessment year ending before the 1st day of
April, 1960, and deducts tax therefrom in accordance with the provisions of Chapter
XVII-B, credit shall be given to the company against the income-tax, if any, payable
by it on the profits and gains of the previous year during which the dividend is paid,
of a sum calculated in accordance with the provisions of sub-section (2), and, where
the amount of credit so calculated exceeds the income-tax payable by the company as
aforesaid, the excess shall be refunded.
(2) The amount of income-tax to be given as credit under sub-section (1) shall be a
sum equal to ten per cent of so much of the dividends referred to in sub-section (1) as
are paid out of the profits and gains actually charged to income-tax for any assessment
year ending before the 1st day of April, 1960.
Explanation 1.For the purposes of this section, the aggregate of the dividends
declared by a company in respect of any previous year shall be deemed first to have
come out of the distributable income of that previous year and the balance, if any, out
of the undistributed part of the distributable income of one or more previous years

immediately preceding that previous year as would be just sufficient to cover the
amount of such balance and as has not likewise been taken into account for covering
such balance of any other previous year.
Explanation 2.The expression distributable income of any previous year shall
mean the total income 7[(as computed before making any deduction under Chapter VIA)] assessed for that year as reduced by
(i) the amount of tax payable by the company in respect of 8[its] total income;
(ii) the amount of any other tax levied under any law for the time being in force
on the company by the Government or by a local authority in excess of the
amount, if any, which has been allowed in computing the total income;
9
[(iii) any sum with reference to which a deduction is allowable to the company
under the provisions of section 80G; and]
(iv) in the case of a banking company, the amount actually transferred to a
reserve fund under section 17 of the Banking Companies Act, 1949 (10 of
1949),
and as increased by
(a) any profits and gains or receipts of the company, not included in its total
income 10[(as computed before making any deduction under Chapter VI-A)];
and
(b) any amount attributable to any allowance made in computing the profits and
gains of the company for purposes of assessment, which the company has
not taken into account in its profit and loss account.
11

[Relief to certain charitable institutions or funds in respect of certain dividends.

236A. (1) 12[Where seventy-five per cent of the share capital of any company is
throughout the previous year beneficially held by an institution or fund established in
India for a charitable purpose the income from dividend whereof is exempt under
section 11], credit shall be given to the institution or fund against the tax, if any,
payable by it, of a sum calculated in accordance with the provisions of sub-section
(2), in respect of its income from dividends (other than dividends on preference
shares) declared or distributed during the previous year relevant to any assessment
year beginning on or after the 1st day of April, 13[1966] 14[by such a company], and
where the amount of credit so calculated exceeds the tax, if any, payable by the said
institution or fund, the excess shall be refunded.
15
[(2) The amount to be given as credit under sub-section (1) shall be a sum which
bears to the amount of the tax payable by the company under the provisions of the
annual Finance Act with reference to the relevant amount of distributions of dividends
by it the same proportion as the amount of the dividends (other than dividends on
preference shares) received by the institution or fund from the company bears to the
total amount of dividends (other than dividends on preference shares) declared or
distributed by the company during the previous year.
Explanation.In sub-section (2) of this section and in section 280ZB, the expression
the relevant amount of distributions of dividends has the meaning assigned to it in
the Finance Act of the relevant year.]]
CHAPTER XIX
REFUNDS

Refunds.
16
237. If any person satisfies the 17[Assessing] Officer that the amount of tax paid by
him or on his behalf or treated as paid by him or on his behalf for any assessment year
exceeds the amount with which he is properly chargeable18 under this Act for that
year, he shall be entitled to a refund of the excess.
Person entitled to claim refund in certain special cases.
19
238. (1) Where the income of one person is included under any provision of this
Act in the total income of any other person, the latter alone shall be entitled to a
refund under this Chapter in respect of such income.
(2) Where through death, incapacity, insolvency, liquidation or other cause, a person is
unable to claim or receive any refund due to him, his legal representative or the
trustee or guardian or receiver, as the case may be, shall be entitled to claim or receive
such refund for the benefit of such person or his estate.
Form of claim for refund and limitation.
20
239. 21(1) Every claim for refund under this Chapter shall be made in the prescribed
form and verified in the prescribed manner.
22
[(2) No such claim shall be allowed, unless it is made within the period specified
hereunder, namely :
(a) where the claim is in respect of income which is assessable for any
assessment year commencing on or before the 1st day of April, 1967, four
years from the last day of such assessment year;
(b) where the claim is in respect of income which is assessable for the
assessment year commencing on the first day of April, 1968, three years
from the last day of the assessment year;
(c) where the claim is in respect of income which is assessable for any other
assessment year, 23[one] year from the last day of such assessment year.]
Refund on appeal, etc.
240. Where, as a result of any order passed in appeal or other proceeding under this
Act24, refund of any amount becomes due to the assessee, the 25[Assessing] Officer
shall, except as otherwise provided in this Act, refund the amount to the assessee
without his having to make any claim in that behalf:
26
[Provided that where, by the order aforesaid,
(a) an assessment is set aside or cancelled and an order of fresh assessment is
directed to be made, the refund, if any, shall become due only on the
making of such fresh assessment;
(b) the assessment is annulled, the refund shall become due only of the amount,
if any, of the tax paid in excess of the tax chargeable on the total income
returned by the assessee.]

Correctness of assessment not to be questioned.

242. In a claim under this Chapter, it shall not be open to the assessee to question
the correctness of any assessment or other matter decided which has become final and
conclusive or ask for a review of the same, and the assessee shall not be entitled to
any relief on such claim except refund of tax wrongly paid or paid in excess.
28

Interest on delayed refunds.

243. 29[(1) If the 30[Assessing] Officer does not grant the refund,
(a) in any case where the total income of the assessee does not consist solely of
income from interest on securities or dividends, within three months from
the end of the month in which the total income is determined under this Act,
and
(b) in any other case, within three months from the end of the month in which
the claim for refund is made under this Chapter,
the Central Government shall pay the assessee simple interest at 31[fifteen] per cent
per annum on the amount directed to be refunded from the date immediately
following the expiry of the period of three months aforesaid to the date of the order
granting the refund.
Explanation.If the delay in granting the refund within the period of three months
aforesaid is attributable to the assessee, whether wholly or in part, the period of the
delay attributable to him shall be excluded from the period for which interest is
payable.]
(2) Where any question arises as to the period to be excluded for the purposes of
calculation of interest under the provisions of this section, such question shall be
determined by the 32[Chief Commissioner or Commissioner] whose decision shall be
final.
33
[(3) The provisions of this section shall not apply in respect of any assessment for
the assessment year commencing on the 1st day of April, 1989 or any subsequent
assessment years.]
Interest on refund where no claim is needed.
34
244. (1) Where a refund is due to the assessee in pursuance of an order referred to
in section 240 and the 35[Assessing] Officer does not grant the refund within a period
of 36[three months from the end of the month in which such order is passed], the
Central Government shall pay to the assessee simple interest at 37[fifteen] per cent per
annum on the amount of refund due from the date immediately following the expiry
of the period of 38[three] months aforesaid to the date on which the refund is granted.
39
[(1A) Where the whole or any part of the refund referred to in sub-section (1) is due
to the assessee, as a result of any amount 40 having been paid by him after the 31st day
of March, 1975, in pursuance of any order of assessment41 or penalty and such amount
or any part thereof having been found in appeal or other proceeding under this Act to
be in excess of the amount which such assessee is liable to pay as tax or penalty, as
the case may be, under this Act, the Central Government shall pay to such assessee
simple interest at the rate specified in sub-section (1) on the amount so found to be in
excess from the date on which such amount was paid to the date on which the refund
is granted :
Provided that where the amount so found to be in excess was paid in instalments,
such interest shall be payable on the amount of each such instalment or any part of

such instalment, which was in excess, from the date on which such instalment was
paid to the date on which the refund is granted :
Provided further that no interest under this sub-section shall be payable for a period
of one month from the date of the passing of the order in appeal or other proceeding :
Provided also that where any interest is payable to an assessee under this sub-section,
no interest under sub-section (1) shall be payable to him in respect of the amount so
found to be in excess.]
(2) Where a refund is withheld under the provisions of section 241, the Central
Government shall pay interest at the aforesaid rate on the amount of refund ultimately
determined to be due as a result of the appeal or further proceeding for the period
commencing after the expiry of 42[three months from the end of the month in which
the order referred to in section 241 is passed] to the date the refund is granted.
43
[(3) The provisions of this section shall not apply in respect of any assessment for
the assessment year commencing on the 1st day of April, 1989, or any subsequent
assessment years.]
44

[Interest on refunds.
244A. (1) 46[Where refund of any amount becomes due to the assessee under this
Act], he shall, subject to the provisions of this section, be entitled to receive, in
addition to the said amount, simple interest thereon calculated in the following
manner, namely :
(a) where the refund is out of any tax 47[collected at source under section 206C
or] paid by way of advance tax or treated as paid under section 199, during
the financial year immediately preceding the assessment year, such interest
shall be calculated at the rate of 48[one-half per cent] for every month or part
of a month comprised in the period from the 1st day of April of the
assessment year to the date on which the refund is granted:
Provided that no interest shall be payable if the amount of refund is less
than ten per cent of the tax as determined 49[under sub-section (1) of section
143 or] on regular assessment;
(b) in any other case, such interest shall be calculated at the rate of 50[one-half
per cent] for every month or part of a month comprised in the period or
periods from the date or, as the case may be, dates of payment of the tax or
penalty to the date on which the refund is granted.
Explanation.For the purposes of this clause, date of payment of tax or penalty
means the date on and from which the amount of tax or penalty specified in the notice
of demand issued under section 156 is paid in excess of such demand.
(2) If the proceedings resulting in the refund are delayed for reasons attributable to the
assessee, whether wholly or in part, the period of the delay so attributable to him shall
be excluded from the period for which interest is payable, and where any question
arises as to the period to be excluded, it shall be decided by the Chief Commissioner
or Commissioner whose decision thereon shall be final.
(3) Where, as a result of an order under 51[sub-section (3) of section 143 or section
144 or] section 147 or section 154 or section 155 or section 250 or section 254 or
section 260 or section 262 or section 263 or section 264 or an order of the Settlement
Commission under sub-section (4) of section 245D, the amount on which interest was
payable under sub-section (1) has been increased or reduced, as the case may be, the
45

interest shall be increased or reduced accordingly, and in a case where the interest is
reduced, the Assessing Officer shall serve on the assessee a notice of demand in the
prescribed form specifying the amount of the excess interest paid and requiring him to
pay such amount; and such notice of demand shall be deemed to be a notice under
section 156 and the provisions of this Act shall apply accordingly.
(4) The provisions of this section shall apply in respect of assessments for the
assessment year commencing on the 1st day of April, 1989, and subsequent
assessment years.]
Set off of refunds against tax remaining payable.
52
245. Where under any of the provisions of this Act, a refund is found53 to be due to
any person, the 54[Assessing] Officer, 55[Deputy Commissioner (Appeals)] 56[,
Commissioner (Appeals)] or 57[Chief Commissioner or Commissioner], as the case
may be, may, in lieu of payment58 of the refund, set off the amount to be refunded or
any part of that amount, against the sum, if any, remaining payable under this Act by
the person to whom the refund is due, after giving an intimation in writing to such
person of the action proposed to be taken under this section.

59

[CHAPTER XIX-A
SETTLEMENT OF CASES
60

[Definitions.
245A. In this Chapter, unless the context otherwise requires,
(a) Bench means a Bench of the Settlement Commission;
(b) case means any proceeding under this Act for the assessment or
reassessment of any person in respect of any year or years, or by way of
appeal or revision in connection with such assessment or reassessment,
which may be pending before an income-tax authority on the date on which
an application under sub-section (1) of section 245C is made :
Provided that where any appeal or application for revision has been
preferred after the expiry of the period specified for the filing of such appeal
or application for revision under this Act and which has not been admitted,
such appeal or revision shall not be deemed to be a proceeding pending
within the meaning of this clause;
(c) Chairman means the Chairman of the Settlement Commission;
(d) income-tax authority means an income-tax authority specified in section
116;
(e) Member means a Member of the Settlement Commission, and includes
the Chairman and a Vice-Chairman;
(f) Settlement Commission means the Income-tax Settlement Commission
constituted under section 245B;
(g) Vice-Chairman means a Vice-Chairman of the Settlement Commission.]
Income-tax Settlement Commission.

245B. (1) The Central Government shall constitute a Commission to be called the
Income-tax Settlement Commission 61[* * *] for the settlement of cases under this
Chapter.
(2) The Settlement Commission shall consist of a Chairman 62[and as many ViceChairmen and other members as the Central Government thinks fit] and shall function
within the Department of the Central Government dealing with direct taxes.
(2A) 63[* * *]
(3) The Chairman 64[, Vice-Chairman] and other members of the Settlement
Commission shall be appointed by the Central Government from amongst persons of
integrity and outstanding ability, having special knowledge of, and, experience in,
problems relating to direct taxes and business accounts:
Provided that, where a member of the Board is appointed as the Chairman 64[, ViceChairman] or as a member of the Settlement Commission, he shall cease to be a
member of the Board.
65
[* * *]
66

[Jurisdiction and powers of Settlement Commission.

245BA. (1) Subject to the other provisions of this Chapter, the jurisdiction, powers
and authority of the Settlement Commission may be exercised by Benches thereof.
(2) Subject to the other provisions of this section, a Bench shall be presided over by
the Chairman or a Vice-Chairman and shall consist of two other Members.
(3) The Bench for which the Chairman is the Presiding Officer shall be the principal
Bench and the other Benches shall be known as additional Benches.
(4) Notwithstanding anything contained in sub-sections (1) and (2), the Chairman may
authorise the Vice-Chairman or other Member appointed to one Bench to discharge
also the functions of the Vice-Chairman or, as the case may be, other Member of
another Bench.
(5) Notwithstanding anything contained in the foregoing provisions of this section,
and subject to any rules that may be made in this behalf, when one of the persons
constituting a Bench (whether such person be the Presiding Officer or other Member
of the Bench) is unable to discharge his functions owing to absence, illness or any
other cause or in the event of the occurrence of any vacancy either in the office of the
Presiding Officer or in the office of one or the other Members of the Bench, the
remaining two persons may function as the Bench and if the Presiding Officer of the
Bench is not one of the remaining two persons, the senior among the remaining
persons shall act as the Presiding Officer of the Bench :
Provided that if at any stage of the hearing of any such case or matter, it appears to
the Presiding Officer that the case or matter is of such a nature that it ought to be
heard of by a Bench consisting of three Members, the case or matter may be referred
by the Presiding Officer of such Bench to the Chairman for transfer to such Bench as
the Chairman may deem fit.
67
[(5A) Notwithstanding anything contained in the foregoing provisions of this
section, the Chairman may, for the disposal of any particular case, constitute a Special
Bench consisting of more than three Members.]
(6) Subject to the other provisions of this Chapter, the places at which the principal
Bench and the additional Benches shall ordinarily sit shall be such as the Central

Government may, by notification68 in the Official Gazette, specify 67[and the Special
Bench shall sit at a place to be fixed by the Chairman.]]
69

[Vice-Chairman to act as Chairman or to discharge his functions in certain

circumstances.
245BB. (1) In the event of the occurrence of any vacancy in the office of the
Chairman by reason of his death, resignation or otherwise, the Vice-Chairman or, as
the case may be, such one of the Vice-Chairmen as the Central Government may, by
notification in the Official Gazette, authorise in this behalf, shall act as the Chairman
until the date on which a new Chairman, appointed in accordance with the provisions
of this Chapter to fill such vacancy, enters upon his office.
(2) When the Chairman is unable to discharge his functions owing to absence, illness
or any other cause, the Vice-Chairman or, as the case may be, such one of the ViceChairmen as the Central Government may, by notification in the Official Gazette,
authorise in this behalf, shall discharge the functions of the Chairman until the date on
which the Chairman resumes his duties.]
70

[Power of Chairman to transfer cases from one Bench to another.

245BC. On the application of the assessee or the 71[Chief Commissioner or
Commissioner] and after notice to them, and after hearing such of them as he may
desire to be heard, or on his own motion without such notice, the Chairman may
transfer any case pending before one Bench, for disposal, to another Bench.]
72

[Decision to be by majority.
245BD. If the Members of a Bench differ in opinion on any point, the point shall be
decided according to the opinion of the majority, if there is a majority, but if the
Members are equally divided, they shall state the point or points on which they differ,
and make a reference to the Chairman who shall either hear the point or points himself
or refer the case for hearing on such point or points by one or more of the other
Members of the Settlement Commission and such point or points shall be decided
according to the opinion of the majority of the Members of the Settlement
Commission who have heard the case, including those who first heard it.]
Application for settlement of cases.
73
245C. 74[(1) An assessee may, at any stage of a case relating to him75, make an
application in such form and in such manner as may be prescribed, and containing a
full and true disclosure of his income which has not been disclosed before the
76
[Assessing] Officer, the manner in which such income has been derived, the
additional amount of income-tax payable on such income and such other particulars
as may be prescribed, to the Settlement Commission to have the case settled and any
such application shall be disposed of in the manner hereinafter provided:
77
[Provided that no such application shall be made unless,
(a) the assessee has furnished the return of income which he is or was required
to furnish under any of the provisions of this Act; and
(b) the additional amount of income-tax payable on the income disclosed in the
application exceeds 78[one hundred] thousand rupees.]

(1A) For the purposes of sub-section (1) of this section and sub-sections (2A) to (2D)
of section 245D, the additional amount of income-tax payable in respect of the
income disclosed in an application made under sub-section (1) of this section shall be
the amount calculated in accordance with the provisions of sub-sections (1B) to (1D).
79
[(1B) Where the income disclosed in the application relates to only one previous
year,
(i) if the applicant has not furnished a return in respect of the total income of
that year (whether or not an assessment has been made in respect of the total
income of that year), then, except in a case covered by clause (iii), tax shall
be calculated on the income disclosed in the application as if such income
were the total income;
(ii) if the applicant has furnished a return in respect of the total income of that
year (whether or not an assessment has been made in pursuance of such
return), tax shall be calculated on the aggregate of the total income returned
and the income disclosed in the application as if such aggregate were the
total income;
(iii) if the proceeding pending before the income-tax authority is in the nature of
a proceeding for reassessment of the applicant under section 147 or by way
of appeal or revision in connection with such reassessment, and the
applicant has not furnished a return in respect of the total income of that
year in the course of such proceeding for reassessment, tax shall be
calculated on the aggregate of the total income as assessed in the earlier
proceeding for assessment under section 143 or section 144 or section 147
and the income disclosed in the application as if such aggregate were the
total income.]
80
[(1C) The additional amount of income-tax payable in respect of the income
disclosed in the application relating to the previous year referred to in sub-section
(1B) shall be,
(a) in a case referred to in clause (i) of that sub-section, the amount of tax
calculated under that clause;
(b) in a case referred to in clause (ii) of that sub-section, the amount of tax
calculated under that clause as reduced by the amount of tax calculated on
the total income returned for that year;
(c) in a case referred to in clause (iii) of that sub-section, the amount of tax
calculated under that clause as reduced by the amount of tax calculated on
the total income assessed in the earlier proceeding for assessment under
section 143 or section 144 or section 147.]
(1D) Where the income disclosed in the application relates to more than one previous
year, the additional amount of income-tax payable in respect of the income disclosed
for each of the years shall first be calculated in accordance with the provisions of subsections (1B) and (1C) and the aggregate of the amount so arrived at in respect of
each of the years for which the application has been made under sub-section (1) shall
be the additional amount of income-tax payable in respect of the income disclosed in
the application.
(1E) 81[***]
(2) Every application made under sub-section (1) shall be accompanied by such fees
as may be prescribed82.

(3) An application made under sub-section (1) shall not be allowed to be withdrawn
by the applicant.
Procedure on receipt of an application under section 245C.83
245D. (1) On receipt of an application under section 245C, the Settlement
Commission shall call for a report from the Commissioner and on the basis of the
materials contained in such report and having regard to the nature and circumstances
of the case or the complexity of the investigation involved therein, 84[the Settlement
Commission, shall, where it is possible, by order, reject the application or allow the
application to be proceeded with within a period of one year from the end of the
month in which such application was made under section 245C] :
Provided that an application shall not be rejected under this sub-section unless an
opportunity has been given to the applicant of being heard :
85
[Provided further that the Commissioner shall furnish the report within a period of
forty-five days of the receipt of communication from the Settlement Commission in
case of all applications made under section 245C on or after the 1st day of July, 1995
and if the Commissioner fails to furnish the report within the said period, the
Settlement Commission may make the order without such report.]
(1A) 86[Omitted by the Finance (No. 2) Act, 1991, w.e.f. 27-9-1991.]
(2) A copy of every order under sub-section (1) shall be sent to the applicant and to
the Commissioner.
87
[(2A) Subject to the provisions of sub-section (2B), the assessee shall, within thirtyfive days of the receipt of a copy of the order under sub-section (1) 88[allowing the
application to be proceeded with], pay the additional amount of income-tax payable
on the income disclosed in the application and shall furnish proof of such payment to
the Settlement Commission.]
88
[(2B) If the Settlement Commission is satisfied, on an application made in this
behalf by the assessee, that he is unable for good and sufficient reasons to pay the
additional amount of income-tax referred to in sub-section (2A) within the time specified in that sub-section, it may extend the time for payment of the amount which
remains unpaid or allow payment thereof by instalments if the assessee furnishes
adequate security for the payment thereof.]
88
[(2C) Where the additional amount of income-tax is not paid within the time
specified under sub-section (2A), then, whether or not the Settlement Commission has
extended the time for payment of the amount which remains unpaid or has allowed
payment thereof by instalments under sub-section (2B), the assessee shall be liable to
pay simple interest at fifteen per cent per annum on the amount remaining unpaid
from the date of expiry of the period of thirty-five days referred to in sub-section
(2A)].
89-90
[(2D) Where the additional amount of income-tax referred to in sub-section (2A) is
not paid by the assessee within the time specified under that sub-section or extended
under sub-section (2B), as the case may be, the Settlement Commission may direct
that the amount of income-tax remaining unpaid, together with any interest payable
thereon under sub-section (2C), be recovered and any penalty for default in making
payment of such additional amount may be imposed and recovered, in accordance
with the provisions of Chapter XVII, by the 91[Assessing] Officer having jurisdiction
over the assessee.]

(3) Where an application is allowed to be proceeded with under sub-section (1), the
Settlement Commission may call for the relevant records from the Commissioner and
after examination of such records, if the Settlement Commission is of the opinion that
any further enquiry or investigation in the matter is necessary, it may direct the
Commissioner to make or cause to be made such further enquiry or investigation and
furnish a report on the matters covered by the application and any other matter
relating to the case.
(4) After examination of the records and the report of the Commissioner, received
under sub-section (1), and the report, if any, of the Commissioner received under subsection (3), and after giving an opportunity to the applicant and to the Commissioner
to be heard, either in person or through a representative duly authorised in this behalf,
and after examining such further evidence as may be placed before it or obtained by
it, the Settlement Commission may, in accordance with the provisions of this Act, pass
such order as it thinks fit on the matters covered by the application and any other
matter relating to the case not covered by the application, but referred to in the report
of the Commissioner under sub-section (1) or sub-section (3).
92
[(4A) In every application allowed to be proceeded with under sub-section (1), the
Settlement Commission shall, where it is possible, pass an order under sub-section (4)
within a period of four years from the end of the financial year in which such
application was allowed to be proceeded with.]
93
[(5) Subject to the provisions of section 245BA, the materials brought on record
before the Settlement Commission shall be considered by the Members of the
concerned Bench before passing any order under sub-section (4) and, in relation to the
passing of such order, the provisions of section 245BD shall apply.]
(6) Every order passed under sub-section (4) shall provide for the terms 94 of
settlement including any demand by way of 95[tax, penalty or interest], the manner in
which any sum due under the settlement94 shall be paid and all other matters to make
the settlement effective and shall also provide that the settlement shall be void if it is
subsequently found by the Settlement Commission that it has been obtained by fraud
or misrepresentation of facts.
96
[(6A) Where any tax payable in pursuance of an order under sub-section (4) is not
paid by the assessee within thirty-five days of the receipt of a copy of the order by
him, then, whether or not the Settlement Commission has extended the time for
payment of such tax or has allowed payment thereof by instalments, the assessee
shall be liable to pay simple interest at fifteen per cent per annum on the amount
remaining unpaid from the date of expiry of the period of thirty-five days aforesaid.]
(7) Where a settlement becomes void as provided under sub-section (6), the
proceedings with respect to the matters covered by the settlement shall be deemed to
have been revived from the stage at which the application was allowed to be
proceeded with by the Settlement Commission and the income-tax authority
concerned, may, notwithstanding anything contained in any other provision of this
Act, complete such proceedings at any time before the expiry of two years from the
end of the financial year in which the settlement became void.
97
[(8) For the removal of doubts, it is hereby declared that nothing contained in section
153 shall apply to any order passed under sub-section (4) or to any order of
assessment, reassessment or recomputation required to be made by the 98[Assessing]
Officer in pursuance of any directions contained in such order passed by the
Settlement Commission 99[and nothing contained in the proviso to sub-section (1) of

section 186 shall apply to the cancellation of the registration of a firm required to be
made in pursuance of any such directions as aforesaid.]]
1

[Power of Settlement Commission to order provisional attachment to protect

revenue.
245DD. (1) Where, during the pendency of any proceeding before it, the Settlement
Commission is of the opinion that for the purpose of protecting the interests of the
revenue it is necessary so to do, it may, by order, attach provisionally any property
belonging to the applicant in the manner provided in the Second Schedule :
Provided that where a provisional attachment made under section 281B is pending
immediately before an application is made under section 245C, an order under this
sub-section shall continue such provisional attachment up to the period up to which an
order made under section 281B would have continued if such application had not been
made :
Provided further that where the Settlement Commission passes an order under this
sub-section after the expiry of the period referred to in the preceding proviso, the
provisions of sub-section (2) shall apply to such order as if the said order had
originally been passed by the Settlement Commission.
(2) Every provisional attachment made by the Settlement Commission under subsection (1) shall cease to have effect after the expiry of a period of six months from
the date of the order made under sub-section (1) :
Provided that the Settlement Commission may, for reasons to be recorded in writing,
extend the aforesaid period by such further period or periods as it thinks fit, so,
however, that the total period of extension shall not in any case exceed two years.]
Power of Settlement Commission to reopen completed proceedings.
245E. If the Settlement Commission is of the opinion (the reasons for such opinion
to be recorded by it in writing) that, for the proper disposal of the case pending before
it, it is necessary or expedient to reopen any proceeding connected with the case but
which has been completed 2[* * *] under this Act by any income-tax authority before
the application under section 245C was made, it may, with the concurrence of the
applicant, reopen such proceeding and pass such order thereon as it thinks fit, as if the
case in relation to which the application for settlement had been made by the applicant
under that section covered such proceeding also :
3
[Provided that no proceeding shall be reopened by the Settlement Commission
under this section if the period between the end of the assessment year to which such
a proceeding relates and the date of application for settlement under section 245C
exceeds nine years.]
Powers and procedure of Settlement Commission.
245F. (1) In addition to the powers conferred on the Settlement Commission under
this Chapter, it shall have all the powers which are vested in an income-tax authority
under this Act.
(2) Where an application made under section 245C has been allowed to be proceeded
with under section 245D, the Settlement Commission shall, until an order is passed
under sub-section (4) of section 245D, have, subject to the provisions of sub-section

(3) of that section, exclusive jurisdiction to exercise the powers and perform the
functions of an income-tax authority under this Act in relation to the case.
(3) Notwithstanding anything contained in sub-section (2) and in the absence of any
express direction to the contrary by the Settlement Commission, nothing contained in
this section shall affect the operation of any other provision of this Act requiring the
applicant to pay tax on the basis of self-assessment 4[* * *] in relation to the matters
before the Settlement Commission.
(4) For the removal of doubt, it is hereby declared that, in the absence of any express
direction by the Settlement Commission to the contrary, nothing in this Chapter shall
affect the operation of the provisions of this Act in so far as they relate to any matters
other than those before the Settlement Commission.
(5) 5[* * *]
(6) 6[* * *]
7
[(7) The Settlement Commission shall, subject to the provisions of this Chapter, have
power to regulate its own procedure and the procedure of Benches thereof in all
matters arising out of the exercise of its powers or of the discharge of its functions,
including the places at which the Benches shall hold their sittings.]
Inspection, etc., of reports.
245G. 8No person shall be entitled to inspect, or obtain copies of, any reports made
by any income-tax authority to the Settlement Commission; but the Settlement
Commission may, in its discretion, furnish copies thereof to any such person on an
application made to it in this behalf and on payment of the prescribed fee :
Provided that, for the purpose of enabling any person whose case is under
consideration to rebut any evidence brought on record against him in any such report,
the Settlement Commission shall, on an application made in this behalf, and on
payment of the prescribed fee by such person, furnish him with a certified copy of any
such report or part thereof relevant for the purpose.
Power of Settlement Commission to grant immunity from prosecution and
penalty.
245H. (1) The Settlement Commission may, if it is satisfied that any person who
made the application for settlement under section 245C has co-operated with the
Settlement Commission in the proceedings before it and has made a full and true
disclosure of his income and the manner in which such income has been derived,
grant to such person, subject to such conditions as it may think fit to impose,
immunity from prosecution for any offence under this Act or under the Indian Penal
Code (45 of 1860) or under any other Central Act for the time being in force and also
9
[(either wholly or in part)] from the imposition of any penalty under this Act, with
respect to the case covered by the settlement :
10
[Provided that no such immunity shall be granted by the Settlement Commission in
cases where the proceedings for the prosecution for any such offence have been
instituted before the date of receipt of the application under section 245C.]
10
[(1A) An immunity granted to a person under sub-section (1) shall stand withdrawn
if such person fails to pay any sum specified in the order of settlement passed under
sub-section (4) of section 245D within the time specified in such order or within such
further time as may be allowed by the Settlement Commission, or fails to comply with

any other condition subject to which the immunity was granted and thereupon the
provisions of this Act shall apply as if such immunity had not been granted.]
(2) An immunity granted to a person under sub-section (1) may, at any time, be
withdrawn by the Settlement Commission, if it is satisfied that such person 11[* * *]
had, in the course of the settlement proceedings, concealed any particulars material to
the settlement or had given false evidence, and thereupon such person may be tried for
the offence with respect to which the immunity was granted or for any other offence
of which he appears to have been guilty in connection with the settlement and shall
also become liable to the imposition of any penalty under this Act to which such
person would have been liable, had not such immunity been granted.

Order of settlement to be conclusive.

245-I. Every order of settlement passed under sub-section (4) of section 245D shall
be conclusive as to the matters stated therein and no matter covered by such order
shall, save as otherwise provided in this Chapter, be reopened in any proceeding under
this Act or under any other law for the time being in force.
Recovery of sums due under order of settlement.
245J. Any sum specified in an order of settlement passed under sub-section (4) of
section 245D may, subject to such conditions, if any, as may be specified therein, be
recovered, and any penalty for default in making payment of such sum may be
imposed and recovered in accordance with the provisions of Chapter XVII, by the
13
[Assessing] Officer having jurisdiction over the person who made the application for
settlement under section 245C.
Bar on subsequent application for settlement in certain cases.
245K. Where,
(i) an order of settlement passed under sub-section (4) of section 245D
provides for the imposition of a penalty on the person who made the
application under section 245C for settlement, on the ground of
concealment of particulars of his income; or
(ii) after the passing of an order of settlement under the said sub-section (4) in
relation to a case, such person is convicted of any offence under Chapter
XXII in relation to that case; 14[or]
15
[(iii) the case of such person is sent back to the 16[Assessing] Officer by the
Settlement Commission under section 245HA,]
then, he shall not be entitled to apply for settlement under section 245C in relation to
any other matter.
Proceedings before Settlement Commission to be judicial proceedings.
245L. Any proceeding under this Chapter before the Settlement Commission shall
be deemed to be a judicial proceeding within the meaning of sections 193 and 228,
and for the purposes of section 196, of the Indian Penal Code (45 of 1860).

18

[CHAPTER XIX-B
ADVANCE RULINGS
Definitions.
245N. In this Chapter, unless the context otherwise requires,
19
[(a) advance ruling means
(i) a determination by the Authority in relation to a transaction which has
been undertaken or is proposed to be undertaken by a non-resident
applicant; or
(ii) a determination by the Authority in relation to 20[the tax liability of a
non-resident arising out of] a transaction which has been undertaken or
is proposed to be undertaken by a resident applicant with 21[such] nonresident,
and such determination shall include the determination of any question
of law or of fact specified in the application;
(iii) a determination or decision by the Authority in respect of an issue
relating to computation of total income which is pending before any
income-tax authority or the Appellate Tribunal and such determination
or decision shall include the determination or decision of any question
of law or of fact relating to such computation of total income specified
in the application :
22
[Provided that where an advance ruling has been pronounced, before the
date on which the Finance Act, 2003 receives the assent of the President, by
the Authority in respect of an application by a resident applicant referred to
in sub-clause (ii) of this clause as it stood immediately before such date,
such ruling shall be binding on the persons specified in section 245S;]
(b) applicant means any person who
(i) is a non-resident referred to in sub-clause (i) of clause (a); or
(ii) is a resident referred to in sub-clause (ii) of clause (a); or
(iii) is a resident falling within any such class or category of persons as the
Central Government may, by notification in the Official Gazette 23,
specify in this behalf; and
(iv) makes an application under sub-section (1) of section 245Q;]
(c) application means an application made to the Authority under sub-section
(1) of section 245Q;
(d) Authority means the Authority for Advance Rulings constituted under
section 245-O;
(e) Chairman means the Chairman of the Authority;
(f) Member means a Member of the Authority and includes the Chairman.
Authority for Advance Rulings.
245-O. (1) The Central Government shall constitute an Authority for giving advance
rulings, to be known as Authority for Advance Rulings.
(2) The Authority shall consist of the following Members appointed by the Central
Government, namely :

(a) a Chairman, who is a retired Judge of the Supreme Court;

(b) an officer of the Indian Revenue Service who is qualified to be a member of
the Central Board of Direct Taxes;
(c) an officer of the Indian Legal Service who is, or is qualified to be, an
Additional Secretary to the Government of India.
(3) The salaries and allowances payable to, and the terms and conditions of service of,
the Members shall be such as may be prescribed.
(4) The Central Government shall provide the Authority with such officers and staff as
may be necessary for the efficient exercise of the powers of the Authority under this
Act.
(5) The office of the Authority shall be located in Delhi.
Vacancies, etc., not to invalidate proceedings.
245P. No proceeding before, or pronouncement of advance ruling by, the Authority
shall be questioned or shall be invalid on the ground merely of the existence of any
vacancy or defect in the constitution of the Authority.
Application for advance ruling.
245Q. (1) An applicant desirous of obtaining an advance ruling under this Chapter
may make an application in such form and in such manner as may be prescribed 24,
stating the question on which the advance ruling is sought.
(2) The application shall be made in quadruplicate and be accompanied by a fee of
two thousand five hundred rupees.
(3) An applicant may withdraw an application within thirty days from the date of the
application.
Procedure on receipt of application.
245R. (1) On receipt of an application, the Authority shall cause a copy thereof to
be forwarded to the Commissioner and, if necessary, call upon him to furnish the
relevant records :
Provided that where any records have been called for by the Authority in any case,
such records shall, as soon as possible, be returned to the Commissioner.
(2) The Authority may, after examining the application and the records called for, by
order, either allow or reject the application :
25
[Provided that the Authority shall not allow the application where the question
raised in the application,
(i) is already pending before any income-tax authority or Appellate Tribunal
[except in the case of a resident applicant falling in sub-clause (iii) of clause
(b) of section 245N] or any court;
(ii) involves determination of fair market value of any property;
(iii) relates to a transaction or issue which is designed prima facie for the
avoidance of income-tax [except in the case of a resident applicant falling in
sub-clause (iii) of clause (b) of section 245N]:]
Provided further that no application shall be rejected under this sub-section unless
an opportunity has been given to the applicant of being heard:

Provided also that where the application is rejected, reasons for such rejection shall
be given in the order.
(3) A copy of every order made under sub-section (2) shall be sent to the applicant and
to the Commissioner.
(4) Where an application is allowed under sub-section (2), the Authority shall, after
examining such further material as may be placed before it by the applicant or
obtained by the Authority, pronounce its advance ruling on the question specified in
the application.
(5) On a request received from the applicant, the Authority shall, before pronouncing
its advance ruling, provide an opportunity to the applicant of being heard, either in
person or through a duly authorised representative.
Explanation.For the purposes of this sub-section, authorised representative shall
have the meaning assigned to it in sub-section (2) of section 288, as if the applicant
were an assessee.
(6) The Authority shall pronounce its advance ruling in writing within six months of
the receipt of application.
(7) A copy of the advance ruling pronounced by the Authority, duly signed by the
Members and certified in the prescribed manner26 shall be sent to the applicant and to
the Commissioner, as soon as may be, after such pronouncement.
27

[Appellate authority not to proceed in certain cases.

245RR. No income-tax authority or the Appellate Tribunal shall proceed to decide
any issue in respect to which an application has been made by an applicant, being a
resident, under sub-section (1) of 27a[section 245Q].]
Applicability of advance ruling.
245S. (1) The advance ruling pronounced by the Authority under section 245R shall
be binding only
(a) on the applicant who had sought it;
(b) in respect of the transaction in relation to which the ruling had been sought;
and
(c) on the Commissioner, and the income-tax authorities subordinate to him, in
respect of the applicant and the said transaction.
(2) The advance ruling referred to in sub-section (1) shall be binding as aforesaid
unless there is a change in law or facts on the basis of which the advance ruling has
been pronounced.
Advance ruling to be void in certain circumstances.
245T. (1) Where the Authority finds, on a representation made to it by the
Commissioner or otherwise, that an advance ruling pronounced by it under subsection (6) of section 245R has been obtained by the applicant by fraud or
misrepresentation of facts, it may, by order, declare such ruling to be void ab initio
and thereupon all the provisions of this Act shall apply (after excluding the period
beginning with the date of such advance ruling and ending with the date of order
under this sub-section) to the applicant as if such advance ruling had never been
made.

(2) A copy of the order made under sub-section (1) shall be sent to the applicant and
the Commissioner.
Powers of the Authority.
245U. (1) The Authority shall, for the purpose of exercising its powers, have all the
powers of a civil court under the Code of Civil Procedure, 1908 (5 of 1908) as are
referred to in section 131 of this Act.
(2) The Authority shall be deemed to be a civil court for the purposes of section 195,
but not for the purposes of Chapter XXVI, of the Code of Criminal Procedure, 1973
(2 of 1974) and every proceeding before the Authority shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228, and for the purpose of section
196, of the Indian Penal Code (45 of 1860).
Procedure of Authority.
245V. The Authority shall, subject to the provisions of this Chapter, have power to
regulate28 its own procedure in all matters arising out of the exercise of its powers
under this Act.]
CHAPTER XX
APPEALS AND REVISION
29
30
[A.Appeals [***] to the Deputy Commissioner (Appeals) and Commissioner
(Appeals)
Appealable orders.
246. (1) Subject to the provisions of sub-section (2), any assessee aggrieved by any
of the following orders of an Assessing Officer (other than the Deputy Commissioner)
may appeal to the Deputy Commissioner (Appeals) 31[before the 1st day of June,
2000] against such order
(a) an order against the assessee, where the assessee denies his liability to be
assessed32 under this Act 33[, or an intimation under sub-section (1) or subsection (1B) of section 143, where the assessee objects to the making of
adjustments,] or any order of assessment under sub-section (3) of section
143 or section 144, where the assessee objects to the amount of income
assessed, or to the amount of tax determined, or to the amount of loss
computed, or to the status under which he is assessed;
(b) an order of assessment, reassessment or recomputation under section 147 or
section 150;
(c) an order under section 154 or section 155 having the effect of enhancing the
assessment or reducing a refund or an order refusing to allow the claim
made by the assessee under either of the said sections;
(d) an order made under section 163 treating the assessee as the agent of a nonresident;
(e) an order under sub-section (2) or sub-section (3) of section 170;
(f) an order under section 171;
(g) any order under clause (b) of sub-section (1) or under sub-section (2) or
sub-section (3) or sub-section (5) of section 185 34[***] 35[in respect of any

assessment for the assessment year commencing on or before the 1st day of
April, 1992];
(h) an order cancelling the registration of a firm under sub-section (1) or under
sub-section (2) of section 186 36[***] 37[in respect of any assessment for the
assessment year commencing on or before the 1st day of April, 1992];
(i) an order under section 201;
(j) an order under section 216 in respect of any assessment for the assessment
year commencing on the 1st day of April, 1988 or any earlier assessment
year;
(k) an order under section 237;
(l) an order imposing a penalty under
(i) section 221, or
(ii) section 271, section 271A, section 271B, 38[***] 39[section 272A,
section 272AA or section 272BB];
(iii) 40[***] section 272, section 272B or section 273, as they stood
immediately before the 1st day of April, 1989, in respect of any
assessment for the assessment year commencing on the 1st day of April,
1988 or any earlier assessment years.
41
[(1A) Notwithstanding anything contained in sub-section (1), every appeal filed, on
or after the 1st day of October, 1998 but before the 1st day of June, 2000, before the
Deputy Commissioner (Appeals) and any matter arising out of or connected with such
appeal and which is so pending shall stand transferred to the Commissioner (Appeals)
and the Commissioner (Appeals) may proceed with such appeal or matter from the
stage at which it was on that day.]
(2) Notwithstanding anything contained in sub-section (1), any assessee aggrieved by
any of the following orders (whether made before or after the appointed day) may
appeal to the Commissioner (Appeals) 42[before the 1st day of June, 2000] against
such order
(a) 43[an intimation or order specified in sub-section (1) where such intimation
is sent or such order] is made by the Deputy Commissioner in exercise of
the powers or functions conferred on or assigned to him under section 120
or section 124;
(b) an order specified in clauses (a) to (e) (both inclusive) and clauses (i) to (l)
(both inclusive) of sub-section (1) 44[or an order under section 104, as it
stood immediately before the 1st day of April, 1988 in respect of any
assessment for the assessment year commencing on the 1st day of April,
1987 or any earlier assessment year] made against the assessee, being a
company;
(c) an order of assessment made after the 30th day of September, 1984, on the
basis of the directions issued by the Deputy Commissioner under section
144A;
(d) an order made by the Deputy Commissioner under section 154;
45
[(da) an order of assessment made by an Assessing Officer under clause (c) of
section 158BC, in respect of search initiated under section 132 or books of
account, other documents or any assets requisitioned under section 132A,
on or after the 1st day of January, 1997;
(db) an order imposing a penalty under sub-section (2) of section 158BFA;]

(e) an order imposing a penalty under section 271B 46[or section 271BB];
47
[(ee) an order made by a Deputy Commissioner imposing a penalty under section
271C, section 271D or section 271E;]
(f) an order made by a Deputy Commissioner or a Deputy Director imposing a
penalty under section 272A;
48
[(ff) an order made by a Deputy Commissioner imposing a penalty under section
272AA;]
49
[(g) an order imposing a penalty under Chapter XXI by the Income-tax Officer
or the Assistant Commissioner where such penalty has been imposed with
the previous approval of the Deputy Commissioner under sub-section (2) of
section 274;]
(h) an order made by an Assessing Officer (other than Deputy Commissioner)
under the provisions of this Act in the case of such person or classes of
persons as the Board may, having regard to the nature of the cases, the
complexities involved and other relevant considerations, direct.
(3) Notwithstanding anything contained in sub-section (1), the Board or the Director
General, or the Chief Commissioner or Commissioner if so authorised by the Board,
may, by order in writing, transfer any appeal which is pending before a Deputy
Commissioner (Appeals) and any matter arising out of or connected with such appeal
and which is so pending, to the Commissioner (Appeals) if the Board or, as the case
may be, the Director General or Chief Commissioner or Commissioner (at the request
of the appellant or otherwise) is satisfied that it is necessary or expedient so to do
having regard to the nature of the case, the complexities involved and other relevant
considerations and the Commissioner (Appeals) may proceed with such appeal or
matter, from the stage at which it was before it was so transferred:
Provided that the appellant may demand that before proceeding further with the
appeal or matter, the previous proceeding or any part thereof be re-opened or that he
be reheard.
Explanation.For the purposes of this section,
(a) appointed day means the 10th day of July, 1978, being the day appointed
under section 39 of the Finance (No. 2) Act, 1977 (29 of 1977);
(b) status means the category under which the assessee is assessed as
individual, Hindu undivided family and so on.]
50

[Appealable orders before Commissioner (Appeals).

246A. (1) Any assessee aggrieved by any of the following orders (whether made
before or after the appointed day) may appeal to the Commissioner (Appeals) against

(a) an order 50a[passed by a Joint Commissioner under clause (ii) of sub-section

(3) of section 115VP or an order] against the assessee where the assessee
denies his liability to be assessed under this Act or an intimation under subsection (1) or sub-section (1B) of section 143, where the assessee objects to
the making of adjustments, or any order of assessment under sub-section (3)
of section 143 or section 144, to the income assessed, or to the amount of
tax determined, or to the amount of loss computed, or to the status under
which he is assessed;

(b) an order of assessment, re-assessment or re-computation under section 147

or section 150;
51
[(ba) an order of assessment or reassessment under section 153A;]
(c) an order made under section 154 or section 155 having the effect of
enhancing the assessment or reducing a refund or an order refusing to allow
the claim made by the assessee under either of the said sections;
(d) an order made under section 163 treating the assessee as the agent of a nonresident;
(e) an order made under sub-section (2) or sub-section (3) of section 170;
(f) an order made under section 171;
(g) an order made under clause (b) of sub-section (1) or under sub-section (2) or
sub-section (3) or sub-section (5) of section 185 in respect of an assessment
for the assessment year commencing on or before the 1st day of April, 1992;
(h) an order cancelling the registration of a firm under sub-section (1) or under
sub-section (2) of section 186 in respect of any assessment for the
assessment year commencing on or before the 1st day of April, 1992 or any
earlier assessment year;
52
[(ha) an order made under section 201;]
(i) an order made under section 237;
(j) an order imposing a penalty under
(A) section 221; or
(B) section 271, section 271A, section 271F, section 272AA or section
272BB;
(C) section 272, section 272B or section 273, as they stood immediately
before the 1st day of April, 1989, in respect of an assessment for the
assessment year commencing on the 1st day of April, 1988, or any
earlier assessment years;
(k) an order of assessment made by an Assessing Officer under clause (c) of
section 158BC, in respect of search initiated under section 132 or books of
account, other documents or any assets requisitioned under section 132A on
or after the 1st day of January, 1997;
(l) an order imposing a penalty under sub-section (2) of section 158BFA;
(m) an order imposing a penalty under section 271B or section 271BB;
(n) an order made by a Deputy Commissioner imposing a penalty under section
271C, section 271D or section 271E;
(o) an order made by a Deputy Commissioner or a Deputy Director imposing a
penalty under section 272A;
(p) an order made by a Deputy Commissioner imposing a penalty under section
272AA;
(q) an order imposing a penalty under Chapter XXI;
(r) an order made by an Assessing Officer other than a Deputy Commissioner
under the provisions of this Act in the case of such person or class of
persons, as the Board may, having regard to the nature of the cases, the
complexities involved and other relevant considerations, direct.

Explanation.For the purposes of this sub-section, where on or after the 1st day of
October, 1998, the post of Deputy Commissioner has been redesignated as Joint
Commissioner and the post of Deputy Director has been redesignated as Joint
Director, the references in this sub-section for Deputy Commissioner and Deputy
Director shall be substituted by Joint Commissioner and Joint Director
respectively.
52
[(1A) Every appeal filed by an assessee in default against an order under section 201
on or after the 1st day of October, 1998 but before the 1st day of June, 2000 shall be
deemed to have been filed under this section.]
(2) Notwithstanding anything contained in sub-section (1) of section 246, every
appeal under this Act which is pending immediately before the appointed day, before
the Deputy Commissioner (Appeals) and any matter arising out of or connected with
such appeals and which is so pending shall stand transferred on that date to the
Commissioner (Appeals) and the Commissioner (Appeals) may proceed with such
appeal or matter from the stage at which it was on that day :
Provided that the appellant may demand that before proceeding further with the
appeal or matter, the previous proceeding or any part thereof be reopened or that he be
re-heard.
Explanation.For the purposes of this section, appointed day means the day
appointed by the Central Government by notification53 in the Official Gazette.]

Appeal by person denying liability to deduct tax.

248. Any person having in accordance with the provisions of sections 195 and 200
deducted and paid tax in respect of any sum chargeable under this Act, other than
interest, who denies his liability to make such deduction, may appeal to the 55[* * *]
56
[Commissioner (Appeals)] to be declared not liable to make such deduction.
Form of appeal and limitation.
249. (1) Every appeal under this Chapter shall be in the prescribed form57 and shall
be verified in the prescribed manner 58[and shall, in case of an appeal made to the
Commissioner (Appeals) on or after the 1st day of October, 1998, irrespective of the
date of initiation of the assessment proceedings relating thereto be accompanied by a
fee of,
(i) where the total income of the assessee as computed by the Assessing Officer
in the case to which the appeal relates is one hundred thousand rupees or
less, two hundred fifty rupees;
(ii) where the total income of the assessee, computed as aforesaid, in the case to
which the appeal relates is more than one hundred thousand rupees but not
more than two hundred thousand rupees, five hundred rupees;
(iii) where the total income of the assessee, computed as aforesaid, in the case to
which the appeal relates is more than two hundred thousand rupees, one
thousand rupees;]
59
[(iv) where the subject matter of an appeal is not covered under clauses (i), (ii)
and (iii), two hundred fifty rupees.]

(2) The appeal shall be presented within thirty days of the following date, that is to
say,
(a) where the appeal relates to any tax deducted under sub-section (1) of section
195, the date of payment of the tax, or
(b) where the appeal relates to any assessment or penalty, the date of service of
the notice of demand relating to the assessment or penalty:
60
[Provided that, where an application has been made under section 146 for
reopening an assessment, the period from the date on which the application
is made to the date on which the order passed on the application is served on
the assessee shall be excluded, or]
(c) in any other case, the date on which intimation of the order sought to be
appealed against is served.
61
[(2A) Notwithstanding anything contained in sub-section (2), where an order has
been made under section 201 on or after the 1st day of October, 1998 but before the
1st day of June, 2000 and the assessee in default has not presented any appeal within
the time specified in that sub-section, he may present such appeal before the 1st day
of July, 2000.]
(3) The 62[***] 63[Commissioner (Appeals)] may admit an appeal after the expiration
of the said period if he is satisfied that the appellant had sufficient cause for not
presenting it within that period.
64
[(4) No appeal under this Chapter shall be admitted unless at the time of filing of the
appeal,
(a) where a return has been filed by the assessee, the assessee has paid the tax
due on the income returned by him; or
(b) where no return has been filed by the assessee, the assessee has paid an
amount equal to the amount of advance tax which was payable by him:
Provided that, 65[in a case falling under clause (b) and] on an application made by the
appellant in this behalf, the 66[* * *] 67[Commissioner (Appeals)] may, for any good
and sufficient reason to be recorded in writing, exempt him from the operation of the
provisions of 68[that clause].]
Procedure in appeal.
69
250. (1) The 70[* * *] 71[Commissioner (Appeals)] shall fix a day and place for the
hearing of the appeal, and shall give notice of the same to the appellant and to the 7273
[Assessing] Officer against whose order the appeal is preferred.
(2) The following shall have the right to be heard at the hearing of the appeal
(a) the appellant, either in person or by an authorised representative;
(b) the 72-73[Assessing] Officer, either in person or by a representative.
(3) The 74[* * *] 75[Commissioner (Appeals)] shall have the power to adjourn the
hearing of the appeal from time to time.
(4) The 74[* * *] 75[Commissioner (Appeals)] may, before disposing of any appeal,
make such further inquiry as he thinks fit, or may direct the 76[Assessing] Officer to
make further inquiry and report the result of the same to the 74[* * *] 75[Commissioner
(Appeals)].
(5) The 74[* * *] 75[Commissioner (Appeals)] may, at the hearing of an appeal, allow
the appellant to go into any ground of appeal not specified in the grounds of appeal, if

the 74[* * *] 75[Commissioner (Appeals)] is satisfied that the omission of that ground
from the form of appeal was not wilful or unreasonable.
(6) The order of the 74[* * *] 75[Commissioner (Appeals)] disposing of the appeal shall
be in writing and shall state the points for determination, the decision thereon and the
reason for the decision.
77
[(6A) In every appeal, the Commissioner (Appeals), where it is possible, may hear
and decide such appeal within a period of one year from the end of the financial year
in which such appeal is filed before him under sub-section (1) of section 246A.]
(7) On the disposal of the appeal, the 78[* * *] 79[Commissioner (Appeals)] shall
communicate the order passed by him to the assessee and to the 80[Chief
Commissioner or Commissioner].
Powers of the 78[* * *] 79[Commissioner (Appeals)].
251. (1) In disposing of an appeal, the 78[* * *] 79[Commissioner (Appeals)] shall
have the following powers
(a) in an appeal against an order of assessment, he may confirm, reduce,
enhance or annul the assessment81; 82[* * *]
(b) in an appeal against an order imposing a penalty, he may confirm or cancel
such order or vary it so as either to enhance or to reduce the penalty;
(c) in any other case, he may pass such orders in the appeal as he thinks fit.
(2) The 83[* * *] 84[Commissioner (Appeals)] shall not enhance an assessment or a
penalty or reduce the amount of refund unless the appellant has had a reasonable
opportunity of showing cause against such enhancement or reduction.
Explanation.In disposing of an appeal, the 83[* * *] 84[Commissioner (Appeals)]
may consider and decide any matter arising out of the proceedings in which the order
appealed against was passed, notwithstanding that such matter was not raised before
the 83[* * *] 84[Commissioner (Appeals)] by the appellant.
B.Appeals to the Appellate Tribunal
Appellate Tribunal.
252. (1) The Central Government shall constitute an Appellate Tribunal consisting of
as many judicial and accountant members as it thinks fit to exercise the powers and
discharge the functions conferred on the Appellate Tribunal by this Act.
85
[(2) A judicial member shall be a person who has for at least ten years held a judicial
office in the territory of India or who has been a member of the 86[Indian] Legal
Service and has held a post in Grade 87[II] of that Service or any equivalent or higher
post for at least three years or who has been an advocate for at least ten years.
Explanation.For the purposes of this sub-section,
(i) in computing the period during which a person has held judicial office in the
territory of India, there shall be included any period, after he has held any
judicial office, during which the person has been an advocate or has held the
office of a member of a Tribunal or any post, under the Union or a State,
requiring special knowledge of law;
(ii) in computing the period during which a person has been an advocate, there
shall be included any period during which the person has held judicial office

or the office of a member of a Tribunal or any post, under the Union or a

State, requiring special knowledge of law after he became an advocate.
(2A) An accountant member shall be a person who has for at least ten years been in
the practice of accountancy as a chartered accountant under the Chartered
Accountants Act, 1949 (38 of 1949), or as a registered accountant under any law
formerly in force or partly as a registered accountant and partly as a chartered
accountant, or who has been a member of the Indian Income-tax Service, Group A
and has held the post of 88[Additional] Commissioner of Income-tax or any equivalent
or higher post for at least three years.]
89
[(3) The Central Government shall appoint the Senior Vice-President or one of the
Vice-Presidents of the Appellate Tribunal to be the President thereof.]
90
[(4) The Central Government may appoint one or more members of the Appellate
Tribunal to be the Vice-President or, as the case may be, Vice-Presidents thereof.]
91
[(4A) The Central Government may appoint one of the Vice-Presidents of the
Appellate Tribunal to be the Senior Vice-President thereof.]
92
(5) 93[The Senior Vice-President or a Vice-President] shall exercise such of the
powers and perform such of the functions of the President as may be delegated to him
by the President by a general or special order in writing.
94

Appeals to the Appellate Tribunal.

253. (1) Any assessee aggrieved by any of the following orders may appeal to the
Appellate Tribunal against such order
(a) an order passed by a 96[Deputy Commissioner (Appeals)] 97[before the 1st
day of October, 1998] 98[or, as the case may be, a Commissioner (Appeals)]
under 99[***] 1[section 154], 2[***] section 250, 3[section 271, section 271A
or section 272A]; or
4
[(b) an order passed by an Assessing Officer under clause (c) of section 158BC,
in respect of search initiated under section 132 or books of account, other
documents or any assets requisitioned under section 132A, after the 30th
day of June, 1995, but before the 1st day of January, 1997; or]
(c) an order passed by a Commissioner 5[under section 12AA or] under section
263 6[or under section 271] 7[or under section 272A] 8[***] or an order
passed by him under section 154 amending his order under section 263] 9[or
an order passed by a Chief Commissioner or a Director General or a
Director under section 272A;] *or
9a
[(d) an order passed by an Assessing Officer under sub-section (1) of section
115VZC.]
(2) The Commissioner may, if he objects to any order passed by a 10[Deputy
Commissioner (Appeals)] 11[before the 1st day of October, 1998] 12[or, as the case
may be, a Commissioner (Appeals)] under 13[section 154 or] section 250, direct the
14
[Assessing] Officer to appeal to the Appellate Tribunal against the order.
(3) Every appeal under sub-section (1) or sub-section (2) shall be filed within sixty
days of the date on which the order sought to be appealed against is communicated to
the assessee or to the Commissioner, as the case may be :
15
[Provided that in respect of any appeal under clause (b) of sub-section (1), this subsection shall have effect as if for the words sixty days, the words thirty days had
been substituted.]
95

(4) The 16[Assessing] Officer or the assessee, as the case may be, on receipt of notice
that an appeal against the order of the 17[Deputy Commissioner (Appeals)] 18[or, as the
case may be, the Commissioner (Appeals)] has been preferred under sub-section (1)
or sub-section (2) by the other party, may, notwithstanding that he may not have
appealed against such order or any part thereof; within thirty days of the receipt of the
notice, file a memorandum of cross-objections, verified in the prescribed manner,
against any part of the order19 of the 20[Deputy Commissioner (Appeals)] 18[or, as the
case may be, the Commissioner (Appeals)], and such memorandum shall be disposed
of by the Appellate Tribunal as if it were an appeal presented within the time specified
in sub-section (3).
(5) The Appellate Tribunal may admit an appeal or permit the filing of a
memorandum of cross-objections after the expiry of the relevant period referred to in
sub-section (3) or sub-section (4), if it is satisfied that there was sufficient cause for
not presenting it within that period.
21
[(6) An appeal to the Appellate Tribunal shall be in the prescribed form22 and shall be
verified in the prescribed manner and shall, in the case of an appeal made, on or after
the 1st day of October, 1998, irrespective of the date of initiation of the assessment
proceedings relating thereto, be accompanied by a fee of,
(a) where the total income of the assessee as computed by the Assessing
Officer, in the case to which the appeal relates, is one hundred thousand
rupees or less, five hundred rupees,
(b) where the total income of the assessee, computed as aforesaid, in the case
to which the appeal relates is more than one hundred thousand rupees but
not more than two hundred thousand rupees, one thousand five hundred
rupees,
(c) where the total income of the assessee, computed as aforesaid, in the case to
which the appeal relates is more than two hundred thousand rupees, one per
cent of the assessed income, subject to a maximum of ten thousand rupees,
23
[(d) where the subject matter of an appeal relates to any matter, other than those
specified in clauses (a), (b) and (c), five hundred rupees:]
Provided that no such fee shall be payable in the case of an appeal referred to in subsection (2) or a memorandum of cross-objections referred to in sub-section (4).
(7) An application for stay of demand shall be accompanied by a fee of five hundred
rupees.]
Orders of Appellate Tribunal.
254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an
opportunity of being heard, pass such orders thereon as it thinks fit24.
(1A) 25[***]
(2) The Appellate Tribunal may, at any time within four years from the date of the
order, with a view to rectifying any mistake apparent from the record 26, amend any
order passed by it under sub-section (1), and shall make such amendment 26 if the
mistake is brought to its notice by the assessee or the 27[Assessing] Officer :
Provided that an amendment which has the effect of enhancing an assessment or
reducing a refund or otherwise increasing the liability of the assessee, shall not be
made under this sub-section unless the Appellate Tribunal has given notice to the

assessee of its intention to do so and has allowed the assessee a reasonable

opportunity of being heard :
28
[Provided further that any application filed by the assessee in this sub-section on or
after the 1st day of October, 1998, shall be accompanied by a fee of fifty rupees.]
29
[(2A) In every appeal, the Appellate Tribunal, where it is possible, may hear and
decide such appeal within a period of four years from the end of the financial year in
which such appeal is filed under sub-section (1) 30[or sub-section (2)] of section 253 :
31
[Provided that where an order of stay is made in any proceedings relating to an
appeal filed under sub-section (1) of section 253, the Appellate Tribunal shall dispose
of the appeal within a period of one hundred and eighty days from the date of such
order :
Provided further that if such appeal is not so disposed of within the period specified
in the first proviso, the stay order shall stand vacated after the expiry of the said
period.]
(2B) The cost of any appeal to the Appellate Tribunal shall be at the discretion of that
Tribunal.]
(3) The Appellate Tribunal shall send a copy of any orders passed under this section to
the assessee and to the 32[33[***] Commissioner].
(4) Save as provided in section 256 34[or section 260A], orders passed by the Appellate Tribunal on appeal shall be final.
Procedure of Appellate Tribunal.
35
255. (1) The powers and functions of the Appellate Tribunal may be exercised and
discharged by Benches constituted by the President of the Appellate Tribunal from
among the members thereof.
(2) Subject to the provisions contained in sub-section (3), a Bench shall consist of one
judicial member and one accountant member.
(3) The President or any other member of the Appellate Tribunal authorised in this
behalf by the Central Government may, sitting singly, dispose of any case which has
been allotted to the Bench of which he is a member and which pertains to an assessee
whose total income as computed by the 36[Assessing] Officer in the case does not
exceed 37[five hundred thousand rupees], and the President may, for the disposal of
any particular case, constitute a Special Bench consisting of three or more members,
one of whom shall necessarily be a judicial member and one an accountant member.
(4) If the members of a Bench differ in opinion on any point, the point shall be
decided according to the opinion of the majority, if there is a majority, but if the
members are equally divided, they shall state the point or points on which they differ,
and the case shall be referred by the President of the Appellate Tribunal for hearing on
such point or points by one or more of the other members of the Appellate Tribunal,
and such point or points shall be decided according to the opinion of the majority of
the members of the Appellate Tribunal who have heard the case, including those who
first heard it.
38
(5) Subject to the provisions of this Act, the Appellate Tribunal shall have power to
regulate its own procedure and the procedure of Benches thereof in all matters arising
out of the exercise of its powers or of the discharge of its functions, including the
places at which the Benches shall hold their sittings.

(6) The Appellate Tribunal shall, for the purpose of discharging its functions, have all
the powers which are vested in the income-tax authorities referred to in section 131,
and any proceeding before the Appellate Tribunal shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228 and for the purpose of section
196 of the Indian Penal Code (45 of 1860), and the Appellate Tribunal shall be
deemed to be a civil court for all the purposes of section 195 and Chapter XXXV of
the Code of Criminal Procedure, 1898 (5 of 1898)39.
C.Reference to High Court
Statement of case to the High Court.
256. 40(1) The assessee or the Commissioner may, within sixty days of the date upon
which he is served with notice of an order 41[passed before the 1st day of October,
1998,] under section 254, by application in the prescribed form, accompanied where
the application is made by the assessee by a fee of 42[two hundred rupees], require the
Appellate Tribunal to refer to the High Court any question of law arising out of such
order43 and, subject to the other provisions contained in this section, the Appellate
Tribunal shall, within one hundred and twenty days of the receipt of such application,
draw up a statement of the case and refer it to the High Court :
Provided that the Appellate Tribunal may, if it is satisfied that the applicant was
prevented by sufficient cause from presenting the application within the period
hereinbefore specified, allow it to be presented within a further period not exceeding
thirty days.
(2) If, on an application made under sub-section (1), the Appellate Tribunal refuses to
state the case on the ground that no question of law arises, the assessee or the
Commissioner, as the case may be, may, within six months from the date on which he
is served with notice of such refusal, apply to the High Court, and the High Court
may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal,
require the Appellate Tribunal to state the case and to refer it, and on receipt of any
such requisition, the Appellate Tribunal shall state the case and refer it accordingly.
(3) Where in the exercise of its powers under sub-section (2), the Appellate Tribunal
refuses to state a case which it has been required by the assessee to state, the assessee
may, within thirty days from the date on which he receives notice of such refusal,
withdraw his application, and, if he does so, the fee paid shall be refunded.
Statement of case to Supreme Court in certain cases.
257. If, on an application made 44[against an order made under section 254 before the
1st day of October, 1998,] under section 256 the Appellate Tribunal is of the opinion
that, on account of a conflict in the decisions of High Courts in respect of any
particular question of law, it is expedient that a reference should be made direct to the
Supreme Court, the Appellate Tribunal may draw up a statement of the case and refer
it through its President direct to the Supreme Court.
Power of High Court or Supreme Court to require statement to be amended.
258. If the High Court or the Supreme Court is not satisfied that the statements in a
case referred to it are sufficient to enable it to determine the questions raised thereby,
the Court may refer the case back to the Appellate Tribunal for the purpose of making
such additions thereto or alterations therein as it may direct in that behalf.

Case before High Court to be heard by not less than two judges.
259. (1) When any case has been referred to the High Court under section 256, it
shall be heard by a Bench of not less than two Judges of the High Court, and shall be
decided in accordance with the opinion of such judges or of the majority, if any, of
such judges.
(2) Where there is no such majority, the judges shall state the point of law upon which
they differ, and the case shall then be heard upon that point only by one or more of the
other judges of the High Court, and such point shall be decided according to the
opinion of the majority of the judges who have heard the case including those who
first heard it.
Decision of High Court or Supreme Court on the case stated.
260. (1) The High Court or the Supreme Court upon hearing any such case shall
decide the questions of law raised therein, and shall deliver its judgment 45 thereon
containing the grounds on which such decision is founded, and a copy of the judgment
shall be sent under the seal of the Court and the signature of the Registrar to the
Appellate Tribunal which shall pass such orders as are necessary to dispose of the
case conformably to such judgment.
46
[(1A) Where the High Court delivers a judgment in an appeal filed before it under
section 260A, effect shall be given to the order passed on the appeal by the Assessing
Officer on the basis of a certified copy of the judgment.]
(2) The costs of any reference to the High Court or the Supreme Court which shall not
include the fee for making the reference shall be in the discretion of the Court.
47

[CC.Appeals to High Court47a

Appeal to High Court.

260A. (1) An appeal shall lie to the High Court from every order passed in appeal
by the Appellate Tribunal, if the High Court is satisfied that the case involves a
substantial question of law.
(2) 48[The Chief Commissioner or the Commissioner or an assessee aggrieved by any
order passed by the Appellate Tribunal may file an appeal to the High Court and such
appeal under this sub-section shall be]
(a) filed within one hundred and twenty days from the date on which the order
appealed against is 49[received by the assessee or the Chief Commissioner or
Commissioner];
(b) 50[***]
(c) in the form of a memorandum of appeal precisely stating therein the
substantial question of law involved.
(3) Where the High Court is satisfied that a substantial question of law is involved in
any case, it shall formulate that question.
(4) The appeal shall be heard only on the question so formulated, and the respondents
shall, at the hearing of the appeal, be allowed to argue that the case does not involve
such question :
Provided that nothing in this sub-section shall be deemed to take away or abridge the
power of the court to hear, for reasons to be recorded, the appeal on any other
substantial question of law not formulated by it, if it is satisfied that the case involves
such question.

(5) The High Court shall decide the question of law so formulated and deliver such
judgment thereon containing the grounds on which such decision is founded and may
award such cost as it deems fit.
(6) The High Court may determine any issue which
(a) has not been determined by the Appellate Tribunal; or
(b) has been wrongly determined by the Appellate Tribunal, by reason of a
decision on such question of law as is referred to in sub-section (1).
51-52
[(7) Save as otherwise provided in this Act, the provisions of the Code of Civil
Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may
be, apply in the case of appeals under this section.]
Case before High Court to be heard by not less than two Judges.
260B. (1) When an appeal has been filed before the High Court under section 260A,
it shall be heard by a bench of not less than two Judges of the High Court, and shall be
decided in accordance with the opinion of such Judges or of the majority, if any, of
such Judges.
(2) Where there is no such majority, the Judges shall state the point of law upon which
they differ and the case shall then be heard upon that point only by one or more of the
other Judges of the High Court and such point shall be decided according to the
opinion of the majority of the Judges who have heard the case including those who
first heard it.]
D.Appeals to the Supreme Court
Appeal to Supreme Court.
261. An appeal shall lie to the Supreme Court from any judgment of the High Court
delivered on a reference made under section 256 53[against an order made under
section 254 before the 1st day of October, 1998 or an appeal made to High Court in
respect of an order passed under section 254 on or after that date] in any case which
the High Court certifies to be a fit one for appeal to the Supreme Court.
Hearing before Supreme Court.
262. (1) The provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to
appeals to the Supreme Court shall, so far as may be, apply in the case of appeals
under section 261 as they apply in the case of appeals from decrees of a High Court :
Provided that nothing in this section shall be deemed to affect the provisions of subsection (1) of section 260 or section 265.
(2) The costs of the appeal shall be in the discretion of the Supreme Court.
(3) Where the judgment of the High Court is varied or reversed in the appeal, effect
shall be given to the order of the Supreme Court in the manner provided in section
260 in the case of a judgment of the High Court.
E.Revision by the Commissioner
Revision of orders prejudicial to revenue.
263. (1) The Commissioner may call for and examine the record 54 of any
proceeding under this Act, and if he considers that any order passed therein by the
55
[Assessing] Officer is erroneous in so far54 as it is prejudicial to the interests of the

revenue54, he may, after giving the assessee an opportunity of being heard and after
making or causing to be made such inquiry as he deems necessary, pass such order
thereon as the circumstances of the case justify, including an order enhancing or
modifying the assessment, or cancelling the assessment54 and directing a fresh
assessment.
56
[Explanation.For the removal of doubts, it is hereby declared that, for the
purposes of this sub-section,
(a) an order passed 57[on or before or after the 1st day of June, 1988] by the
Assessing Officer shall include
(i) an order of assessment made by the Assistant Commissioner 58[or
Deputy Commissioner] or the Income-tax Officer on the basis of the
directions issued by the 59[Joint] Commissioner under section 144A;
(ii) an order made by the 59a[Joint] Commissioner in exercise of the powers
or in the performance of the functions of an Assessing Officer conferred
on, or assigned to, him under the orders or directions issued by the
Board or by the Chief Commissioner or Director General or
Commissioner authorised by the Board in this behalf under section 120;
(b) record 60[shall include and shall be deemed always to have included] all
records relating to any proceeding under this Act available at the time of
examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing
Officer had been the subject matter of any appeal 61[filed on or before or
after the 1st day of June, 1988], the powers of the Commissioner under this
sub-section shall extend 61[and shall be deemed always to have extended] to
such matters as had not been considered and decided in such appeal.]
62-63
[(2) No order shall be made under sub-section (1) after the expiry of two years
from the end of the financial year in which the order sought to be revised was passed.]
(3) Notwithstanding anything contained in sub-section (2), an order in revision under
this section may be passed at any time in the case of an order which has been passed
in consequence of, or to give effect to, any finding or direction contained in an order
of the Appellate Tribunal, the High Court or the Supreme Court.
Explanation.In computing the period of limitation for the purposes of sub-section
(2), the time taken in giving an opportunity to the assessee to be reheard under the
proviso to section 129 and any period during which any proceeding under this section
is stayed by an order or injunction of any court shall be excluded.
Revision of other orders.
64
264. (1) In the case of any order 65 other than an order65 to which section 263 applies
passed by an authority subordinate to him, the Commissioner may, either of his own
motion or on an application by the assessee for revision, call for the record of any
proceeding under this Act in which any such order has been passed and may make
such inquiry or cause such inquiry to be made and, subject to the provisions of this
Act, may pass such order thereon, not being an order prejudicial to the assessee, as he
thinks fit.
(2) The Commissioner shall not of his own motion revise any order under this section
if the order has been made more than one year previously.

(3) In the case of an application for revision under this section by the assessee, the
application must be made within one year from the date on which the order in
question was communicated to him or the date on which he otherwise came to know
of it, whichever is earlier:
Provided that the Commissioner may, if he is satisfied that the assessee was
prevented by sufficient cause66 from making the application within that period, admit
an application made after the expiry of that period.
(4) The Commissioner shall not revise any order under this section in the following
cases
(a) where an appeal against the order lies to the 67[Deputy Commissioner
(Appeals)] 68[or to the Commissioner (Appeals)] or to the Appellate
Tribunal but has not been made and the time within which such appeal may
be made has not expired, or, in the case of an appeal 69[to the Commissioner
(Appeals) or] to the Appellate Tribunal, the assessee has not waived his
right of appeal; or
(b) where the order is pending on an appeal before the 70[Deputy Commissioner
(Appeals)]; or
(c) where the order71 has been made the subject of an appeal 72[to the
Commissioner (Appeals) or] to the Appellate Tribunal.
(5) Every application by an assessee for revision under this section shall be
accompanied by a fee of 73[five hundred] rupees.
74
[(6) On every application by an assessee for revision under this sub-section, made on
or after the 1st day of October, 1998, an order shall be passed within one year from
the end of the financial year in which such application is made by the assessee for
revision.
Explanation.In computing the period of limitation for the purposes of this subsection, the time taken in giving an opportunity to the assessee to be re-heard under
the proviso to section 129 and any period during which any proceeding under this
section is stayed by an order or injunction of any court shall be excluded.
(7) Notwithstanding anything contained in sub-section (6), an order in revision under
sub-section (6) may be passed at any time in consequence of or to give effect to any
finding or direction contained in an order of the Appellate Tribunal, the High Court or
the Supreme Court.]
Explanation 1.An order by the Commissioner declining to interfere shall, for the
purposes of this section, be deemed not to be an order prejudicial to the assessee.
Explanation 2.For the purposes of this section, the 75-76[Deputy Commissioner
(Appeals)] shall be deemed to be an authority subordinate to the Commissioner.
F.General
Tax to be paid notwithstanding reference, etc.
265. Notwithstanding that a reference has been made to the High Court or the
Supreme Court or an appeal has been preferred to the Supreme Court, tax shall be
payable in accordance with the assessment made in the case.
Execution for costs awarded by Supreme Court.

266. The High Court may, on petition made for the execution of the order of the
Supreme Court in respect of any costs awarded thereby, transmit the order for
execution to any court subordinate to the High Court.
77

[Amendment of assessment on appeal.

267. Where as a result of an appeal under section 246 78[or section 246A] or section
253, any change is made in the assessment of a body of individuals or an association
of persons or a new assessment of a body of individuals or an association of persons is
ordered to be made, the 79[* * *] Commissioner (Appeals) or the Appellate Tribunal,
as the case may be, shall pass an order authorising the Assessing Officer either to
amend the assessment made on any member of the body or association or make a
fresh assessment on any member of the body or association.]
Exclusion of time taken for copy79a.
268. In computing the period of limitation prescribed for an appeal 80[or an
application] under this Act, the day on which the order complained of was served and,
if the assessee was not furnished with a copy of the order when the notice of the order
was served upon him, the time requisite for obtaining a copy of such order, shall be
excluded.
Definition of High Court.
269. In this Chapter,
High Court means
(i) in relation to any State, the High Court for that State ;
81
[(ii) in relation to the Union territory of Delhi, the High Court of Delhi ;
(iia) 82[* * *]]
(iii) 83[* * *]
(iv) in relation to the Union territory of the Andaman and Nicobar Islands, the
High Court at Calcutta ;
(v) in relation to the Union territory of 84[Lakshadweep], the High Court of
Kerala ;
85
[(va) in relation to the Union territory of Chandigarh, the High Court of Punjab
and Haryana ;]
86
[(vi) in relation to the Union territories of Dadra and Nagar Haveli and 87[* * *]
Daman and Diu, the High Court at Bombay ; and
(vii) in relation to the Union territory of Pondicherry, the High Court at Madras.]
88

[CHAPTER XX-A
ACQUISITION OF IMMOVABLE PROPERTIES IN CERTAIN CASES OF
TRANSFER TO COUNTERACT EVASION OF TAX
Definitions.
269A. In this Chapter, unless the context otherwise requires,
(a) 89[apparent consideration,

(1) in relation to any immovable property transferred, being immovable

property of the nature referred to in sub-clause (i) of clause (e), means,
]
(i) if the transfer is by way of sale, the consideration for such transfer as
specified in the instrument of transfer ;
(ii) if the transfer is by way of exchange,
(A) in a case where the consideration for the transfer consists of a
thing or things only, the price that such thing or things would
ordinarily fetch on sale in the open market on the date of
execution of the instrument of transfer ;
(B) in a case where the consideration for the transfer consists of a
thing or things and a sum of money, the aggregate of the price
that such thing or things would ordinarily fetch on sale in the
open market on the date of execution of the instrument of
transfer and such sum ;
90
[(iii) if the transfer is by way of lease,
(A) in a case where the consideration for the transfer consists of
premium only, the amount of premium as specified in the
instrument of transfer ;
(B) in a case where the consideration for the transfer consists of
rent only, the aggregate of the moneys (if any) payable by way
of rent and the amounts for the service or things forming part of
or constituting the rent, as specified in the instrument of
transfer ;
(C) in a case where the consideration for the transfer consists of
premium and rent, the aggregate of the amount of the premium,
the moneys (if any) payable by way of rent and the amounts for
the service or things forming part of or constituting the rent, as
specified in the instrument of transfer,
and where the whole or any part of the consideration for such transfer is
payable on any date or dates falling after the date of such transfer, the
value of the consideration payable after such date shall be deemed to be
the discounted value of such consi-deration, as on the date of such
transfer, determined by adopting the rate of interest at eight per cent per
annum ;
(2) in relation to any immovable property transferred, being immovable
property of the nature referred to in sub-clause (ii) of clause (e), means,

(i) in a case where the consideration for the transfer consists of a sum of
money only, such sum ;
(ii) in a case where the consideration for the transfer consists of a thing
or things only, the price that such thing or things would ordinarily
fetch on sale in the open market on the date of the transfer ;
(iii) in a case where the consideration for the transfer consists of a thing
or things and a sum of money, the aggregate of the price that such
thing or things would ordinarily fetch on sale in the open market on
the date of the transfer and such sum,

and where the whole or any part of the consideration for such transfer is
payable on any date or dates falling after the date of such transfer, the
value of the consideration payable after such date shall be deemed to be
the discounted value of such consideration, as on the date of such
transfer, determined by adopting the rate of interest at eight per cent per
annum ;]
(b) competent authority means 91[a 92[Joint] Commissioner] authorised by the
Central Government under section 269B to perform the functions of a
competent authority under this Chapter ;
(c) court means a principal civil court of original jurisdiction unless the
Central Government has appointed (as it is hereby authorised to do) any
special judicial officer within any specified local limits to perform the
functions of the court under this Chapter ;
93
[(d) fair market value,
(i) in relation to any immovable property transferred by way of sale or
exchange, being immovable property of the nature referred to in subclause (i) of clause (e), means the price that the immovable property
would ordinarily fetch on sale in the open market on the date of
execution of the instrument of transfer of such property ;
(ii) in relation to any immovable property transferred by way of lease, being
immovable property of the nature referred to in sub-clause (i) of clause
(e), means the premium that such transfer would ordinarily fetch in the
open market on the date of execution of the instrument of transfer of
such property, if the consideration for such transfer had been by way of
premium only ;
(iii) in relation to any immovable property transferred, being immovable
property of the nature referred to in sub-clause (ii) of clause (e), means
the consideration in the form of money that such transfer would
ordinarily fetch in the open market on the date of the transfer, if such
transfer had been made only for consideration in money ;]
94
(e) [immovable property means,
(i) any land or any building] or part of a building, and includes, where any
land or any building or part of a building is transferred together with any
machinery, plant, furniture, fittings or other things, such machinery,
plant, furniture, fittings or other things also.
Explanation.For the purposes of this 95[sub-clause], land, building,
part of a building, machinery, plant, furniture, fittings and other things
include any rights therein ;
96
[(ii) any rights of the nature referred to in clause (b) of sub-section (1) of
section 269AB ;]
97
[(f) instrument of transfer means the instrument of transfer registered under
the Registration Act, 1908 (16 of 1908), or, as the case may be, the
statement registered under section 269AB with the competent authority ;]
(g) person interested, in relation to any immovable property, includes all
persons claiming, or entitled to claim, an interest in the compensation
payable on account of the acquisition of that property under this Chapter ;
98
[(h) transfer,

(i) in relation to any immovable property referred to in sub-clause (i) of

clause (e), means transfer of such property by way of sale or exchange
or lease for a term of not less than twelve years, and includes allowing
the possession of such property to be taken or retained in part
performance of a contract of the nature referred to in section 53A 99 of
the Transfer of Property Act, 1882 (4 of 1882).
Explanation.For the purposes of this sub-clause, a lease which
provides for the extension of the term thereof by a further term or terms
shall be deemed to be a lease for a term of not less than twelve years if
the aggregate of the term for which such lease has been granted and the
further term or terms for which it can be so extended is not less than
twelve years ;
(ii) in relation to any immovable property of the nature referred to in subclause (ii) of clause (e), means the doing of anything (whether by way of
transfer of shares in a co-operative society or company or by way of any
agreement or arrangement or in any other manner whatsoever) which
has the effect of transferring, or enabling the enjoyment of, such
property.]
1

[Registration of certain transactions.

269AB. (1) The following transactions, that is to say,
(a) every transaction involving the allowing of the possession of any
immovable property to be taken or retained in part performance of a
contract of the nature referred to in section 53A2 of the Transfer of Property
Act, 1882 (4 of 1882), and
(b) every 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 of whatever nature) whereby a
person acquires any rights in or with respect to any building or part of a
building (whether or not including any machinery, plant, furniture, fittings
or other things therein) which has been constructed or which is to be
constructed [not being a transaction by way of sale, exchange or lease of
such building or part of a building which is required to be registered under
the Registration Act, 1908 (16 of 1908)],
shall be reduced to writing in the form of a statement by each of the parties to such
transaction or by any of the parties to such transaction acting on behalf of himself and
on behalf of the other parties.
3
(2) Every statement in respect of a transaction referred to in sub-section (1) shall
(a) be in the prescribed form ;
(b) set forth such particulars as may be prescribed ; and
(c) be verified in the prescribed manner,
and registered with the competent authority, in such manner and within such time as
may be prescribed, by each of the parties to such transaction or by any of the parties
to such transaction acting on behalf of himself and on behalf of the other parties.]
4

Competent authority.

269B. 5(1) The Central Government may, by general or special order published in the
Official Gazette,
(a) authorise as many 6[7[Joint] Commissioners], as it thinks fit, to perform the
functions of a competent authority under this Chapter ; and
(b) define the local limits within which the competent authorities shall perform
their functions under this Chapter.
(2) In respect of any function to be performed by a competent authority under any
provision of this Chapter in relation to any immovable property referred to in section
269C, the competent authority referred to therein shall,
(a) in a case where such property is situate within the local limits of the
jurisdiction of only one competent authority, be such competent authority ;
(b) in a case where such property is situate within the local limits of the
jurisdiction of two or more competent authorities, be the competent
authority empowered to perform such functions in relation to such property
in accordance with rules made in this behalf by the Board under section
295.
8
[Explanation.For the purposes of this sub-section, immovable property, being
rights of the nature referred to in clause (b) of sub-section (1) of section 269AB in, or
with respect to, any building or part of a building which has been constructed or
which is to be constructed shall be deemed to be situate at the place where the
building has been constructed or is to be constructed.]
(3) No person shall be entitled to call in question the jurisdiction of a competent
authority in respect of any immovable property after the expiry of thirty days from the
date on which such competent authority initiates proceedings under section 269D for
the acquisition of such property.
(4) Subject to the provisions of sub-section (3), where the jurisdiction of a competent
authority is questioned, the competent authority shall, if satisfied with the correctness
of the claim, by order in writing, determine the question accordingly and if he is not
so satisfied, he shall refer the question to the Board and the Board shall, by order in
writing, determine the question.
Immovable property in respect of which proceedings for acquisition may be
taken.
9
269C. (1) Where the competent authority has reason to believe that any immovable
property of a fair market value exceeding 10[one hundred] thousand rupees has been
transferred by a person (hereafter in this Chapter referred to as the transferor) to
another person (hereafter in this Chapter referred to as the transferee) for an apparent
consideration which is less than the fair market value of the property and that the
consideration for such transfer as agreed to between the parties has not been truly
stated in the instrument of transfer with the object of
(a) facilitating the reduction or evasion of the liability of the transferor to pay
tax under this Act in respect of any income arising from the transfer ; or
(b) facilitating the concealment of any income or any moneys or other assets
which have not been or which ought to be disclosed by the transferee for the
purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act or the
Wealth-tax Act, 1957 (27 of 1957),

the competent authority may, subject to the provisions of this Chapter, initiate
proceedings for the acquisition of such property under this Chapter :
Provided that before initiating such proceedings, the competent authority shall record
his reasons for doing so :
Provided further that no such proceedings shall be initiated unless the competent
authority has reason to believe that the fair market value of the property exceeds the
apparent consideration therefor by more than fifteen per cent of such apparent
consideration.
(2) In any proceedings under this Chapter in respect of any immovable property,
(a) where the fair market value of such property exceeds the apparent
consideration therefor by more than twenty-five per cent of such apparent
consideration, it shall be conclusive proof that the consideration for such
transfer as agreed to between the parties has not been truly stated in the
instrument of transfer ;
(b) where the property has been transferred for an apparent consideration which
is less than its fair market value, it shall be presumed, unless the contrary is
proved, that the consideration for such transfer as agreed to between the
parties has not been truly stated in the instrument of transfer with such
object as is referred to in clause (a) or clause (b) of sub-section (1).
11

Preliminary notice.
269D. (1) The competent authority shall initiate proceedings for the acquisition,
under this Chapter, of any immovable property referred to in section 269C by notice
to that effect published in the Official Gazette :
Provided that no such proceedings shall be initiated in respect of any immovable
property after the expiration of a period of 12[nine] months from the end of the month
in which the instrument of transfer in respect of such property is registered under the
Registration Act, 1908 (16 of 1908), 13[or, as the case may be, section 269AB] :
Provided further that
(a) in a case where it is determined under sub-section (4) of section 269B by
the competent authority who has initiated proceedings for the acquisition of
any immovable property under this Chapter or by the Board that such
competent authority has no jurisdiction to initiate such proceedings, the
competent authority having jurisdiction may initiate such proceedings
within
(i) the period of 12[nine] months specified in the foregoing proviso ; or
(ii) a period of thirty days from the date of such determination,
whichever period expires later ;
(b) in a case where proceedings for the acquisition of any immovable property
under this Chapter could not be initiated during any period of time by
reason of any injunction or order of any court prohibiting the initiation of
such proceedings or preventing the examination of documents or other
materials required to be examined for the purpose of determining whether
such proceedings should be initiated, the time of the continuance of the
injunction or order, the day on which it was issued or made and the day on
which it was withdrawn shall be excluded in computing the period during
which such proceedings may be initiated under this sub-section.

(2) The competent authority shall

(a) cause a notice under sub-section (1) in respect of any immovable property
to be served on the transferor, the transferee, the person in occupation of the
property, if the transferee is not in occupation thereof, and on every person
whom the competent authority knows to be interested in the property ;
(b) cause such notice to be published
(i) in his office by affixing a copy thereof to a conspicuous place ;
(ii) in the locality in which the immovable property to which it relates is
situate, by affixing a copy thereof to a conspicuous part of the property
and also by making known in such manner as may be prescribed the
substance of such notice at convenient places in the said locality.
14
[Explanation.The provisions of the Explanation to sub-section (2) of section 269B
shall apply for the purposes of this sub-section as they apply for the purposes of that
sub-section.]
Objections.
269E. (1) Objections against the acquisition of the immovable property in respect of
which a notice has been published in the Official Gazette under sub-section (1) of
section 269D may be made
(a) by the transferor or the transferee or any other person referred to in clause
(a) of sub-section (2) of that section, within a period of forty-five days from
the date of such publication or a period of thirty days from the date of
service of notice on such person under the said clause, whichever period
expires later ;
(b) by any other person interested in such immovable property, within forty-five
days from the date of such publication.
(2) Every objection under sub-section (1) shall be made to the competent authority in
writing.
(3) For the removal of doubts, it is hereby declared that objection may be made under
sub-section (1) that the provisions of clause (a) of sub-section (2) of section 269C do
not apply in relation to any immovable property on the ground that the fair market
value of such property does not exceed the apparent consideration therefor by more
than twenty-five per cent of such apparent consideration.
Hearing of objections.
269F. (1) The competent authority shall fix a day and place for the hearing of the
objections made under section 269E against the acquisition under this Chapter of any
immovable property, and shall give notice of the same to every person who has made
such objection :
Provided that such notice shall also be given to the transferee of such property even if
he has not made any such objection.
(2) Every person to whom a notice is given under sub-section (1) shall have the right
to be heard at the hearing of the objections.
(3) The competent authority shall have the power to adjourn the hearing of the
objections from time to time.

(4) The competent authority may, before disposing of the objections, make such
further inquiry as he thinks fit.
(5) The decision of the competent authority in respect of the objections heard shall be
in writing and shall state the reasons for the decision with respect to each objection.
(6) If after hearing the objections, if any, and after taking into account all the relevant
material on record, the competent authority is satisfied that,
(a) the immovable property to which the proceedings relate is of a fair market
value exceeding 15[one hundred] thousand rupees ;
(b) the fair market value of such property exceeds the apparent consideration
therefor by more than fifteen per cent of such apparent consideration ; and
(c) the consideration for such transfer as agreed to between the parties has not
been truly stated in the instrument of transfer with such object as is referred
to in clause (a) or clause (b) of sub-section (1) of section 269C,
he may, after obtaining the approval of the Commissioner, make an order for the
acquisition of the property under this Chapter.
Explanation.In this sub-section, Commissioner, in relation to a competent
authority, means such Commissioner as the Board may, by general or special order in
writing, specify in this behalf.
(7) If the competent authority is not satisfied as provided in sub-section (6), he shall,
by order in writing, declare that the property will not be acquired under this Chapter.
(8) The competent authority shall serve a copy of his order under sub-section (6) or
sub-section (7), as the case may be, on the transferor, the transferee and on every
person who has made objections against such acquisition under section 269E.
(9) In any proceedings under this Chapter in respect of any immovable property, no
objection shall be entertained on the ground that although the apparent consideration
for the property is less than the fair market value of the property on the date of the
execution of the instrument of transfer 16[or where such property is of the nature
referred to in sub-clause (ii) of clause (e) of section 269A on the date of the transfer],
the consideration as agreed to between the parties has been truly stated in the
instrument of transfer because such consideration was agreed to having regard to the
price that such property would have ordinarily fetched 17[on such transfer in the open
market on the date of the conclusion of the agreement to transfer the property], except
where such agreement has been registered under the Registration Act, 1908 (16 of
1908).
Appeal against order for acquisition.
18
269G.(1) An appeal may be preferred to the Appellate Tribunal against the order for
the acquisition of any immovable property made by the competent authority under
section 269F,
(a) by the transferor or the transferee or any other person referred to in subsection (8) of that section, within a period of forty-five days from the date of
such order or a period of thirty days from the date of service of a copy of the
order on such person under the said sub-section, whichever period expires
later ;
(b) by any other person interested in such immovable property, within forty-five
days from the date of such order :

Provided that the Appellate Tribunal may, on an application made in this behalf
before the expiry of the said period of forty-five days or, as the case may be, thirty
days, permit, by order, the appeal to be presented within such further period as may be
specified therein if the applicant satisfies the Appellate Tribunal that he has sufficient
cause for not being able to present the appeal within the said period of forty-five days
or, as the case may be, thirty days.
19
(2) Every appeal under this section shall be in the prescribed form and shall be
verified in the prescribed manner and shall be accompanied by a fee of 20[two
hundred] rupees.
(3) The Appellate Tribunal shall fix a day and place for the hearing of the appeal and
shall give notice of the same to the appellant and to the competent authority.
(4) The Appellate Tribunal may, after giving the appellant and the competent authority
an opportunity of being heard, pass such orders thereon as it thinks fit.
(5) The Appellate Tribunal may, at any time within thirty days from the date of the
order, with a view to rectifying any mistake apparent from the record, amend any
order passed by it under sub-section (4) and shall make such amendment if the
mistake is brought to its notice by the appellant or the competent authority :
Provided that if any such amendment is likely to affect any person prejudicially, it
shall not be made without giving to such person a reasonable opportunity of being
heard.
(6) The Appellate Tribunal shall send a copy of any orders passed under this section to
the appellant and to the Commissioner.
(7) Save as provided in section 269H, orders passed by the Appellate Tribunal on
appeal shall be final.
(8) Every appeal under this section shall be disposed of as expeditiously as possible
and endeavour shall be made to dispose of every such appeal within ninety days from
the date on which it is presented.
(9) The provisions of section 255 (except sub-section (3) thereof) shall, so far as may
be, apply in relation to the powers, functions and proceedings of the Appellate
Tribunal under this section as they apply in relation to the powers, functions and
proceedings of the Appellate Tribunal under Chapter XX.
Appeal to High Court.
269H. (1) The Commissioner or any person aggrieved by any order of the Appellate
Tribunal under section 269G may, within sixty days of the date on which he is served
with notice of such order under that section, prefer an appeal against such order to the
High Court on any question of law :
Provided that the High Court may, on an application made in this behalf before the
expiry of the said period of sixty days, permit, by order, the appeal to be presented
within such further period as may be specified therein, if the applicant satisfies the
High Court that he has sufficient cause for not being able to present the appeal within
the said period of sixty days.
(2) An appeal under sub-section (1) shall be heard by a Bench of not less than two
Judges of the High Court and the provisions of section 259 shall apply in relation to
any such appeal as they apply in relation to a case referred to the High Court under
section 256.
(3) The costs of the appeal shall be in the discretion of the High Court.

Vesting of property in Central Government.

269-I. (1) As soon as may be after the order for acquisition of any immovable
property made under sub-section (6) of section 269F becomes final, the competent
authority may, by notice in writing, order any person who may be in possession of the
immovable property to surrender or deliver possession thereof to the competent
authority or any other person duly authorised in writing by the competent authority in
this behalf, within thirty days of the date of the service of the notice.
Explanation.For the purposes of this sub-section, an order for the acquisition of any
immovable property (hereafter in this Explanation referred to as the order for
acquisition) made under sub-section (6) of section 269F becomes final,
(a) in a case where the order for acquisition is not made the subject of an appeal
to the Appellate Tribunal under section 269G, upon the expiry of the period
during which such appeal may be presented under that section ;
(b) in a case where the order for acquisition is made the subject of an appeal to
the Appellate Tribunal under section 269G,
(i) if the order for acquisition is confirmed by the Appellate Tribunal and
the order of the Appellate Tribunal is not made the subject of an appeal
to the High Court under section 269H, upon the expiry of the period
during which such appeal may be presented under that section to the
High Court ;
(ii) if the order of the Appellate Tribunal is made the subject of an appeal to
the High Court under section 269H, upon the confirmation of the order
for acquisition by the High Court.
(2) If any person refuses or fails to comply with the notice under sub-section (1), the
competent authority or other person duly authorised by the competent authority under
that sub-section may take possession of the immovable property and may, for that
purpose, use such force as may be necessary.
(3) Notwithstanding anything contained in sub-section (2), the competent authority
may, for the purpose of taking possession of any property referred to in sub-section
(1), requisition the services of any police officer to assist him and it shall be the duty
of such officer to comply with such requisition.
(4) When the possession of the immovable property is surrendered or delivered under
sub-section (1) to the competent authority or a person duly authorised by him in that
behalf or, as the case may be, when the possession thereof is taken under sub-section
(2) or sub-section (3) by such authority or person, the property shall vest absolutely in
the Central Government free from all encumbrances :
Provided that nothing in this sub-section shall operate to discharge the transferee or
any other person (not being the Central Government) from liability in respect of such
encumbrances and, notwithstanding anything contained in any other law, such liability
may be enforced against the transferee or such other person by a suit for damages.
21
[(5) Notwithstanding anything contained in sub-section (4) or any other law or any
instrument or any agreement for the time being in force, where an order for
acquisition of any immovable property, being rights of the nature referred to in clause
(b) of sub-section (1) of section 269AB, in or with respect to any building or part of a
building which has been constructed or which is to be constructed, has become final,
then, such order shall, by its own force, have the effect of

(a) vesting such rights in the Central Government, and

(b) placing the Central Government in the same position in relation to such
rights as the person in whom such rights would have continued to vest if
such order had not become final,
and the competent authority may issue such directions as he may deem fit to any
person concerned for taking the necessary steps for compliance with the provisions of
clauses (a) and (b).
(6) In the case of any immovable property, being rights of the nature referred to in
clause (b) of sub-section (1) of section 269AB, in or with respect to any building or
part of a building, the provisions of sub-sections (1), (2) and (3) shall have effect as if
the references to immovable property therein were a reference to such building or, as
the case may be, part of such building.]
Compensation.
269J. (1) Where any immovable property is acquired under this Chapter, the Central
Government shall pay for such acquisition compensation which shall be a sum equal
to the aggregate of the amount of the apparent consideration for its transfer and fifteen
per cent of the said amount :
22
[Provided that in a case where, under the agreement between the parties concerned,
the whole or any part of the consideration for the transfer of such immovable property
is payable on any date or dates falling after the date on which such property is
acquired, the compensation payable by the Central Government shall be the aggregate
of the following amounts, namely :
(i) an amount equal to fifteen per cent of the apparent consideration ;
(ii) the amount, if any, that has become payable in accordance with such
agreement on or before the date on which such property is acquired under
this Chapter ; and
(iii) the amount payable after the date on which such property is acquired under
this Chapter.]
(2) Notwithstanding anything contained in sub-section (1),
(a) where, after the transfer to the transferee of the property referred to in that
sub-section but before the vesting of the property in the Central
Government, the property has been damaged (otherwise than as a result of
normal wear and tear), the compensation payable under that sub-section
shall be reduced by such amount as the competent authority and the persons
entitled to the compensation may agree within fifteen days of the vesting of
the property in the Central Government or in default of such agreement as
the court may, on a reference made to it in this behalf by the competent
authority or by any person duly authorised for the purpose by the competent
authority, determine to be the amount that may have to be expended for
restoring the property to the condition in which it was at the time of such
transfer ;
(b) where, after the transfer of such property to the transferee but before the
date of publication in the Official Gazette of the notice in respect of such
property under sub-section (1) of section 269D, any improvements have
been made to the property, whether by way of addition or alteration or in
any other manner, the compensation payable in respect of such property

under sub-section (1) shall be increased by such amount as the competent

authority and the persons entitled to the compensation may agree within
fifteen days of the vesting of the property in the Central Government or in
default of such agreement as the court may, on a reference made to it in this
behalf by the competent authority or by any person duly authorised for the
purpose by the competent authority, determine to be the amount spent for
making such improvements.
(3) Every reference under clause (a) or clause (b) of sub-section (2) shall be made
within thirty days of the date on which the immovable property to which it relates
becomes vested in the Central Government or within such further period as the court
may, on an application made in this behalf before the expiry of the said period and on
being satisfied that there is sufficient cause for doing so, allow and such reference
shall state clearly the compensation payable under sub-section (1) in respect of the
immovable property and the amount by which, according to the estimate of the
competent authority, such compensation shall be reduced under clause (a) or, as the
case may be, increased under clause (b), of sub-section (2).
(4) The amount by which the compensation payable under sub-section (1) in respect
of any immovable property acquired under this Chapter falls short of the amount
which would have been payable as compensation if that property had been acquired
under the Land Acquisition Act, 1894 (1 of 1894), after the issue of a preliminary
notice under section 4 of that Act on the date of publication in the Official Gazette of
the notice in respect of the property under sub-section (1) of section 269D, shall be
deemed to have been realised by the Central Government as a penalty from the
transferee for being a party to a transfer with such object as is referred to in clause ( a)
or clause (b) of sub-section (1) of section 269C, and no penalty shall be levied for any
assessment year on the transferee
(a) under clause (iii) of sub-section (1) of section 271, for concealing the
particulars or furnishing inaccurate particulars of so much of his income as
is utilised by him for paying to the transferor, by way of consideration for
the property, any amount in excess of the apparent consideration for the
property, notwithstanding that such amount is included in the income of the
transferee ;
(b) under clause (iii) of sub-section (1) of section 18 of the Wealth-tax Act,
1957 (27 of 1957), for concealing the particulars or furnishing inaccurate
particulars of so much of his assets as are utilised by him for paying to the
transferor, by way of consideration for the property, any amount in excess of
the apparent consideration for the property, notwithstanding that such assets
are included in the net wealth of the transferee.
Payment or deposit of compensation.
269K. (1) The amount of compensation payable in accordance with the provisions of
section 269J for the acquisition of any immovable property shall be tendered to the
person or persons entitled thereto, as soon as may be, after the property becomes
vested in the Central Government under sub-section (4) of section 269-I :
23
[Provided that in a case falling under the proviso to sub-section (1) of section 269J,
the amounts referred to in clause (i) and clause (ii) of that proviso shall be tendered to
the person or persons entitled thereto, as soon as may be, after the property becomes
vested in the Central Government under section 269-I, and the amount referred to in
clause (iii) of the said proviso shall be tendered on the date on which it would be

payable in accordance with the agreement between the parties concerned, and where
such amount is payable in instalments on different dates, then in such instalments on
those dates :]
Provided 24[further] that in any case where a reference is or has to be made under
sub-section (2) of section 269J to the court for the determination of the amount by
which the compensation payable under sub-section (1) of that section shall be reduced
or increased, the amount of such compensation as reduced or increased by the amount
estimated in that behalf by the competent authority for the purposes of such reference
shall be tendered as aforesaid.
(2) Notwithstanding anything contained in sub-section (1), if any dispute arises as to
the apportionment of the compensation amongst persons claiming to be entitled
thereto, the Central Government shall deposit in the court the compensation required
to be tendered under sub-section (1) and refer such dispute for the decision of the
court and the decision of the court thereon shall be final.
(3) Notwithstanding anything contained in sub-section (1), if the persons entitled to
compensation do not consent to receive it, or if there is no person competent to
alienate the immovable property, or if there is any dispute as to the title to receive the
compensation, the Central Government shall deposit in the court the compensation
required to be tendered under sub-section (1) and refer the matter for the decision of
the court :
Provided that nothing herein contained shall affect the liability of any person who
may receive the whole or any part of the compensation for any immovable property
acquired under this Chapter to pay the same to the person lawfully entitled thereto.
(4) If the Central Government fails to tender under sub-section (1) or deposit under
sub-section (2) or sub-section (3) the whole or any part of the compensation required
to be tendered or deposited thereunder within thirty days of the date on which the
immovable property to which the compensation relates becomes vested in the Central
Government under sub-section (4) of section 269-I, the Central Government shall be
liable to pay simple interest at the rate of 25[fifteen] per cent per annum reckoned from
the day immediately following the date of expiry of the said period up to the date on
which it so tenders or deposits such compensation or, as the case may be, such part of
the compensation.
(5) Where any amount of compensation (including interest, if any, thereon) has been
deposited in the court under this section, the court may, either of its own motion or on
an application made by or on behalf of any party interested or claiming to be
interested in such amount, order the same to be invested in such Government or other
securities as it may think proper, and may direct the interest or other proceeds of any
such investment to be accumulated and paid in such manner as will, in its opinion,
give the parties interested therein the same benefit therefrom as they might have had
from the immovable property in respect whereof such amount has been deposited or
as near thereto as may be.
Assistance by Valuation Officers.
269L.(1) The competent authority may,
(a) for the purpose of initiating proceedings for the acquisition of any
immovable property under section 269C or for the purpose of making an
order under section 269F in respect of any immovable property, require a

Valuation Officer to determine the fair market value of such property and
report the same to him ;
(b) for the purpose of estimating the amount by which the compensation
payable under sub-section (1) of section 269J in respect of any immovable
property may be reduced or, as the case may be, increased under clause (a)
or clause (b) of sub-section (2) of that section, require the Valuation Officer
to make such estimate and report the same to him.
(2) The Valuation Officer to whom a reference is made under clause (a) or clause (b)
of sub-section (1) shall, for the purpose of dealing with such reference, have all the
powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).
(3) If in an appeal under section 269G against the order for acquisition of any
immovable property, the fair market value of such property is in dispute, the Appellate
Tribunal shall, on a request being made in this behalf by the competent authority, give
an opportunity of being heard to any Valuation Officer nominated for the purpose by
the competent authority.
Explanation.In this section, Valuation Officer has the same meaning as in clause
(r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).
Powers of competent authority.
269M. The competent authority shall have, for the purposes of this Chapter, all the
powers that a Commissioner has, for the purposes of this Act, under section 131.
Rectification of mistakes.
269N. With a view to rectifying any mistake apparent from the record, the
competent authority may amend any order made by him under this Chapter at any
time before the time for presenting an appeal against such order has expired, either on
his own motion or on the mistake being brought to his notice by any person affected
by the order :
Provided that if any such amendment is likely to affect any person prejudicially, it
shall not be made without giving to such person a reasonable opportunity of being
heard.
Appearance by authorised representative or registered valuer.
269-O. Any person who is entitled or required to attend before a competent authority
or the Appellate Tribunal in any proceeding under this Chapter, otherwise than when
required to attend personally for examination on oath or affirmation, may attend
(a) by an authorised representative in connection with any matter ;
(b) by a registered valuer in connection with any matter relating to the valuation
of any immovable property for the purposes of this Chapter or the
estimation of the amount by which the compensation payable under subsection (1) of section 269J for the acquisition of any immovable property
may be reduced or, as the case may be, increased in accordance with the
provisions of clause (a) or clause (b) of sub-section (2) of that section.
Explanation.In this section,
(i) authorised representative has the same meaning as in section 288 ;
26
(ii) registered valuer has the same meaning as in clause (oaa) of section 2 of
the Wealth-tax Act, 1957 (27 of 1957).

Statement to be furnished in respect of transfers of immovable property.

269P. 27(1) Notwithstanding anything contained in any other law for the time being in
force, no registering officer appointed under the Registration Act, 1908 (16 of 1908),
shall register any document which purports to transfer any immovable property
belonging to any person unless a statement in duplicate in respect of such transfer, in
the prescribed form and verified in the prescribed manner and setting forth such
particulars as may be prescribed, is furnished to him along with the instrument of
transfer :
28
[Provided that the provisions of this sub-section shall not apply in relation to any
document which purports to transfer any immovable property for an apparent
consideration not exceeding 29[fifty] thousand rupees.
Explanation.For the purposes of this proviso, apparent consideration shall have
the meaning assigned to it in clause (a) of section 269A subject to the modifications
that for the expressions immovable property transferred and instrument of transfer occurring in that clause, the expressions immovable property purported to be
transferred and document purporting to transfer such immovable property shall,
respectively, be substituted.]
(2) The registering officer shall, at the end of every fortnight, forward to the
competent authority,
(a) one set of the statements received by him under sub-section (1) during the
fortnight ; and
(b) 30a return in the prescribed form and verified in the prescribed manner and
setting forth such particulars as may be prescribed in respect of documents
of the nature referred to in sub-section (1) which have been registered by
him during the fortnight.
Chapter not to apply to transfers to relatives.
269Q. The provisions of this Chapter shall not apply to or in relation to any transfer
of immovable property made by a person to his relative on account of natural love and
affection for a consideration which is less than its fair market value if a recital to that
effect is made in the instrument of transfer.
Properties liable for acquisition under this Chapter not to be acquired under
other laws.
269R.Notwithstanding anything contained in the Land Acquisition Act, 1894 (1 of
1894), or any corresponding law for the time being in force, no immovable property
referred to in section 269C shall be acquired for any purpose of the Union under that
Act or such law unless the time for initiation of proceedings for the acquisition of
such property under this Chapter has expired without such proceedings having been
initiated or unless the competent authority has declared that such property will not be
acquired under this Chapter.
31

[Chapter not to apply where transfer of immovable property made after a

certain date.
269RR. The provisions of this Chapter shall not apply to or in relation to the transfer
of any immovable property made after the 30th day of September, 1986.]

Chapter not to extend to State of Jammu and Kashmir.

269S. The provisions of this Chapter shall not extend to the State of Jammu
Kashmir.]
32

and

[CHAPTER XX-B
REQUIREMENT AS TO MODE OF 33[ACCEPTANCE, PAYMENT OR]
REPAYMENT IN CERTAIN CASES TO COUNTERACT
EVASION OF TAX
33
[Mode of taking or accepting certain loans and deposits.
34
269SS. No person shall, after the 30th day of June, 1984, take or accept from any
other person (hereafter in this section referred to as the depositor), any loan or deposit
otherwise than by an account payee cheque or account payee bank draft if,
(a) the amount of such loan or deposit or the aggregate amount of such loan and
deposit ; or
(b) on the date of taking or accepting such loan or deposit, any loan or deposit
taken or accepted earlier by such person from the depositor is remaining
unpaid (whether repayment has fallen due or not), the amount or the
aggregate amount remaining unpaid ; or
(c) the amount or the aggregate amount referred to in clause (a) together with
the amount or the aggregate amount referred to in clause (b),
35
is [twenty] thousand rupees or more :
Provided that the provisions of this section shall not apply to any loan or deposit
taken or accepted from, or any loan or deposit taken or accepted by,
(a) Government ;
(b) any banking company, post office savings bank or co-operative bank ;
(c) any corporation established by a Central, State or Provincial Act ;
(d) any Government company36 as defined in section 617 of the Companies Act,
1956 (1 of 1956) ;
(e) such other institution, association or body or class of institutions,
associations or bodies which the Central Government may, for reasons to be
recorded in writing, notify37 in this behalf in the Official Gazette :
38
[Provided further that the provisions of this section shall not apply to any loan or
deposit where the person from whom the loan or deposit is taken or accepted and the
person by whom the loan or deposit is taken or accepted are both having agricultural
income and neither of them has any income chargeable to tax under this Act.]
Explanation.For the purposes of this section,
39
[(i) banking company means a company to which the Banking Regulation
Act, 1949 (10 of 1949), applies and includes any bank or banking institution
referred to in section 51 of that Act ;]
(ii) co-operative bank shall have the meaning assigned to it in Part V of the
Banking Regulation Act, 1949 (10 of 1949) ;
(iii) loan or deposit means loan or deposit of money.]
40

[Mode of repayment of certain loans or deposits41.

269T. No branch of a banking company or a co-operative bank and no other company

or co-operative society and no firm or other person shall repay any loan or deposit
made with it otherwise than by an account payee cheque or account payee bank draft
drawn in the name of the person who has made the loan or deposit if
(a) the amount of the loan or deposit together with the interest, if any, payable
thereon, or
(b) the aggregate amount of the loans or deposits held by such person with the
branch of the banking company or co-operative bank or, as the case may be,
the other company or co-operative society or the firm, or other person either
in his own name or jointly with any other person on the date of such
repayment together with the interest, if any, payable on such loans or
deposits,
is twenty thousand rupees or more:
Provided that where the repayment is by a branch of a banking company or cooperative bank, such repayment may also be made by crediting the amount of such
loan or deposit to the savings bank account or the current account (if any) with such
branch of the person to whom such loan or deposit has to be repaid :
42
[Provided further that nothing contained in this section shall apply to repayment of
any loan or deposit taken or accepted from
(i) Government;
(ii) any banking company, post office savings bank or co-operative bank;
(iii) any corporation established by a Central, State or Provincial Act;
(iv) any Government company43 as defined in section 617 of the Companies
Act, 1956 (1 of 1956);
(v) such other institution, association or body or class of institutions,
associations or bodies which the Central Government may, for reasons to
be recorded in writing, notify in this behalf in the Official Gazette.]
Explanation.For the purposes of this section,
(i) banking company shall have the meaning assigned to it in clause (i) of the
Explanation to section 269SS;
(ii) co-operative bank shall have the meaning assigned to it in Part V of the
Banking Regulation Act, 1949 (10 of 1949);
(iii) loan or deposit means any loan or deposit of money which is repayable
after notice or repayable after a period and, in the case of a person other
than a company, includes loan or deposit of any nature.]
44

[Mode of repayment of Special Bearer Bonds, 1991.

269TT. Notwithstanding anything contained in any other law for the time being in
force, the amount payable on redemption of Special Bearer Bonds, 1991, shall be paid
only by an account payee cheque or account payee bank draft drawn in the name of
the person to whom such payment is to be made.]
45

[CHAPTER XX-C
PURCHASE BY CENTRAL GOVERNMENT OF IMMOVABLE
PROPERTIES IN CERTAIN CASES OF TRANSFER
Commencement of Chapter.

269U. The provisions of this Chapter shall come into force on such date as the
Central Government may, by notification46 in the Official Gazette, appoint, and
different dates may be appointed for different areas.
Definitions.
269UA. In this Chapter, unless the context otherwise requires,
(a) agreement for transfer means an agreement, whether registered under the
Registration Act, 1908 (16 of 1908) or not, for the transfer of any
immovable property ;
(b) apparent consideration,
(1) in relation to any immovable property in respect of which an agreement
for transfer is made, being immovable property of the nature referred to
in sub-clause (i) of clause (d), means,
(i) if the immovable property is to be transferred by way of sale, the
consideration for such transfer as specified in the agreement for
transfer ;
(ii) if the immovable property is to be transferred by way of exchange,

(A) in a case where the consideration for the transfer consists of a

thing47 or things only, the price that such thing or things would
ordinarily fetch on sale in the open market on the date on
which the agreement for transfer is made ;
(B) in a case where the consideration for the transfer consists of a
thing or things and a sum of money, the aggregate of the price
that such thing or things would ordinarily fetch on sale in the
open market on the date on which the agreement for transfer is
made, and such sum ;
(iii) if the immovable property is to be transferred by way of lease,
(A) in a case where the consideration for the transfer consists of
premium only, the amount of premium as specified in the
agreement for transfer ;
(B) in a case where the consideration for the transfer consists of
rent only, the aggregate of the moneys (if any) payable by way
of rent and the amounts for the service or things forming part of
or constituting the rent, as specified in the agreement for
transfer ;
(C) in a case where the consideration for the transfer consists of
premium and rent, the aggregate of the amount of the premium,
the moneys (if any) payable by way of rent and the amounts for
the service or things forming part of or constituting the rent, as
specified in the agreement for transfer,
and where the whole or any part of the consideration for such transfer is
payable on any date or dates falling after the date of such agreement for
transfer, the value of the consideration payable after such date shall be
deemed to be the discounted value48 of such consideration, as on the
date of such agreement for transfer, determined by adopting such rate of
interest as may be prescribed in this behalf ;

(2) in relation to any immovable property in respect of which an agreement

for transfer is made, being immovable property of the nature referred to
in sub-clause (ii) of clause (d), means,
(i) in a case where the consideration for the transfer consists of a sum of
money only, such sum ;
(ii) in a case where the consideration for the transfer consists of a thing
or things only, the price that such thing or things would ordinarily
fetch on sale in the open market on the date on which the agreement
for transfer is made ;
(iii) in a case where the consideration for the transfer consists of a thing
or things and a sum of money, the aggregate of the price that such
thing or things would ordinarily fetch on sale in the open market on
the date on which the agreement for transfer is made, and such sum,
and where the whole or any part of the consideration for such transfer is
payable on any date or dates falling after the date of such agreement for
transfer, the value of the consideration payable after such date shall be
deemed to be the discounted value48 of such consideration, as on the
date of such agreement for transfer, determined by adopting such rate of
interest as may be prescribed in this behalf ;
49
(c) appropriate authority means an authority constituted under section 269UB
to perform the functions of an appropriate authority under this Chapter ;
(d) immovable property means
(i) any land or any building or part of a building, and includes, where any
land or any building or part of a building is to be transferred together
with any machinery, plant, furniture, fittings or other things, such
machinery, plant, furniture, fittings or other things also.
Explanation.For the purposes of this sub-clause, land, building, part
of a building, machinery, plant, furniture, fittings and other things
include any rights therein ;
(ii) any rights in or with respect to any land or any building or a part of a
building (whether or not including any machinery, plant, furniture,
fittings or other things therein) which has been constructed or which is
to be constructed, accruing or arising from 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 of whatever nature), not being a
transaction by way of sale, exchange or lease of such land, building or
part of a building ;
(e) person interested50, in relation to any immovable property, includes all
persons claiming, or entitled to claim, an interest in the consideration
payable on account of the vesting of that property in the Central
Government under this Chapter ;
(f) transfer50,
(i) in relation to any immovable property referred to in sub-clause (i) of
clause (d), means transfer of such property by way of sale or exchange
or lease for a term of not less than twelve years, and includes allowing
the possession of such property to be taken or retained in part

performance of a contract of the nature referred to in section 53A 51 of

the Transfer of Property Act, 1882 (4 of 1882).
Explanation.For the purposes of this sub-clause, a lease which
provides for the extension of the term thereof by a further term or terms
shall be deemed to be a lease for a term of not less than twelve years, if
the aggregate of the term for which such lease is to be granted and the
further term or terms for which it can be so extended is not less than
twelve years ;
(ii) in relation to any immovable property of the nature referred to in subclause (ii) of clause (d), means the doing of anything (whether by way
of admitting as a member of or by way of transfer of shares in a cooperative society or company or other association of persons or by way
of any agreement or arrangement or in any other manner whatsoever)
which has the effect of transferring, or enabling the enjoyment of, such
property.
Appropriate authority.
269UB. (1) The Central Government may, by order, publish in the Official Gazette,

(a) constitute as many appropriate authorities, as it thinks fit, to perform the

functions of an appropriate authority under this Chapter ; and
(b) define the local limits within which the appropriate authorities shall perform
their functions under this Chapter.
(2) An appropriate authority shall consist of three persons, two of whom shall be
members of the Indian Income-tax Service, Group A, holding the post of
Commissioner of Income-tax or any equivalent or higher post, and one shall be a
member of the Central Engineering Service, Group A, holding the post of Chief
Engineer or any equivalent or higher post.
(3) In respect of any function to be performed by an appropriate authority under any
provision of this Chapter in relation to any immovable property referred to in section
269UC, the appropriate authority referred to therein shall,
(a) in a case where such property is situate within the local limits of the
jurisdiction of only one appropriate authority, be such appropriate
authority ;
(b) in a case where such property is situate within the local limits of the
jurisdiction of two or more appropriate authorities, be the appropriate
authority empowered to perform such functions in relation to such property
in accordance with the rules52 made in this behalf by the Board under
section 295.
Explanation.For the purposes of this sub-section, immovable property being rights
of the nature referred to in sub-clause (ii) of clause (d) of section 269UA in, or with
respect to, any land or any building or part of a building which has been constructed
or which is to be constructed shall be deemed to be situate at the place where the land
is situate or, as the case may be, where the building has been constructed or is to be
constructed.
Restrictions on transfer of immovable property.

269UC. (1) Notwithstanding anything contained in the Transfer of Property Act, 1882
(4 of 1882), or in any other law for the time being in force, 53[no transfer of any
immovable property in such area and of such value exceeding five lakh rupees, as
may be prescribed54], shall be effected except after an agreement for transfer is
entered into between the person who intends transferring the immovable property
(hereinafter referred to as the transferor) and the person to whom it is proposed to be
transferred (hereinafter referred to as the transferee) in accordance with the provisions
of sub-section (2) at least 55[four] months before the intended date of transfer.
(2) The agreement referred to in sub-section (1) shall be reduced to writing in the
form of a statement by each of the parties to such transfer or by any of the parties to
such transfer acting on behalf of himself and on behalf of the other parties.
56
(3) Every statement referred to in sub-section (2) shall,
(i) be in the prescribed form ;
(ii) set forth such particulars as may be prescribed ; and
(iii) be verified in the prescribed manner,
and shall be furnished to the appropriate authority in such manner and within such
time as may be prescribed, by each of the parties to such transaction or by any of the
parties to such transaction acting on behalf of himself and on behalf of the other
parties.
57
[(4) Where it is found that the statement referred to in sub-section (2) is defective,
the appropriate authority may intimate the defect to the parties concerned and give
them an opportunity to rectify the defect within a period of fifteen days from the date
of such intimation or within such further period which, on an application made in this
behalf, the appropriate authority may, in its discretion, allow and if the defect is not
rectified within the said period of fifteen days, or as the case may be, the further
period so allowed, then, notwithstanding anything contained in any other provision of
this Chapter, the statement shall be deemed never to have been furnished.]
Order by appropriate authority for purchase by Central Government of
immovable property.
269UD. (1) 58[Subject to the provisions of sub-sections (1A) and (1B), the appropriate
authority], after the receipt of the statement under sub-section (3) of section 269UC in
respect of any immovable property, may, notwithstanding anything contained in any
other law or any instrument or any agreement for the time being in force, 59[* * *]
make an order for the purchase by the Central Government of such immovable
property at an amount equal to the amount of apparent consideration :
Provided that no such order shall be made in respect of any immovable property after
the expiration of a period of two months from the end of the month in which the
statement referred to in section 269UC in respect of such property is received by the
appropriate authority :
60
[Provided further that where the statement referred to in section 269UC in respect
of any immovable property is received by the appropriate authority on or after the 1st
day of June, 1993, the provisions of the first proviso shall have effect as if for the
words two months, the words three months had been substituted :]
61
[Provided also that the period of limitation referred to in the second proviso shall be
reckoned, where any defect as referred to in sub-section (4) of section 269UC has

been intimated, with reference to the date of receipt of the rectified statement by the
appropriate authority :]
Provided 62[also] that in a case where the statement referred to in section 269UC in
respect of the immovable property concerned is given to an appropriate authority,
other than the appropriate authority having jurisdiction in accordance with the
provisions of section 269UB to make the order referred to in this sub-section in
relation to the immovable property concerned, the period of limitation referred to in
63
[the first and second provisos] shall be reckoned with reference to the date of receipt
of the statement by the appropriate authority having jurisdiction to make the order
under this sub-section :
64
[Provided also that the period of limitation referred to in the second proviso shall be
reckoned, where any stay has been granted by any court against the passing of an
order for the purchase of the immovable property under this Chapter, with reference to
the date of vacation of the said stay.]
65
[(1A) Before making an order under sub-section (1), the appropriate authority shall
give a reasonable opportunity of being heard to the transferor, the person in
occupation of the immovable property if the transferor is not in occupation of the
property, the transferee and to every other person whom the appropriate authority
knows to be interested66 in the property.
(1B) Every order made by the appropriate authority under sub-section (1) shall
specify the grounds on which it is made.]
(2) The appropriate authority shall cause a copy of its order under sub-section (1) in
respect of any immovable property to be served on the transferor, the person in
occupation of the immovable property if the transferor is not in occupation thereof,
the transferee, and on every other person whom the appropriate authority knows to be
interested in the property.
Vesting of property in Central Government.
269UE. (1) Where an order under sub-section (1) of section 269UD is made by the
appropriate authority in respect of an immovable property referred to in sub-clause (i)
of clause (d) of section 269UA, such property shall, on the date of such order, vest in
the Central Government 67[in terms of the agreement for transfer 68 referred to in subsection (1) of section 269UC] :
69
[Provided that where the appropriate authority, after giving an opportunity of being
heard to the transferor, the transferee or other persons interested in the said property,
under sub-section (1A) of section 269UD, is of the opinion that any encumbrance on
the property or leasehold interest specified in the aforesaid agreement for transfer is so
specified with a view to defeat the provisions of this Chapter, it may, by order, declare
such encumbrance or leasehold interest to be void and thereupon the aforesaid
property shall vest in the Central Government free from such encumbrance or
leasehold interest.]
(2) The transferor or any other person who may be in possession of the immovable
property in respect of which an order under sub-section (1) of section 269UD is made,
shall surrender or deliver possession thereof to the appropriate authority or any other
person duly authorised by the appropriate authority in this behalf within fifteen days
of the service of such order on him :
69
[Provided that the provisions of this sub-section and sub-sections (3) and (4) shall
not apply where the person in possession of the immovable property, in respect of

which an order under sub-section (1) of section 269UD is made, is a bona fide holder
of any encumbrance on such property or a bona fide lessee of such property, if the
said encumbrance or lease has not been declared void under the proviso to sub-section
(1) and such person is eligible to continue in possession of such property even after
the transfer in terms of the aforesaid agreement for transfer.]
(3) If any person refuses or fails to comply with the provisions of sub-section (2), the
appropriate authority or other person duly authorised by it under that sub-section may
take possession of the immovable property and may, for that purpose, use such force
as may be necessary.
(4) Notwithstanding anything contained in sub-section (2), the appropriate authority
may, for the purpose of taking possession of any property referred to in sub-section
(1), requisition the services of any police officer to assist him and it shall be the duty
of such officer to comply with such requisition.
(5) For the removal of doubts, it is hereby declared that nothing in this section shall
operate to discharge the transferor or any other person (not being the Central
Government) from liability in respect of any encumbrances on the property and,
notwithstanding anything contained in any other law for the time being in force, such
liability may be enforced against the transferor or such other person.
(6) Where an order under sub-section (1) of section 269UD is made in respect of an
immovable property, being rights of the nature referred to in sub-clause (ii) of clause
(d) of section 269UA, such order shall have the effect of
(a) vesting such right in the Central Government ; and
(b) placing the Central Government in the same position in relation to such
rights as the person in whom such a right would have continued to vest if
such order had not been made.
(7) Where any rights in respect of any immovable property, being rights in, or with
respect to, any land or any building or part of a building which has been constructed
or which is to be constructed, have been vested in the Central Government under subsection (6), the provisions of sub-sections (1), (2), (3) and (4) shall, so far as may be,
have effect as if the references to immovable property therein were references to such
land or building or part thereof, as the case may be.
Consideration for purchase of immovable property by Central Government.
269UF. (1) Where an order for the purchase of any immovable property by the Central
Government is made under sub-section (1) of section 269UD, the Central Government
shall pay, by way of consideration for such purchase, an amount equal to the amount
of the apparent consideration.
(2) Notwithstanding anything contained in sub-section (1), where, after the agreement
for the transfer of the immovable property referred to in that sub-section has been
made but before the property vests in the Central Government under section 269UE,
the property has been damaged (otherwise than as a result of normal wear and tear),
the amount of the consideration payable under that sub-section shall be reduced by
such sum as the appropriate authority, for reasons to be recorded in writing, may by
order determine.
Payment or deposit of consideration.

269UG. (1) The amount of consideration payable in accordance with the provisions of
section 269UF shall be tendered to the person or persons entitled thereto, within a
period of one month from the end of the month in which the immovable property
concerned becomes vested in the Central Government under sub-section (1), or, as the
case may be, sub-section (6), of section 269UE :
Provided that if any liability for any tax or any other sum remaining payable under
this Act, the Wealth-tax Act, 1957 (27 of 1957), the Gift-tax Act, 1958 (18 of 1958),
the Estate Duty Act, 1953 (34 of 1953), or the Companies (Profits) Surtax Act, 1964
(7 of 1964), by any person entitled to the consideration payable under section 269UF,
the appropriate authority may, in lieu of the payment of the amount of consideration,
set off the amount of consideration or any part thereof against such liability or sum,
after giving an intimation in this behalf to the person entitled to the consideration.
(2) Notwithstanding anything contained in sub-section (1), if any dispute arises as to
the apportionment of the amount of consideration amongst persons claiming to be
entitled thereto, the Central Government shall deposit with the appropriate authority
the amount of consideration required to be tendered under sub-section (1) within the
period specified therein.
(3) Notwithstanding anything contained in sub-section (1), if the person entitled to the
amount of consideration does not consent to receive it, or if there is any dispute 70 as to
the title70 to receive the amount of consideration, the Central Government shall
deposit with the appropriate authority the amount of consideration required to be
tendered under sub-section (1) within the period specified therein :
Provided that nothing herein contained shall affect the liability of any person who
may receive the whole or any part of the amount of consideration for any immovable
property vested in the Central Government under this Chapter to pay the same to the
person lawfully entitled thereto.
(4) Where any amount of consideration has been deposited with the appropriate
authority under this section, the appropriate authority may, either of its own motion or
on an application made by or on behalf of any person interested or claiming to be
interested in such amount, order the same to be invested in such Government or other
securities as it may think proper, and may direct the interest or other proceeds of any
such investment to be accumulated and paid in such manner as will, in its opinion,
give the parties interested therein the same benefits therefrom as they might have had
from the immovable property in respect whereof such amount has been deposited or
as near thereto as may be.

Re-vesting of property in the transferor on failure of payment or deposit of

consideration.
269UH. (1) If the Central Government fails to tender under sub-section (1) of section
269UG or deposit under sub-section (2) or sub-section (3) of the said section, the
whole or any part of the amount of consideration required to be tendered or deposited
thereunder within the period specified therein in respect of any immovable property
which has vested in the Central Government under sub-section (1) or, as the case may
be, sub-section (6) of section 269UE, the order to purchase the immovable property
by the Central Government made under sub-section (1) of section 269UD shall stand

abrogated and the immovable property shall stand re-vested in the transferor after the
expiry of the aforesaid period :
Provided that where any dispute referred to in sub-section (2) or sub-section (3) of
section 269UG is pending in any court for decision, the time taken by the court to pass
a final order under the said sub-sections shall be excluded in computing the said
period.
(2) Where an order made under sub-section (1) of section 269UD is abrogated and the
immovable property re-vested in the transferor under sub-section (1), the appropriate
authority shall make, as soon as may be, a declaration in writing to this effect and
shall
(a) deliver a copy of the declaration to the persons mentioned in sub-section (2)
of section 269UD ; and
(b) deliver or cause to be delivered possession of the immovable property back
to the transferor, or, as the case may be, to such other person as was in
possession of the property at the time of its vesting in the Central
Government under section 269UE.

Powers of the appropriate authority.

269UI. The appropriate authority shall have, for the purposes of this Chapter, all the
powers that a 71[Chief Commissioner or Commissioner] of Income-tax has for the
purposes of this Act under section 131.
Rectification of mistakes.
269UJ. With a view to rectifying any mistake apparent from the record, the
appropriate authority may amend any order made by it under this Chapter, either on
its own motion or on the mistake being brought to its notice by any person affected by
the order :
Provided that if any such amendment is likely to affect any person prejudicially, it
shall not be made without giving to such person a reasonable opportunity of being
heard :
Provided further that no amendment shall be made under this section after the expiry
of six months from the end of the month in which the order sought to be amended was
made.
Restrictions on revocation or alteration of certain agreements for the transfer of
immovable property or on transfer of certain immovable property.
269UK. (1) Notwithstanding anything contained in any other law for the time being in
force, no person shall revoke or alter an agreement for the transfer of an immovable
property or transfer such property in respect of which a statement has been furnished
under section 269UC unless,
(a) the appropriate authority has not made an order for the purchase of the
immovable property by the Central Government under section 269UD and
the period specified for the making of such order has expired ; or

(b) in a case where an order for the purchase of the immovable property by the
Central Government has been made under sub-section (1) of section
269UD, the order stands abrogated under sub-section (1) of section 269UH.
(2) Any transfer of any immovable property made in contravention of the provisions
of sub-section (1) shall be void.
Restrictions on registration, etc., of documents in respect of transfer of
immovable property.
269UL. (1) Notwithstanding anything contained in any other law for the time being in
force, no registering officer appointed under the Registration Act, 1908 (16 of 1908),
shall register any document which purports to transfer immovable property exceeding
the value prescribed under section 269UC unless a certificate from the appropriate
authority that it has no objection to the transfer of such property for an amount equal
to the apparent consideration therefor as stated in the agreement for transfer of the
immovable property in respect of which it has received a statement under sub-section
(3) of section 269UC, is furnished along with such document.
(2) Notwithstanding anything contained in any other law for the time being in force,
no person shall do anything or omit to do anything which will have the effect of
transfer of any immovable property unless the appropriate authority certifies that it
has no objection to the transfer of such property for an amount equal to the apparent
consideration therefor as stated in the agreement for transfer of the immovable
property in respect of which it has received a statement under sub-section (3) of
section 269UC.
(3) In a case where the appropriate authority does not make an order under subsection (1) of section 269UD for the purchase by the Central Government of an
immovable property, or where the order made under sub-section (1) of section 269UD
stands abrogated under sub-section (1) of section 269UH, the appropriate authority
shall issue a certificate of no objection referred to in sub-section (1) or, as the case
may be, sub-section (2) and deliver copies thereof to the transferor and the transferee.
Immunity to transferor against claims of transferee for transfer.
269UM. Notwithstanding anything contained in any other law or in any instrument or
any agreement for the time being in force, when an order for the purchase of any
immovable property by the Central Government is made under this Chapter, no claim
by the transferee shall lie against the transferor by reason of such transfer being not in
accordance with the agreement for the transfer of the immovable property entered into
between the transferor and transferee :
Provided that nothing contained in this section shall apply if the order for the
purchase of the immovable property by the Central Government is abrogated under
sub-section (1) of section 269UH.
Order of appropriate authority to be final and conclusive.
269UN. Save as otherwise provided in this Chapter, any order made under subsection (1) of section 269UD or any order made under sub-section (2) of section
269UF shall be final and conclusive and shall not be called in question in any
proceeding under this Act or under any other law for the time being in force.
Chapter not to apply to certain transfers.

269UO. The provisions of this Chapter shall not apply to or in relation to any
immovable property where the agreement for transfer of such property is made by a
person to his relative on account of natural love and affection, if a recital to that effect
is made in the agreement for transfer.]
72

[Chapter not to apply where transfer of immovable property effected after certain
date.
269UP.The provisions of this Chapter shall not apply to, or in relation to, the transfer
of any immovable property effected on or after the 1st day of July, 2002.]

74

[Failure to furnish returns, comply with notices, concealment of income, etc.

271. (1) If the 76[Assessing] Officer or the 77[***] 78[Commissioner (Appeals)] 79[or
the Commissioner] in the course of any proceedings under this Act, is satisfied that
any person
(a) 80[* * *]
(b) has 81[* * *] failed to comply with a notice under sub-section (1) of section
142 or sub-section (2) of section 143 82[or fails to comply with a direction
issued under sub-section (2A) of section 142], or
(c) has concealed the particulars of his income or 83[* * *] furnished inaccurate
particulars of such income84,
he may direct that such person shall pay by way of penalty,
(i) 85[* * *]
86
[(ii) in the cases referred to in clause (b), 87[in addition to tax, if any, payable] by
him, 88[a sum of ten thousand rupees] for each such failure ;]
89
[(iii) in the cases referred to in clause (c), 90[in addition to tax, if any, payable] by
him, a sum which shall not be less than, but which shall not exceed 91[three
times], the amount of tax sought to be evaded by reason of the concealment
of particulars of his income or the furnishing of inaccurate particulars of
such income.
92
[* * *]
93
[Explanation 1.Where in respect of any facts material to the computation of the
total income of any person under this Act,
(A) such person fails to offer an explanation or offers an explanation which is
found by the 94[Assessing] Officer or the 95[***] 96[Commissioner (Appeals)] 97[or the Commissioner] to be false, or
(B) such person offers an explanation which he is not able to substantiate 98[and
fails to prove that such explanation is bona fide and that all the facts relating
to the same and material to the computation of his total income have been
disclosed by him],
then, the amount added or disallowed in computing the total income of such person as
a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to
represent the income in respect of which particulars have been concealed.
99
[* * *]
75

Explanation 2.Where the source of any receipt, deposit, outgoing or investment in

any assessment year is claimed by any person to be an amount which had been added
in computing the income or deducted in computing the loss in the assessment of such
person for any earlier assessment year or years but in respect of which no penalty
under clause (iii) of this sub-section had been levied, that part of the amount so added
or deducted in such earlier assessment year immediately preceding the year in which
the receipt, deposit, outgoing or investment appears (such earlier assessment year
hereafter in this Explanation referred to as the first preceding year) which is sufficient
to cover the amount represented by such receipt, deposit or outgoing or value of such
investment (such amount or value hereafter in this Explanation referred to as the
utilised amount) shall be treated as the income of the assessee, particulars of which
had been concealed or inaccurate particulars of which had been furnished for the first
preceding year; and where the amount so added or deducted in the first preceding year
is not sufficient to cover the utilised amount, that part of the amount so added or
deducted in the year immediately preceding the first preceding year which is
sufficient to cover such part of the utilised amount as is not so covered shall be treated
to be the income of the assessee, particulars of which had been concealed or
inaccurate particulars of which had been furnished for the year immediately preceding
the first preceding year and so on, until the entire utilised amount is covered by the
amounts so added or deducted in such earlier assessment years.
1
[Explanation 3.Where any person 2[***] fails, without reasonable cause, to furnish
within the period specified in sub-section (1) of section 153 a return of his income
which he is required to furnish under section 139 in respect of any assessment year
commencing on or after the 1st day of April, 1989, and until the expiry of the period
aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of
section 142 or section 148 and the Assessing Officer or the 3[***] Commissioner
(Appeals) is satisfied that in respect of such assessment year such person has taxable
income, then, such person shall, for the purposes of clause (c) of this sub-section, be
deemed to have concealed the particulars of his income in respect of such assessment
year, notwithstanding that such person furnishes a return of his income at any time
after the expiry of the period aforesaid in pursuance of a notice under section 148.]
Explanation 4.For the purposes of clause (iii) of this sub-section, the expression
the amount of tax sought to be evaded,
4
[(a) in any case where the amount of income in respect of which particulars have
been concealed or inaccurate particulars have been furnished has the effect
of reducing the loss declared in the return or converting that loss into
income, means the tax that would have been chargeable on the income in
respect of which particulars have been concealed or inaccurate particulars
have been furnished had such income been the total income;]
(b) in any case to which Explanation 3 applies, means the tax on the total
income assessed ;
(c) in any other case, means the difference between the tax on the total income
assessed and the tax that would have been chargeable had such total income
been reduced by the amount of income in respect of which particulars have
been concealed or inaccurate particulars have been furnished.]
5
[Explanation 5.Where in the course of a search under section 132, the assessee is
found to be the owner of any money, bullion, jewellery or other valuable article or
thing (hereafter in this Explanation referred to as assets) and the assessee claims that
such assets have been acquired by him by utilising (wholly or in part) his income,

(a) for any previous year which has ended before the date of the search, but the
return of income for such year has not been furnished before the said date
or, where such return has been furnished before the said date, such income
has not been declared therein ; or
(b) for any previous year which is to end on or after the date of the search,
then, notwithstanding that such income is declared by him in any return of income
furnished on or after the date of the search, he shall, for the purposes of imposition of
a penalty under clause (c) of sub-section (1) of this section, be deemed to have
concealed the particulars of his income or furnished inaccurate particulars of such
income, 6[unless,
(1) such income is, or the transactions resulting in such income are recorded,
(i) in a case falling under clause (a), before the date of the search ; and
(ii) in a case falling under clause (b), on or before such date,
in the books of account, if any, maintained by him for any source of income
or such income is otherwise disclosed to the 7[Chief Commissioner or
Commissioner] before the said date ; or
(2) he, in the course of the search, makes a statement under sub-section (4) of
section 132 that any money, bullion, jewellery or other valuable article or
thing found in his possession or under his control, has been acquired out of
his income which has not been disclosed so far in his return of income to be
furnished before the expiry of time specified in 8[* * *] sub-section (1) of
section 139, and also specifies in the statement the manner in which such
income has been derived and pays the tax, together with interest, if any, in
respect of such income.]
9
[Explanation 6.Where any adjustment is made in the income or loss declared in the
return under the proviso to clause (a) of sub-section (1) of section 143 and additional
tax charged under that section, the provisions of this sub-section shall not apply in
relation to the adjustment so made.]
10
[Explanation 7.Where in the case of an assessee who has entered into an
international transaction defined in section 92B, any amount is added or disallowed in
computing the total income under sub-section (4) of section 92C, then, the amount so
added or disallowed shall, for the purposes of clause (c) of this sub-section, be
deemed to represent the income in respect of which particulars have been concealed
or inaccurate particulars have been furnished, unless the assessee proves to the
satisfaction of the Assessing Officer or the Commissioner (Appeals) 11[or the
Commissioner] that the price charged or paid in such transaction was computed in
accordance with the provisions contained in section 92C and in the manner prescribed
under that section, in good faith and with due diligence.]
12
[(1A) Where any penalty is imposable by virtue of Explanation 2 to sub- section (1),
proceedings for the imposition of such penalty may be initiated notwithstanding that
any proceedings under this Act in the course of which such penalty proceedings could
have been initiated under sub-section (1) have been completed.
(2) When the person liable to penalty is a registered firm or an unregistered firm
which has been assessed under clause (b) of section 183, then notwithstanding
anything contained in the other provisions of this Act, the penalty imposable under
sub-section (1) shall be the same amount as would be imposable on that firm if that
firm were an unregistered firm.

(3) 13[Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.]
(4) If the 14[Assessing] Officer or the 15[***] 16[Commissioner (Appeals)] in the course
of any proceedings under this Act, is satisfied that the profits of a registered firm have
been distributed otherwise than in accordance with the shares of the partners as shown
in the instrument of partnership on the basis of which the firm has been registered
under this Act, and that any partner has thereby returned his income below its real
amount, he may direct that such partner shall, in addition to the tax, if any, payable by
him, pay by way of penalty a sum not exceeding one and a half times the amount of
tax which has been avoided, or would have been avoided if the income returned by
such partner had been accepted as his correct income; and no refund or other
adjustment shall be claimable by any other partner by reason of such direction.]
(4A) and (4B) [Omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-101975. Original sub-sections (4A) and (4B) were inserted by the Income-tax
(Amendment) Act, 1965, w.e.f. 12-3-1965. Later on sub-section (4A) was substituted
by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.]
17
[(5) The provisions of this section as they stood immediately before their
amendment by the Direct Tax Laws (Amendment) Act, 1989 shall apply to and in
relation to any assessment for the assessment year commencing on the 1st day of
April, 1988, or any earlier assessment year and references in this section to the other
provisions of this Act shall be construed as references to those provisions as for the
time being in force and applicable to the relevant assessment year.]
18

[Failure to keep, maintain or retain books of account, documents, etc.

271A. Without prejudice to the provisions of section 271, if any person 19[***] fails
to keep and maintain any such books of account and other documents as required by
section 44AA or the rules made thereunder, in respect of any previous year or to retain
such books of account and other documents for the period specified in the said rules,
the 20[Assessing] Officer or the 21[***] 22[Commissioner (Appeals)] may direct that
such person shall pay, by way of penalty, 23[a sum of twenty-five thousand rupees].
24

[Penalty for failure to keep and maintain information and document in respect
of international transaction.
271AA. Without prejudice to the provisions of section 271, if any person fails to keep
and maintain any such information and document as required by sub-section (1) or
sub-section (2) of section 92D, the Assessing Officer or Commissioner (Appeals) may
direct that such person shall pay, by way of penalty, a sum equal to two per cent of the
value of each international transaction entered into by such person.]
25

[Failure to get accounts audited.

271B. If any person fails 26[***] to get his accounts audited in respect of any
previous year or years relevant to an assessment year or 27[furnish a report of such
audit as required under section 44AB], the 28[Assessing] Officer may direct that such
person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales,
turnover or gross receipts, as the case may be, in business, or of the gross receipts in
profession, in such previous year or years or a sum of one hundred thousand rupees,
whichever is less.]
29

[Penalty for failure to furnish report under section 92E.

271BA. If any person fails to furnish a report from an accountant as required by

section 92E, the Assessing Officer may direct that such person shall pay, by way of
penalty, a sum of one hundred thousand rupees.]
30

[Failure to subscribe to the eligible issue of capital.

271BB. Whoever fails to subscribe any amount of subscription to the units issued
under any scheme referred to in sub-section (1) of section 88A 31 to the eligible issue
of capital under that sub-section within the period of six months specified therein,
may be directed by the 32[Joint] Commissioner to pay, by way of penalty, a sum equal
to twenty per cent of such amount.]
33

[Penalty for failure to deduct tax at source.

271C. 34[(1) If any person fails to
(a) deduct the whole or any part of the tax as required by or under the
provisions of Chapter XVII-B; or
(b) pay the whole or any part of the tax as required by or under
(i) sub-section (2) of section 115-O; or
(ii) the second proviso to section 194B,
then, such person shall be liable to pay, by way of penalty, a sum equal to the amount
of tax which such person failed to deduct or pay as aforesaid.]
35
[(2) Any penalty imposable under sub-section (1) shall be imposed by the 36[Joint]
Commissioner.]
37

[Penalty for failure to comply with the provisions of section 269SS.

271D. 38[(1)] If a person takes or accepts any loan or deposit in contravention of the
provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal
to the amount of the loan or deposit so taken or accepted.]
39
[(2) Any penalty imposable under sub-section (1) shall be imposed by the 36[Joint]
Commissioner.]
40

[Penalty for failure to comply with the provisions of section 269T.

271E. 41[(1)] If a person repays any 42[loan or] deposit referred to in section 269T
otherwise than in accordance with the provisions of that section, he shall be liable to
pay, by way of penalty, a sum equal to the amount of the 42[loan or] deposit so repaid.]
43
[(2) Any penalty imposable under sub-section (1) shall be imposed by the 44[Joint]
Commissioner.]
45

[Penalty for failure to furnish return of income.

271F. If a person who is required to furnish a return of his income, as required under
sub-section (1) of section 139 or by the provisos to that sub-section, fails to furnish
such return before the end of the relevant assessment year, the Assessing Officer may
direct that such person shall pay, by way of penalty, a sum of five thousand rupees.]
The following section 271FA shall be inserted after section 271F by the Finance
(No. 2) Act, 2004, w.e.f. 1-4-2005 :
Penalty for failure to furnish annual information return.

271FA. If a person who is required to furnish an annual information return, as

required under sub-section (1) of section 285BA, fails to furnish such return within
the time prescribed under that sub-section, the income-tax authority prescribed under
the said sub-section may direct that such person shall pay, by way of penalty, a sum of
one hundred rupees for every day during which the failure continues.
46

[Penalty for failure to furnish information or document under section 92D.

271G. If any person who has entered into an international transaction fails to furnish
any such information or document as required by sub-section (3) of section 92D, the
Assessing Officer or the Commissioner (Appeals) may direct that such person shall
pay, by way of penalty, a sum equal to two per cent of the value of the international
transaction for each such failure.]

48

[Penalty for failure to answer questions, sign statements, furnish information,

returns or statements, allow inspections, etc.
272A. (1) If any person,
(a) being legally bound to state the truth of any matter touching the subject of
his assessment, refuses to answer any question put to him by an income-tax
authority in the exercise of its powers under this Act; or
(b) refuses to sign any statement made by him in the course of any proceedings
under this Act, which an income-tax authority may legally require him to
sign; or
(c) to whom a summons is issued under sub-section (1) of section 131 either to
attend to give evidence or produce books of account or other documents at a
certain place and time omits to attend or produce books of account or
documents at the place or time,
(d) 49[***]
he shall pay, by way of penalty, 50[a sum of ten thousand rupees] for each such default
or failure.
(2) If any person fails
(a) to comply with a notice issued under sub-section (6) of section 94; or
(b) to give the notice of discontinuance of his business or profession as required
by sub-section (3) of section 176; or
(c) to furnish in due time any of the returns, statements or particulars mentioned
in section 133 or section 206 51[***] 52[or section 206C] or section 285B; or
(d) to allow inspection of any register referred to in section 134 or of any entry
in such register or to allow copies of such register or of any entry therein to
be taken; or
53
[(e) to furnish the return of income which he is required to furnish under subsection (4A) or sub-section (4C) of section 139 or to furnish it within the
time allowed and in the manner required under those sub-sections; or]
(f) to deliver or cause to be delivered in due time a copy of the declaration
mentioned in section 197A; or
(g) to furnish a certificate as required by section 203 54[or section 206C]; or

(h) to deduct and pay tax as required by sub-section (2) of section 226;
[(i) to furnish a statement as required by sub-section (2C) of section 192;]
56
[(j) to deliver or cause to be delivered in due time a copy of the declaration
referred to in sub-section (1A) of section 206C;]
The following clause (k) shall be inserted after clause (j) of sub- section
(2) of section 272A by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
(k) to deliver or cause to be delivered a copy of the statement within the time
specified in sub-section (3) of section 200 or the proviso to sub-section (3)
of section 206C,
he shall pay, by way of penalty, a sum 57[of one hundred rupees] for every day during
which the failure continues:
58
[Provided that the amount of penalty for failures in relation to 59[a declaration
mentioned in section 197A, a certificate as required by section 203 and] returns under
sections 206 and 206C shall not exceed the amount of tax deductible or collectible 60,
as the case may be.]
(3) Any penalty imposable under sub-section (1) or sub-section (2) shall be imposed

(a) in a case where the contravention, failure or default in respect of which such
penalty is imposable occurs in the course of any proceeding before an
income-tax authority not lower in rank than a 61[Joint] Director or a 61[Joint]
Commissioner, by such income-tax authority;
(b) in a case falling under clause (f) of sub-section (2), by the Chief
Commissioner or Commissioner; and
(c) in any other case, by the 61[Joint] Director or the 61[Joint] Commissioner.
(4) No order under this section shall be passed by any income-tax authority referred to
in sub-section (3) unless the person on whom the penalty is proposed to be imposed is
given an opportunity of being heard in the matter by such authority.
Explanation.In this section, income-tax authority includes a Director General,
Director, 61[Joint] Director and an Assistant Director 62[or Deputy Director] while
exercising the powers vested in a court under the Code of Civil Procedure, 1908 (5 of
1908), when trying a suit in respect of the matters specified in sub-section (1) of
section 131.]
55

63

[Penalty for failure to comply with the provisions of section 133B.

272AA. (1) If a person 64[***] fails to comply with the provisions of section 133B, he
shall, on an order passed by the 65[Joint Commissioner], 66[Assistant Director] 67[or
Deputy Director] or the 68[Assessing] Officer, as the case may be, pay, by way of
penalty, a sum which may extend to one thousand rupees.
(2) No order under sub-section (1) shall be passed unless the person on whom the
penalty is proposed to be imposed is given an opportunity of being heard in the
matter.
69

[Penalty for failure to comply with the provisions of section 139A.

272B. (1) If a person fails to comply with the provisions of section 139A, the
Assessing Officer may direct that such person shall pay, by way of penalty, a sum of
ten thousand rupees.

(2) If a person who is required to quote his permanent account number in any
document referred to in clause (c) of sub-section (5) of section 139A, or to intimate
such number as required by sub-section (5A) 69a[or sub-section (5C)] of that section,
quotes or intimates a number which is false, and which he either knows or believes to
be false or does not believe to be true, the Assessing Officer may direct that such
person shall pay, by way of penalty, a sum of ten thousand rupees.
(3) No order under sub-section (1) or sub-section (2) shall be passed unless the
person, on whom the penalty is proposed to be imposed, is given an opportunity of
being heard in the matter.]
70

[Penalty for failure to comply with the provisions of section 203A.

272BB. (1) If a person fails to comply with the provisions of section 203A, he shall,
on an order passed by the 71[Assessing] Officer, pay, by way of penalty, 72[a sum of ten
thousand rupees].
(2) No order under sub-section (1) shall be passed unless the person on whom the
penalty is proposed to be imposed is given an opportunity of being heard in the
matter.]
73

[Penalty for failure to comply with the provisions of section 206CA.

272BBB. (1) If a person fails to comply 73a[before the 1st day of October, 2004] with
the provisions of section 206CA, he shall, on an order passed by the Assessing
Officer, pay, by way of penalty, a sum of ten thousand rupees.
(2) No order under sub-section (1) shall be passed unless the person on whom the
penalty is proposed to be imposed, is given an opportunity of being heard in the
matter.]
74

[False estimate of, or failure to pay, advance tax.

273. 75[(1) If the 76[Assessing] Officer, in the course of any proceedings in
connection with the regular assessment77 for any assessment year, is satisfied that any
assessee
(a) has furnished under clause (a) of sub-section (1) of section 209A a
statement of the advance tax payable by him which he knew or had reason
to believe to be untrue, or
(b) has 78[***] failed to furnish a statement of the advance tax payable by him
in accordance with the provisions of clause (a) of sub-section (1) of section
209A,
he may direct that such person shall, in addition to the amount of tax, if any, payable
by him, pay by way of penalty a sum(i) which, in the case referred to in clause (a), shall not be less than ten per cent
but shall not exceed one and a half times the amount by which the tax
actually paid during the financial year immediately preceding the
assessment year under the provisions of Chapter XVII-C falls short of
(1) seventy-five per cent of the assessed tax as defined in sub-section (5) of
section 215, or
(2) the amount which would have been payable by way of advance tax if the
assessee had furnished a correct and complete statement in accordance
with the provisions of clause (a) of sub-section (1) of section 209A,

whichever is less;
(ii) which, in the case referred to in clause (b), shall not be less than ten per
cent but shall not exceed one and a half times of seventy-five per cent of the
assessed tax as defined in sub-section (5) of section 215]:
79
[Provided that in the case of an assessee, being a company, the provisions of this
sub-section shall have effect as if for the words seventy-five per cent, at both the
places where they occur, the words eighty-three and one-third per cent had been
substituted.]
80
[(2)] If the 81[Assessing] Officer, in the course of any proceedings in connection with
the regular assessment for the assessment year commencing on the 1st day of April,
1970, or any subsequent assessment year, is satisfied that any assessee
82
[(a) has furnished under sub-section (1) or sub-section (2) or sub-section (3) or
sub-section (5) of section 209A, or under sub-section (1) or sub-section (2)
of section 212, an estimate of the advance tax payable by him which he
knew or had reason to believe to be untrue, or]
83
[(aa) has furnished 84[under sub-section (4) of section 209A or] under sub-section
(3A) of section 212 an estimate of the advance tax payable by him which he
knew or had reason to believe to be untrue, or]
(b) has 85[***] failed to furnish an estimate of the advance tax payable by him
in accordance with the provisions of 86[clause (b) of sub-section (1) of
section 209A], or
(c) has 87[***] failed to furnish an estimate of the advance tax payable by him
in accordance with the provisions of 88[sub-section (4) of section 209A or]
sub-section (3A) of section 212,
he may direct that such person shall, in addition to the amount of tax, if any, payable
by him, pay by way of penalty a sum
(i) which, in the case referred to in clause (a), shall not be less than ten per cent
but shall not exceed one and a half times the amount by which the tax
actually paid during the financial year immediately preceding the
assessment year under the provisions of Chapter XVII-C falls short of
(1) seventy-five per cent of the assessed tax as defined in sub-section (5) of
section 215, or
89
[(2) where a statement under clause (a) of sub-section (1) of section 209A
was furnished by the assessee or where a notice under section 210 was
issued to the assessee, the amount payable under such statement or, as
the case may be, such notice,]
whichever is less;
90
[(ia) which, in the case referred to in clause (aa), shall not be less than ten per
cent but shall not exceed one and a half times the amount by which the tax
actually paid during the financial year immediately preceding the
assessment year under the provisions of Chapter XVII-C falls short of
seventy-five per cent of the assessed tax as defined in sub-section (5) of
section 215;]
(ii) which, in the case referred to in clause (b), shall not be less than ten per cent
but shall not exceed one and a half times of seventy-five per cent of the
assessed tax as defined in sub-section (5) of section 215; and

91

[(iii) which, in the case referred to in clause (c), shall not be less than ten per cent
but shall not exceed one and a half times the amount by which
(a) where the assessee has sent a statement under clause (a), or an estimate
under clause (b) of sub-section (1) of section 209A, or an estimate in
lieu of a statement under sub-section (2) of that section, the tax payable
in accordance with such statement or estimate; or
(b) where the assessee was required to pay advance tax in accordance with
the notice issued to him under section 210, the tax payable under such
notice,
falls short of seventy-five per cent of the assessed tax as defined in subsection (5) of section 215:]]
92
[Provided that in the case of an assessee, being a company, the provisions of this
sub-section shall have effect as if for the words seventy-five per cent, wherever they
occur, the words eighty-three and one-third per cent had been substituted.]
93
[Explanation 94[1].For the purposes of clause (ia), the amount paid by the assessee
on or before the date extended by the 95[Chief Commissioner or Commissioner] under
the 96[first] 97[proviso to sub-section (4) of section 209A or, as the case may be,]
96
[first] proviso to sub-section (3A) of section 212 shall, where the date so extended
falls beyond the financial year immediately preceding the assessment year, also be
regarded as tax actually paid during that financial year.]
98
[Explanation 2.When the person liable to penalty is a registered firm or an
unregistered firm which has been assessed under clause (b) of section 183, then,
notwithstanding anything contained in the other provisions of this Act, the penalty imposable under this section shall be the same amount as would be imposable on that
firm if that firm were an unregistered firm.]
99
[(3) The provisions of this section shall apply to and in relation to any assessment
for the assessment year commencing on the 1st day of April, 1988, or any earlier
assessment year, and references in this section to the other provisions of this Act shall
be construed as references to those provisions as for the time being in force and
applicable to the relevant assessment year.]
1

[Power to reduce or waive penalty, etc., in certain cases.

273A.
(1) Notwithstanding anything contained in this Act, the 3[4[***]
Commissioner] may, in his discretion, whether on his own motion or otherwise,
(i) 5[***]
(ii) reduce or waive the amount of penalty imposed or imposable on a person
under clause (iii) of sub-section (1) of section 271; *[or]
(iii) 6[***]
if he is satisfied that such person
(a) 7[***]
(b) in the case referred to in clause (ii), has, prior to the detection 8 by the
9
[Assessing] Officer, of the concealment of particulars of income or of the
inaccuracy of particulars furnished in respect of such income, voluntarily10
and in good faith10, made full and true disclosure10 of such particulars;
(c) 11[***]
2

and also has, 12[in the case referred to in clause (b)], co-operated10 in any enquiry
relating to the assessment of his income and has either paid or made satisfactory
arrangements for the payment of any tax or interest payable in consequence of an
order passed under this Act in respect of the relevant assessment year.
Explanation 13[***].For the purposes of this sub-section, a person shall be deemed
to have made full and true disclosure of his income or of the particulars relating
thereto in any case where the excess of income assessed over the income returned is
of such a nature as not to attract the provisions of clause (c) of sub-section (1) of
section 271.
13
[***]
(2) Notwithstanding anything contained in sub-section (1),
(a) 14[***]
(b) if in a case falling under clause (c) of sub-section (1) of section 271, the
amount of income in respect of which the penalty is imposed or imposable
for the relevant assessment year, or, where such disclosure relates to more
than one assessment year, the aggregate amount of such income for those
years, exceeds a sum of five hundred thousand rupees,
no order reducing or waiving the penalty under sub-section (1) shall be made by 15[the
Commissioner except with the previous approval of the Chief Commissioner or
Director General, as the case may be].
(3) Where an order has been made under sub-section (1) in favour of any person,
whether such order relates to one or more assessment years, he shall not be entitled to
any relief under this section in relation to any other assessment year at any time after
the making of such order :
16
[Provided that where an order has been made in favour of any person under subsection (1) on or before the 24th day of July, 1991, such person shall be entitled to
further relief only once in relation to other assessment year or years if he makes an
application to the income-tax authority referred to in sub-section (4) at any time
before the 1st day of April, 1992.]
(4) Without prejudice to the powers conferred on him by any other provision of this
Act, the 17[18[***] Commissioner] may, on an application made in this behalf by an
assessee, and after recording his reasons for so doing, reduce or waive the amount of
any penalty payable by the assessee under this Act or stay or compound any
proceeding for the recovery of any such amount, if he is satisfied that
(i) to do otherwise would cause genuine hardship to the assessee, having regard
to the circumstances of the case; and
(ii) the assessee has co-operated in any inquiry relating to the assessment or any
proceeding for the recovery of any amount due from him:
19
[Provided that where the amount of any penalty payable under this Act or, where
such application relates to more than one penalty, the aggregate amount of such
penalties exceeds one hundred thousand rupees, no order reducing or waiving the
amount or compounding any proceeding for its recovery under this sub-section shall
be made by 20[the Commissioner except with the previous approval of the Chief
Commissioner or Director General, as the case may be].
(5) Every order made under this section shall be final and shall not be called into
question by any court or any other authority.]

21

[(6) The provisions of this section 22[as they stood immediately before their
amendment by the Direct Tax Laws (Amendment) Act, 1989] shall apply to and in
relation to any assessment for the assessment year commencing on the 1st day of
April, 1988, or any earlier assessment year, and references in this section to the other
provisions of this Act shall be construed as references to those provisions as for the
time being in force and applicable to the relevant assessment year.]
23
[(7) Notwithstanding anything contained in sub-section (6), the provisions of subsection (1), sub-section (2), or, as the case may be, sub-section (4) [as they stood
immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1989
(3 of 1989)], shall apply in the case of reduction or waiver of penalty or interest in
relation to any assessment for the assessment year commencing on the 1st day of
April, 1988 or any earlier assessment year, with the modifications that the power
under the said sub-section (1) shall be exercisable only by the Commissioner and
instead of the previous approval of the Board, the Commissioner shall obtain the
previous approval of the Chief Commissioner or Director General, as the case may be,
while dealing with such case.]
24[Penalty not to be imposed in certain cases.
273B. Notwithstanding anything contained in the provisions of 25[clause (b) of subsection (1) of] 26[section 271, section 271A, 27[section 271AA,] section 271B 27[,
section 271BA], 28[section 271BB,] section 271C, section 271D, section 271E,
29[section 271F, 29a[section 271FA,] 30[section 271G,]] clause (c) or clause (d) of
sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA]
or 31[section 272B or] 32[sub-section (1) of section 272BB or] 33[sub-section (1) of
section 272BBB or] clause (b) of sub-section (1) or clause (b) or clause (c) of subsection (2) of section 273, no penalty shall be imposable on the person or the assessee,
as the case may be, for any failure referred to in the said provisions if he proves that
there was reasonable cause34 for the said failure.]
Procedure.
274. (1) No order imposing a penalty under this Chapter shall be made unless the
assessee has been heard, or has been given a reasonable opportunity of being heard.
35
[(2) No order imposing a penalty under this Chapter shall be made
(a) by the Income-tax Officer, where the penalty exceeds ten thousand rupees;
(b) by the Assistant Commissioner 36[or Deputy Commissioner], where the
penalty exceeds twenty thousand rupees,
except with the prior approval of the 37[Joint] Commissioner.]
38
[(3) An income-tax authority on making an order under this Chapter imposing a
penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such
order to the Assessing Officer.]
39

[Bar of limitation for imposing penalties.

275. 40[(1)] No order imposing a penalty under this Chapter shall be passed
41
[(a) in a case where the relevant assessment or other order is the subject-matter
of an appeal to the 42[***] Commissioner (Appeals) under section 246 43[or

section 246A] or an appeal to the Appellate Tribunal under section 253,

after the expiry of the financial year in which the proceedings, in the course
of which action for the imposition of penalty has been initiated, are
completed, or six months from the end of the month in which the order of
the 44[***] Commissioner (Appeals) or, as the case may be, the Appellate
Tribunal is received by the Chief Commissioner or Commissioner,
whichever period expires later :
45
[Provided that in a case where the relevant assessment or other order is
the subject matter of an appeal to the Commissioner (Appeals) under section
246 or section 246A, and the Commissioner (Appeals) passes the order on
or after the 1st day of June, 2003 disposing of such appeal, an order
imposing penalty shall be passed before the expiry of the financial year in
which the proceedings, in the course of which action for imposition of
penalty has been initiated, are completed, or within one year from the end of
the financial year in which the order of the Commissioner (Appeals) is
received by the Chief Commissioner or Commissioner, whichever is later;]
(b) in a case where the relevant assessment or other order is the subject-matter
of revision under section 263 46[or section 264], after the expiry of six
months from the end of the month in which such order of revision is passed;
(c) in any other case, after the expiry of the financial year in which the
proceedings, in the course of which action for the imposition of penalty has
been initiated, are completed, or six months from the end of the month in
which action for imposition of penalty is initiated, whichever period expires
later.]
47
[(2) The provisions of this section as they stood immediately before their
amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply
to and in relation to any action initiated for the imposition of penalty on or before the
31st day of March, 1989.]
48
[Explanation.In computing the period of limitation for the purposes of this
section,
(i) the time taken in giving an opportunity to the assessee to be reheard under
the proviso to section 129;
(ii) any period during which the immunity granted under section 245H
remained in force; and
(iii) any period during which a proceeding under this Chapter for the levy of
penalty is stayed by an order or injunction of any court,
shall be excluded.]]
CHAPTER XXII
OFFENCES AND PROSECUTIONS
49
[Contravention of order made under sub-section (3) of section 132.
275A. Whoever contravenes any order referred to in 50[the second proviso to subsection (1) or] sub-section (3) of section 132 shall be punishable with rigorous
imprisonment which may extend to two years and shall also be liable to fine.]
51

[Failure to comply with the provisions of clause (iib) of sub-section (1) of section
132.

275B. If a person who is required to afford the authorised officer the necessary
facility to inspect the books of account or other documents, as required under clause
(iib) of sub-section (1) of section 132, fails to afford such facility to the authorised
officer, he shall be punishable with rigorous imprisonment for a term which may
extend to two years and shall also be liable to fine.]
52

[Removal, concealment, transfer or delivery of property to thwart tax recovery.

276. Whoever fraudulently removes, conceals, transfers or delivers to any person53,
any property or any interest therein, intending thereby to prevent that property or
interest therein from being taken in execution of a certificate under the provisions of
the Second Schedule shall be punishable with rigorous imprisonment for a term which
may extend to two years and shall also be liable to fine.]
54

[Failure to comply with the provisions of sub-sections (1) and (3) of section 178.
276A. If a person 55[***]
(i) fails to give the notice in accordance with sub-section (1) of section 178; or
(ii) fails to set aside the amount as required by sub-section (3) of that section; or
(iii) parts with any of the assets of the company or the properties in his hands in
contravention of the provisions of the aforesaid sub-section,
he shall be punishable with rigorous imprisonment for a term which may extend to
two years :
Provided that in the absence of special and adequate reasons to the contrary to be
recorded in the judgment of the court, such imprisonment shall not be for less than six
months.]

57

[Failure to comply with the provisions of sections 269UC, 269UE and 269UL.
276AB. Whoever 58[***] fails to comply with the provisions of section 269UC or fails
to surrender or deliver possession of the property under sub-section (2) of section
269UE or contravenes the provisions of sub-section (2) of section 269UL shall be
punishable with rigorous imprisonment for a term which may extend to two years and
shall also be liable to fine :
Provided that in the absence of special and adequate reasons to the contrary to be
recorded in the judgment of the court, such imprisonment shall not be for less than six
months.]
59

[Failure to pay tax to the credit of Central Government under Chapter XII-D
or XVII-B.
276B. If a person fails to pay to the credit of the Central Government,
(a) the tax deducted at source by him as required by or under the provisions of
Chapter XVII-B; or
(b) the tax payable by him, as required by or under
(i) sub-section (2) of section 115-O; or
(ii) the second proviso to section 194B,

he shall be punishable with rigorous imprisonment for a term which shall not be less
than three months but which may extend to seven years and with fine.]
60

[Failure to pay the tax collected at source.

276BB. If a person fails to pay to the credit of the Central Government, the tax
collected by him as required under the provisions of section 206C, he shall be
punishable with rigorous imprisonment for a term which shall not be less than three
months but which may extend to seven years and with fine.]
61

[Wilful attempt to evade tax, etc.

276C.(1) If a person wilfully attempts in any manner whatsoever to evade 62 any tax,
penalty or interest chargeable or imposable under this Act, he shall, without prejudice
to any penalty that may be imposable on him under any other provision of this Act, be
punishable,
(i) in a case where the amount sought to be evaded exceeds one hundred
thousand rupees, with rigorous imprisonment for a term which shall not be
less than six months but which may extend to seven years and with fine;
(ii) in any other case, with rigorous imprisonment for a term which shall not be
less than three months but which may extend to three years and with fine.
(2) If a person wilfully attempts in any manner whatsoever to evade the payment of
any tax, penalty or interest under this Act, he shall, without prejudice to any penalty
that may be imposable on him under any other provision of this Act, be punishable
with rigorous imprisonment for a term which shall not be less than three months but
which may extend to three years and shall, in the discretion of the court, also be liable
to fine.
Explanation.For the purposes of this section, a wilful attempt to evade any tax,
penalty or interest chargeable or imposable under this Act or the payment thereof shall
include a case where any person
(i) has in his possession or control any books of account or other documents
(being books of account or other documents relevant to any proceeding
under this Act) containing a false entry or statement; or
(ii) makes or causes to be made any false entry or statement in such books of
account or other documents; or
(iii) wilfully omits or causes to be omitted any relevant entry or statement in
such books of account or other documents; or
(iv) causes any other circumstance to exist which will have the effect of
enabling such person to evade any tax, penalty or interest chargeable or
imposable under this Act or the payment thereof.]
63

[Failure to furnish returns of income.

276CC. If a person wilfully fails to furnish in due time the return of income which he
is required to furnish under sub-section (1) of section 139 or by notice given under
64
[clause (i) of sub-section (1) of section 142] or section 148 65[or section 153A], he
shall be punishable,
(i) in a case where the amount of tax, which would have been evaded if the
failure had not been discovered66, exceeds one hundred thousand rupees,

with rigorous imprisonment for a term which shall not be less than six
months but which may extend to seven years and with fine;
(ii) in any other case, with imprisonment for a term which shall not be less than
three months but which may extend to three years and with fine:
Provided that a person shall not be proceeded against under this section for failure to
furnish in due time the return of income under sub-section (1) of section 139
(i) for any assessment year commencing prior to the 1st day of April, 1975; or
(ii) for any assessment year commencing on or after the 1st day of April 1975,
if
(a) the return is furnished by him before the expiry of the assessment year;
or
(b) the tax payable by him on the total income determined on regular
assessment, as reduced by the advance tax, if any, paid, and any tax
deducted at source, does not exceed three thousand rupees.]
67

[Failure to furnish return of income in search cases.

276CCC. If a person wilfully fails to furnish in due time the return of total income
which he is required to furnish by notice given under clause (a) of section 158BC, he
shall be punishable with imprisonment for a term which shall not be less than three
months but which may extend to three years and with fine :
Provided that no person shall be punishable for any failure under this section in
respect of search initiated under section 132 or books of account, other documents or
any assets requisitioned under section 132A, after the 30th day of June, 1995 but
before the 1st day of January, 1997.]
68

[Failure to produce accounts and documents.

276D. If a person wilfully fails to produce, or cause to be produced, on or before the
date specified in any notice served on him under sub-section (1) of section 142, such
accounts and documents as are referred to in the notice 69[or wilfully fails to comply
with a direction issued to him under sub-section (2A) of that section], he shall be
punishable with rigorous imprisonment for a term which may extend to one year or
with fine equal to a sum calculated at a rate which shall not be less than four rupees or
more than ten rupees for every day during which the default continues, or with both.]

72

[False statement in verification, etc.

277. If a person73 makes a statement in any verification under this Act or under any
rule made thereunder, or delivers an account or statement which is false, and which he
either knows or believes to be false, or does not believe to be true, he shall be
punishable,
(i) in a case where the amount of tax, which would have been evaded if the
statement or account had been accepted as true, exceeds one hundred
thousand rupees, with rigorous imprisonment for a term which shall not
be less than six months but which may extend to seven years and with
fine;

(ii)in any other case, with rigorous imprisonment for a term which shall not
be less than three months but which may extend to three years and with
fine.]
73a[Falsification of books of account or document, etc.
277A.If any person (hereafter in this section referred to as the first person) wilfully
and with intent to enable any other person (hereafter in this section referred to as the
second person) to evade any tax or interest or penalty chargeable and imposable
under this Act, makes or causes to be made any entry or statement which is false and
which the first person either knows to be false or does not believe to be true, in any
books of account or other document relevant to or useful in any proceedings against
the first person or the second person, under this Act, the first person shall be
punishable with rigorous imprisonment for a term which shall not be less than three
months but which may extend to three years and with fine.
Explanation.For the purposes of establishing the charge under this section, it shall
not be necessary to prove that the second person has actually evaded any tax, penalty
or interest chargeable or imposable under this Act.]
74

[Abetment of false return, etc.

278. If a person abets or induces in any manner another person to make and deliver
an account or a statement or declaration relating to any income chargeable to tax
which is false and which he either knows to be false or does not believe to be true or
to commit an offence under sub-section (1) of section 276C, he shall be punishable,
(i) in a case where the amount of tax, penalty or interest which would have
been evaded, if the declaration, account or statement had been accepted as
true, or which is wilfully attempted to be evaded, exceeds one hundred
thousand rupees, with rigorous imprisonment for a term which shall not be
less than six months but which may extend to seven years and with fine;
(ii) in any other case, with rigorous imprisonment for a term which shall not be
less than three months but which may extend to three years and with fine.]
75

[Punishment for second and subsequent offences.

278A. If any person convicted of an offence under section 276B or sub-section (1) of
section 276C or section 276CC 76[or section 276DD] 77[or section 276E] or section
277 or section 278 is again convicted of an offence under any of the aforesaid
provisions, he shall be punishable for the second and for every subsequent offence
with rigorous imprisonment for a term which shall not be less than six months but
which may extend to seven years and with fine.]
78

[Punishment not to be imposed in certain cases.

278AA. Notwithstanding anything contained in the provisions of section 276A,
section 276AB, 79[or section 276B,] no person shall be punishable for any failure
referred to in the said provisions if he proves that there was reasonable cause 80 for
such failure.]
81

[Offences by companies.

278B. (1) Where an offence under this Act has been committed by a company82,
every person who, at the time the offence was committed, was in charge of, and was
responsible to, the company for the conduct of the business of the company as well as
the company shall be deemed to be guilty of the offence and shall be liable to be
proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person
liable to any punishment if he proves that the offence was committed without his
knowledge or that he had exercised all due diligence to prevent the commission of
such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under
this Act has been committed by a company and it is proved that the offence has been
committed with the consent or connivance of, or is attributable to any neglect on the
part of, any director, manager, secretary or other officer of the company, such director,
manager, secretary or other officer shall also be deemed to be guilty of that offence
and shall be liable to be proceeded against and punished accordingly.
82a
[(3) Where an offence under this Act has been committed by a person, being a
company, and the punishment for such offence is imprisonment and fine, then, without
prejudice to the provisions contained in sub-section (1) or sub-section (2), such
company shall be punished with fine and every person, referred to in sub-section (1),
or the director, manager, secretary or other officer of the company referred to in subsection (2), shall be liable to be proceeded against and punished in accordance with
the provisions of this Act.]
Explanation.For the purposes of this section,
(a) company means a body corporate, and includes
(i) a firm; and
(ii) an association of persons or a body of individuals whether incorporated
or not; and
(b) director, in relation to
(i) a firm, means a partner in the firm;
(ii) any association of persons or a body of individuals, means any member
controlling the affairs thereof.]
83

[Offences by Hindu undivided families.

278C. (1) Where an offence under this Act has been committed by a Hindu undivided
family, the karta thereof shall be deemed to be guilty of the offence and shall be liable
to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render the karta liable to any
punishment if he proves that the offence was committed without his knowledge or that
he had exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under
this Act, has been committed by a Hindu undivided family and it is proved that the
offence has been committed with the consent or connivance of, or is attributable to
any neglect on the part of, any member of the Hindu undivided family, such member
shall also be deemed to be guilty of that offence and shall be liable to be proceeded
against and punished accordingly.]

84

[Presumption as to assets, books of account, etc., in certain cases.

278D. (1) Where during the course of any search made under section 132, any
money, bullion, jewellery or other valuable article or thing (hereafter in this section
referred to as the assets) or any books of account or other documents has or have been
found in the possession or control of any person and such assets or books of account
or other documents are tendered by the prosecution in evidence against such person or
against such person and the person referred to in section 278 for an offence under this
Act, the provisions of sub-section (4A) of section 132 shall, so far as may be, apply in
relation to such assets or books of account or other documents.
(2) Where any assets or books of account or other documents taken into custody, from
the possession or control of any person, by the officer or authority referred to in
clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of section
132A are delivered to the requisitioning officer under sub-section (2) of that section
and such assets, books of account or other documents are tendered by the prosecution
in evidence against such person or against such person and the person referred to in
section 278 for an offence under this Act, the provisions of sub-section (4A) of
section 132 shall, so far as may be, apply in relation to such assets or books of account
or other documents.]
85

[Presumption as to culpable mental state.

278E. (1) In any prosecution for any offence under this Act which requires a culpable
mental state on the part of the accused, the court shall presume the existence of such
mental state but it shall be a defence for the accused to prove the fact that he had no
such mental state with respect to the act charged as an offence in that prosecution.
Explanation.In this sub-section, culpable mental state includes intention, motive
or knowledge of a fact or belief in, or reason to believe, a fact.
(2) For the purposes of this section, a fact is said to be proved only when the court
believes it to exist beyond reasonable doubt and not merely when its existence is
established by a preponderance of probability.]
Prosecution to be at instance of 86[Chief Commissioner or Commissioner].
87279. 88[(1) A person shall not be proceeded against for an offence under section
275A 89[, section 275B], section 276, section 276A, section 276B, section 276BB,
section 276C, section 276CC, section 276D, section 277 89a[, section 277A] or
section 278 except with the previous sanction of the Commissioner or Commissioner
(Appeals) or the appropriate authority:
Provided that the Chief Commissioner or, as the case may be, Director General may
issue such instructions or directions to the aforesaid income-tax authorities as he may
deem fit for institution of proceedings under this sub-section.
Explanation.For the purposes of this section, appropriate authority shall have the
same meaning as in clause (c) of section 269UA.]
90
[(1A) A person shall not be proceeded against for an offence under section 276C or
section 277 in relation to the assessment for an assessment year in respect of which
the penalty imposed or imposable on him under clause (iii) of sub-section (1) of
section 271 has been reduced or waived by an order under section 273A.]

91

[(2) Any offence under this Chapter may, either before or after the institution of
proceedings, be compounded by the Chief Commissioner or a Director General.]
92
[(3) Where any proceeding has been taken against any person under sub-section (1),
any statement made or account or other document produced by such person before
any of the income-tax authorities specified in 93[clauses (a) to (g)] of section 116 shall
not be inadmissible as evidence for the purpose of such proceedings merely on the
ground that such statement was made or such account or other document was
produced in the belief that the penalty imposable would be reduced or waived,
94
[under section 273A] or that the offence in respect of which such proceeding was
taken would be compounded.]
95
[Explanation.For the removal of doubts, it is hereby declared that the power of the
Board to issue orders, instructions or directions under this Act shall include and shall
be deemed always to have included the power to issue instructions or directions
(including instructions or directions to obtain the previous approval of the Board) to
other income-tax authorities for the proper composition of offences under this
section.]
96

[Certain offences to be non-cognizable.

279A. Notwithstanding anything contained in the Code of Criminal Procedure, 1973
(2 of 1974), an offence punishable under section 276B or section 276C or section
276CC or section 277 or section 278 shall be deemed to be non-cognizable within the
meaning of that Code.]
97

[Proof of entries in records or documents.

279B. Entries in the records or other documents in the custody of an income-tax
authority shall be admitted in evidence in any proceedings for the prosecution of any
person for an offence under this Chapter, and all such entries may be proved either by
the production of the records or other documents in the custody of the income-tax
authority containing such entries, or by the production of a copy of the entries
certified by the income-tax authority having custody of the records or other
documents under its signature and stating that it is a true copy of the original entries
and that such original entries are contained in the records or other documents in its
custody.]
Disclosure of particulars by public servants.
280. (1) If a public servant 98[furnishes any information or produces any document in
contravention of the provisions of sub-section (2) of section 138], he shall be
punishable with imprisonment which may extend to six months, and shall also be
liable to fine.
(2) No prosecution shall be instituted under this section except with the previous
sanction of the Central Government.

CHAPTER XXIII
MISCELLANEOUS

[Certain transfers to be void.

281. (1) Where, during the pendency of any proceeding under this Act or after the
completion thereof, but before the service of notice under rule 2 of the Second
Schedule, any assessee creates a charge on, or parts with the possession (by way of
sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his
assets in favour of any other person, such charge or transfer shall be void as against
any claim in respect of any tax or any other sum payable by the assessee as a result of
the completion of the said proceeding or otherwise :
Provided that such charge or transfer shall not be void if it is made
(i) for adequate consideration and without notice of the pendency of such
proceeding or, as the case may be, without notice of such tax or other sum
payable by the assessee ; or
(ii) with the previous permission of the 6[Assessing] Officer.
(2) This section applies to cases where the amount of tax or other sum payable or
likely to be payable exceeds five thousand rupees and the assets charged or transferred
exceed ten thousand rupees in value.
Explanation.In this section, assets means land, building, machinery, plant, shares,
securities and fixed deposits in banks, to the extent to which any of the assets
aforesaid does not form part of the stock-in-trade of the business of the assessee.]

[Provisional attachment to protect revenue in certain cases.

281B. (1) Where, during the pendency of any proceeding for the assessment of any
income or for the assessment or reassessment of any income which has escaped
assessment, the 9[Assessing] Officer is of the opinion that for the purpose of
protecting the interests of the revenue it is necessary so to do, he may, with the
previous approval of the 10[Chief Commissioner, Commissioner, Director General or
Director], by order in writing, attach provisionally any property belonging to the
assessee in the manner provided in the Second Schedule.
11
[Explanation.For the purposes of this sub-section, proceedings under sub-section
(5) of section 132 shall be deemed to be proceedings for the assessment of any income
or for the assessment or reassessment of any income which has escaped assessment.]
(2) Every such provisional attachment shall cease to have effect after the expiry of a
period of six months from the date of the order made under sub-section (1) :
Provided that the 12[Chief Commissioner, Commissioner, Director General or
Director] may, for reasons to be recorded in writing, extend the aforesaid period by
such further period or periods as he thinks fit, so, however, that the total period of
extension shall not in any case exceed two years :
13
[Provided further that where an application for settlement under section 245C is
made, the period commencing from the date on which such application is made and
ending with the date on which an order under sub-section (1) of section 245D is made
shall be excluded from the period specified in the preceding proviso.]
Service of notice generally.

282. (1) A notice or requisition under this Act may be served on the person therein
named either by post or as if it were a summons issued by a court under the Code of
Civil Procedure, 1908 (5 of 1908).
(2) Any such notice or requisition may be addressed
(a) in the case of a firm or a Hindu undivided family, to any member of the firm
or to the manager or any adult member of the family ;
(b) in the case of a local authority or company, to the principal officer thereof ;
(c) in the case of any other association or body of individuals, to the principal
officer or any member thereof ;
(d) in the case of any other person (not being an individual), to the person who
manages or controls his affairs.
Service of notice when family is disrupted or firm, etc., is dissolved.
283. (1) After a finding of total partition has been recorded by the 14[Assessing]
Officer under section 171 in respect of any Hindu family, notices under this Act in
respect of the income of the Hindu family shall be served on the person who was the
last manager of the Hindu family, or, if such person is dead, then on all adults who
were members of the Hindu family immediately before the partition.
(2) Where a firm or other association of persons is dissolved, notices under this Act in
respect of the income of the firm or association may be served on any person who was
a partner (not being a minor) or member of the association, as the case may be,
immediately before its dissolution.
Service of notice in the case of discontinued business.
284. Where an assessment is to be made under section 176, the 15[Assessing] Officer
may serve on the person whose income is to be assessed, or, in the case of a firm or an
association of persons, on any person who was a member of such firm or association
at the time of its discontinuance or, in the case of a company, on the principal officer
thereof, a notice containing all or any of the requirements which may be included in a
notice under sub-section (2) of section 139, and the provisions of this Act shall, so far
as may be, apply accordingly as if the notice were a notice issued under that section.

17

[Submission of statements by producers of cinematograph films.

285B. 18Any person carrying on the production of a cinematograph film during the
whole or any part of any financial year shall, in respect of the period during which
such production is carried on by him in such financial year, prepare and deliver or
cause to be delivered to the 19[Assessing] Officer, within thirty days from the end of
such financial year or within thirty days from the date of the completion of the
production of the film, whichever is earlier, a statement in the prescribed form
containing particulars of all payments of over 20[fifty] thousand rupees in the aggregate made by him or due from him to each such person as is engaged by him in such
production 21[***].]
22[Annual information return.

285BA. Any assessee, who enters into any financial transaction, as may be
prescribed, with any other person, shall furnish, within the prescribed time, an annual
information return in such form and manner, as may be prescribed, in respect of such
financial transaction entered into by him during any previous year.]
The following section 285BA shall be substituted for the existing section 285BA
by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 :
Obligation to furnish annual information return.
285BA. (1) Any person, being
(a) an assessee; or
(b) the prescribed person in the case of an office of Government; or
(c) a local authority or other public body or association; or
(d) the Registrar or Sub-Registrar appointed under section 6 of the
Registration Act, 1908 (16 of 1908); or
(e) the registering authority empowered to register motor vehicles under
Chapter IV of the Motor Vehicles Act, 1988 (59 of 1988); or
(f) the Post Master General as referred to in clause (j) of section 2 of the
Indian Post Office Act, 1898 (6 of 1898); or
(g) the Collector referred to in clause (c) of section 3 of the Land Acquisition
Act, 1894 (1 of 1894); or
(h) the recognised stock exchange referred to in clause (f) of section 2 of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956); or
(i) an officer of the Reserve Bank of India, constituted under section 3 of the
Reserve Bank of India Act, 1934 (2 of 1934); or
(j) a depository referred to in clause (e) of sub-section (1) of section 2 of the
Depositories Act, 1996 (22 of 1996),
who is responsible for registering, or maintaining books of account or other
documents containing a record of any specified financial transaction, under any law
for the time being in force, shall furnish an annual information return, in respect of
such specified financial transaction which is registered or recorded by him during any
financial year beginning on or after the 1st day of April, 2004 and information
relating to which is relevant and required for the purposes of this Act, to the
prescribed income-tax authority or such other authority or agency as may be
prescribed.
(2) The annual information return referred to in sub-section (1) shall be furnished
within the prescribed time after the end of such financial year, in such form and
manner (including on a floppy, diskette, magnetic cartridge tape, CD-ROM or any
computer readable media) as may be prescribed.
(3) For the purposes of sub-section (1), specified financial transaction means any

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

interest in a property; or
(b) transaction for rendering any service; or
(c) transaction under a works contract; or
(d) transaction by way of an investment made or an expenditure incurred; or
(e) transaction for taking or accepting any loan or deposit,
which may be prescribed:

Provided that the Board may prescribe different values for different transactions in
respect of different persons having regard to the nature of such transactions:
Provided further that the value or, as the case may be, the aggregate value of such
transactions during a financial year so prescribed shall not be less than fifty thousand
rupees.
(4) Where the prescribed income-tax authority considers that the annual information
return furnished under sub-section (1) is defective, he may intimate the defect to the
person who has furnished such return and give him an opportunity of rectifying the
defect within a period of one month from the date of such intimation or within such
further period which, on an application made in this behalf, the prescribed incometax authority may, in his discretion, allow; and if the defect is not rectified within the
said period of one month or, as the case may be, the further period so allowed, then,
notwithstanding anything contained in any other provision of this Act, such return
shall be treated as an invalid return and the provisions of this Act shall apply as if
such person had failed to furnish the annual information return.
(5) Where a person who is required to furnish an annual information return under
sub-section (1) has not furnished the same within the prescribed time, the prescribed
income-tax authority may serve upon such person a notice requiring him to furnish
such return within a period not exceeding sixty days from the date of service of such
notice and he shall furnish the annual information return within the time specified in
the notice.

23

[Publication of information respecting assessees in certain cases.

287. (1) If the Central Government is of opinion that it is necessary or expedient in
the public interest to publish the names of any assessees and any other particulars
relating to any proceedings 24[or prosecutions] under this Act in respect of such
assessees, it may cause to be published such names and particulars in such manner as
it thinks fit.
25
[(2) No publication under this section shall be made in relation to any penalty
imposed under this Act until the time for presenting an appeal to the 26[* * *]
27
[Commissioner (Appeals)] has expired without an appeal having been presented or
the appeal, if presented, has been disposed of.]
Explanation.In the case of a firm, company or other association of persons, the
names of the partners of the firm, directors, managing agents, secretaries and
treasurers, or managers of the company, or the members of the association, as the case
may be, may also be published if, in the opinion of the Central Government, the
circumstances of the case justify it.]
28

[Appearance by registered valuer in certain matters.

287A. Any assessee who is entitled or required to attend before any income-tax
authority or the Appellate Tribunal in connection with any matter relating to the
valuation of any asset, otherwise than when required under section 131 to attend
personally for examination on oath or affirmation, may attend by a registered valuer.
Explanation.In this section, registered valuer has the same meaning as in clause
(oaa) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]

29

Appearance by authorised representative.30

31
288. (1) Any assessee who is entitled or required to attend before any income-tax
authority or the Appellate Tribunal in connection with any proceeding under this Act
otherwise than when required under section 131 to attend personally for examination
on oath or affirmation, may, subject to the other provisions of this section, attend by
an authorised representative.
32
(2) For the purposes of this section, authorised representative means a person
authorised by the assessee in writing to appear on his behalf, being
(i) a person related to the assessee in any manner, or a person regularly
employed by the assessee; or
(ii) any officer of a Scheduled Bank with which the assessee maintains a current
account or has other regular dealings; or
(iii) any legal practitioner who is entitled to practise in any civil court in India;
or
(iv) an accountant; or
(v) any person who has passed any accountancy examination recognised in this
behalf by the Board33; or
(vi) any person who has acquired such educational qualifications as the Board
may prescribe34 for this purpose; or
35
[(via) any person who, before the coming into force of this Act in the Union
territory of Dadra and Nagar Haveli, Goa, Daman and Diu, or Pondicherry,
attended before an income-tax authority in the said territory on behalf of
any assessee otherwise than in the capacity of an employee or relative of
that assessee; or]
(vii) any other person who, immediately before the commencement of this Act,
was an income-tax practitioner within the meaning of clause (iv) of subsection (2) of section 61 of the Indian Income-tax Act, 1922 (11 of 1922),
and was actually practising as such.
Explanation.In this section, accountant means a 36chartered accountant within the
meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in
relation to any State, any person who by virtue of the provisions of sub-section (2) of
section 22637 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act
as an auditor of companies registered in that State.
(3) 38[***]
(4) No person
(a) who has been dismissed or removed from Government service after the 1st
day of April, 1938; or
(b) who has been convicted of an offence connected with any income-tax
proceeding or on whom a penalty has been imposed under this Act, other
than a penalty imposed on him under 39[clause (ii) of sub- section (1) of]
section 271; or
(c) who has become an insolvent,
shall be qualified to represent an assessee under sub-section (1), for all times in the
case of a person referred to in sub-clause (a)*, for such time as the 40[Chief
Commissioner or Commissioner] may by order determine in the case of a person referred to in sub-clause (b)*, and for the period during which the insolvency continues
in the case of a person referred to in sub-clause (c)*.

(5) If any person

(a) who is a legal practitioner or an accountant is found guilty of misconduct in
his professional capacity by any authority entitled to institute disciplinary
proceedings against him, an order passed by that authority shall have effect
in relation to his right to attend before an income-tax authority as it has in
relation to his right to practise as a legal practitioner or accountant, as the
case may be;
41
(b) who is not a legal practitioner or an accountant, is found guilty of
misconduct in connection with any income-tax proceedings by the
prescribed authority, the prescribed authority42 may direct that he shall
thenceforth be disqualified to represent an assessee under sub-section (1).
(6) Any order or direction under clause (b) of sub-section (4) or clause (b) of subsection (5) shall be subject to the following conditions, namely :
(a) no such order or direction shall be made in respect of any person unless he
has been given a reasonable opportunity of being heard;
(b) any person against whom any such order or direction is made may, within
one month of the making of the order or direction, appeal to the Board to
have the order or direction cancelled; and
(c) no such order or direction shall take effect until the expiration of one month
from the making thereof, or, where an appeal has been preferred, until the
disposal of the appeal.
(7) A person disqualified to represent an assessee by virtue of the provisions of subsection (3) of section 61 of the Indian Income-tax Act, 1922 (11 of 1922), shall be
disqualified to represent an assessee under sub-section (1).
43

[Rounding off of income.

288A. 44[The amount of total income] computed in accordance with the foregoing
provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for
this purpose any part of a rupee consisting of paise shall be ignored and thereafter if
such amount is not a multiple of ten, then, if the last figure in that amount is five or
more, the amount shall be increased to the next higher amount which is a multiple of
ten and if the last figure is less than five, the amount shall be reduced to the next
lower amount which is a multiple of ten; and the amount so rounded off shall be
deemed to be the total income of the assessee for the purposes of this Act.]
45
[***]
46

[Rounding off of tax, etc.

288B. The amount of tax (including tax deductible at source or payable in advance),
interest, penalty, fine or any other sum payable, and the amount of refund due, under
the provisions of this Act shall be rounded off to the nearest rupee and, for this
purpose, where such amount contains a part of a rupee consisting of paise then, if
such part is fifty paise or more, it shall be increased to one rupee and if such part is
less than fifty paise it shall be ignored.]
47

Receipt to be given.
289. A receipt shall be given for any money paid or recovered under this Act.

Indemnity.
290. Every person deducting, retaining, or paying any tax in pursuance of this Act in
respect of income belonging to another person is hereby indemnified for the
deduction, retention, or payment thereof.
Power to tender immunity from prosecution.
291. (1) The Central Government may, if it is of opinion (the reasons for such
opinion being recorded in writing) that with a view to obtaining the evidence of any
person appearing to have been directly or indirectly concerned in or privy to the
concealment of income or to the evasion of payment of tax on income 48[it is
necessary or expedient so to do], tender to such person immunity from prosecution for
any offence under this Act or under the Indian Penal Code (45 of 1860), or under any
other Central Act for the time being in force and also from the imposition of any
penalty under this Act on condition of his making a full and true disclosure of the
whole circumstances relating to the concealment of income or evasion of payment of
tax on income.
(2) A tender of immunity made to, and accepted by, the person concerned, shall, to the
extent to which the immunity extends, render him immune from prosecution for any
offence in respect of which the tender was made or from the imposition of any penalty
under this Act.
(3) If it appears to the Central Government that any person to whom immunity has
been tendered under this section has not complied with the condition on which the
tender was made or is wilfully concealing anything or is giving false evidence, the
Central Government may record a finding to that effect, and thereupon the immunity
shall be deemed to have been withdrawn, and any such person may be tried for the
offence in respect of which the tender of immunity was made or for any other offence
of which he appears to have been guilty in connection with the same matter and shall
also become liable to the imposition of any penalty under this Act to which he would
otherwise have been liable.
Cognizance of offences.
292. No court inferior to that of a presidency magistrate or a magistrate of the first
class shall try any offence under this Act.
49

[Section 360 of the Code of Criminal Procedure, 1973, and the Probation of
Offenders Act, 1958, not to apply.
292A. Nothing contained in section 36050 of the Code of Criminal Procedure, 1973 (2
of 1974), or in the Probation of Offenders Act, 1958 (20 of 1958), shall apply to a
person convicted of an offence under this Act unless that person is under eighteen
years of age.]
51

[Return of income, etc., not to be invalid on certain grounds.

292B. No return of income, assessment, notice, summons or other proceeding,
furnished or made or issued or taken or purported to have been furnished or made or
issued or taken in pursuance of any of the provisions of this Act shall be invalid or
shall be deemed to be invalid merely by reason of any mistake, defect or omission in
such return of income, assessment, notice, summons or other proceeding if such return

of income, assessment, notice, summons or other proceeding is in substance and effect

in conformity with or according to the intent and purpose of this Act.]
Bar of suits in civil courts.
293. No suit shall be brought in any civil court to set aside or modify any 52[***]
53
[proceeding taken54 or] order made under this Act; and no prosecution, suit or other
proceeding shall lie against 55[the Government or] any officer of the Government for
anything in good faith done or intended to be done under this Act.
56

[Power to make exemption, etc., in relation to participation in the business of

prospecting for, extraction, etc., of mineral oils.
293A. (1) If the Central Government is satisfied that it is necessary or expedient so to
do in the public interest, it may, by notification 57 in the Official Gazette, make an
exemption, reduction in rate or other modification in respect of income-tax in favour
of any class of persons specified in sub-section (2) or in regard to the whole or any
part of the income of such class of persons 58[or in regard to the status in which such
class of persons or the members thereof are to be assessed on their income from the
business referred to in clause (a) of sub-section (2) :
Provided that the notification for modification in respect of the status may be given
effect from an assessment year beginning on or after the 1st day of April, 1993.]
(2) The persons referred to in sub-section (1) are the following, namely :
(a) persons with whom the Central Government has entered into agreements for
the association or participation of that Government or any person authorised
by that Government in any business consisting of the prospecting for or
extraction or production of mineral oils;
(b) persons providing any services or facilities or supplying any ship, aircraft,
machinery or plant (whether by way of sale or hire) in connection with any
business consisting of the prospecting for or extraction or production of
mineral oils carried on by that Government or any person specified by that
Government in this behalf by notification in the Official Gazette; and
(c) employees of the persons referred to in clause (a) or clause (b).
(3) Every notification issued under this section shall be laid before each House of
Parliament.
59
[Explanation.For the purposes of this section,
(a) mineral oil includes petroleum and natural gas;
(b) status means the category under which the assessee is assessed as
individual, Hindu undivided family and so on.]]
60

[Power of Central Government or Board to condone delays in obtaining

approval.
293B. Where, under any provision of this Act, the approval of the Central
Government or the Board is required to be obtained before a specified date, it shall be
open to the Central Government or, as the case may be, the Board to condone, for
sufficient cause, any delay in obtaining such approval.]
Act to have effect pending legislative provision for charge of tax.

294. If on the 1st day of April in any assessment year provision has not yet been
made by a Central Act for the charging of income-tax 61[***] for that assessment year,
this Act shall nevertheless have effect until such provision is so made as if the
provision in force in the preceding assessment year or the provision proposed in the
Bill then before Parliament, whichever is more favourable to the assessee, were
actually in force.
62

[Power to make exemption, etc., in relation to certain Union territories.

294A. If the Central Government considers it necessary or expedient so to do for
avoiding any hardship or anomaly or removing any difficulty that may arise as a
result of the application of this Act to the Union territories of Dadra and Nagar
Haveli, Goa*, Daman and Diu, and Pondicherry, or in the case of the Union territory
of Pondicherry, for implementing any provision of the Treaty of Cession concluded
between France and India on the 28th day of May, 1956, that Government may, by
general or special order, make an exemption, reduction in rate or other modification in
respect of income-tax or super-tax in favour of any assessee or class of assessees or in
regard to the whole or any part of the income of any assessee or class of assessees :
Provided that the power conferred by this section shall not be exercisable after the
31st day of March, 1967, except for the purpose of rescinding an exemption,
reduction or modification already made.]
Power to make rules.
295. (1) The Board may, subject to the control of the Central Government, by
notification in the Gazette of India, make rules for the whole or any part of India for
carrying out the purposes of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such
rules may provide for all or any of the following matters :
(a) 63the ascertainment and determination of any class of income;
(b) the manner in which and the procedure by which the income shall be arrived
at in the case of
(i) 64income derived in part from agriculture and in part from business;
(ii) 65persons residing outside India;
66
[(iii) an individual who is liable to be assessed under the provisions of subsection (2) of section 64;]
67
(c) the determination of the value of any perquisite chargeable to tax under
this Act in such manner and on such basis as appears to the Board to be
proper and reasonable;
(d) 68the percentage on the written down value which may be allowed as
depreciation in respect of buildings, machinery, plant or furniture;
69
[(dd) 70the extent to which, and the conditions subject to which, any expenditure
referred to in sub-section (3) of section 37 may be allowed;]
71
[(dda) 72the matters specified in sub-sections (2) and (3) of section 44AA;]
(e) the percentage or the amount to be prescribed 73[under clause (i) of subsection (4) of section 80C *];
74
[(ee) 75the conditions or limitations subject to which any payment of rent made by
an assessee shall be deducted under section 80GG;

(eea) the cases, the nature and value of assets, the limits and heads of expenditure
and the outgoings, which are required to be prescribed under sub-section (6)
of section 139;
(eeb) 76the time within which any person may apply for the allotment of a
permanent account number, the form and the manner in which such
application may be made and the particulars which such application shall
contain and the transactions with respect to which permanent account
numbers shall be quoted on documents relating to such transactions under
section 139A 77;
(eec) 78the form of the report of audit and the particulars which such report shall
contain under sub-section (2A) of section 142;]
(f) 79the manner in which and the period to which any such income as is
referred to in section 180 may be allocated;
(g) 80the authority to be prescribed for any of the purposes of this Act;
(h) 81the procedure for giving effect to the terms of any agreement for the
granting of relief in respect of double taxation or for the avoidance of
double taxation which may be entered into by the Central Government
under this Act;
(i) the form and manner in which any application, claim, return or information
may be made or furnished and the fees that may be levied in respect of any
application or claim;
(j) the manner in which any document required to be filed under this Act may
be verified;
(k) 82the procedure to be followed on applications for refunds;
83
[(kk) 84the procedure to be followed in calculating interest payable by assessees or
interest payable by Government to assessees under any provision of this
Act, including the rounding off of the period for which such interest is to be
calculated in cases where such period includes a fraction of a month, and
specifying the circumstances in which and the extent to which petty
amounts of interest payable by assessees may be ignored;]
(l) 85the regulation of any matter for which provision is made in section 230;
(m) 86the form and manner in which any appeal or cross-objection may be filed
under this Act, the fee payable in respect thereof and the manner in which
intimation of any such order as is referred to in clause (c) of sub-section (2)
of section 249 may be served;
87
[(mm) 88the circumstances in which, the conditions subject to which and the
manner in which, the 89[* * *] 90[Commissioner (Appeals)] may permit an
appellant to produce evidence which he did not produce or which he was
not allowed to produce before the 91[Assessing] Officer;]
92
[(mma) 93the form in which the statement under section 285B shall be delivered to
the 91[Assessing] Officer;]
(n) 94the maintenance of a register of persons other than legal practitioners or
accountants as defined in sub-section (2) of section 288 practising before
income-tax authorities and for the constitution of and the procedure to be
followed by the authority referred to in sub-section (5) of that section;
(o) the issue of certificate verifying the payment of tax by assessees;
(p) any other matter which by this Act is to be, or may be, prescribed.

(3) In cases coming under clause (b) of sub-section (2), where the income liable to tax
cannot be definitely ascertained, or can be ascertained only with an amount of trouble
and expense to the assessee which in the opinion of the Board is unreasonable, the
rules made under this section may
(a) prescribe methods by which an estimate of such income may be made; and
(b) in cases coming under sub-clause (i) of clause (b) of sub-section (2) specify
the proportion of the income which shall be deemed to be income liable to
tax;
and an assessment based on such estimate or proportion shall be deemed to be duly
made in accordance with the provisions of this Act.
95
[(4) The power to make rules conferred by this section shall include the power to
give retrospective effect, from a date not earlier than the date of commencement of
this Act, to the rules or any of them and, unless the contrary is permitted (whether
expressly or by necessary implication), no retrospective effect shall be given to any
rule so as to prejudicially affect the interests of assessees.]
96 97

[ [Rules and certain notifications to be placed before Parliament.

296. The Central Government shall cause every rule made under this Act 98[, the
rules of procedure framed by the Settlement Commission under sub-section (7) of
section 245F, the Authority for Advance Rulings under section 245V and the
Appellate Tribunal under sub-section (5) of section 255] and every notification issued
under sub-clause (iv) of clause (23C) of section 10 to be laid as soon as may be after
the rule is made or the notification is issued before each House of Parliament while it
is in session, for a total period of thirty days, which may be comprised in one session
or in two or more successive sessions, and if, before the expiry of the session
immediately following the session or the successive sessions aforesaid, both Houses
agree in making any modification in the rule or notification or both Houses agree that
the rule or notification should not be made or issued, that rule or notification shall
thereafter have effect, only in such modified form or be of no effect, as the case may
be; so, however, that any such modification or annulment shall be without prejudice to
the validity of anything previously done under that rule or notification.]]
Repeals and savings.
297. (1) The Indian Income-tax Act, 1922 (11 of 1922), is hereby repealed.
(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922)
(hereinafter referred to as the repealed Act),
(a) where a return of income has been filed before the commencement of this
Act by any person for any assessment year, proceedings for the assessment 99
of that person for that year may be taken and continued as if this Act had not
been passed;
(b) where a return of income is filed after the commencement of this Act
otherwise than in pursuance of a notice under section 34 of the repealed Act
by any person for the assessment year ending on the 31st day of March,
1962, or any earlier year, the assessment of that person for that year shall be
made in accordance with the procedure specified in this Act;
(c) any proceeding pending on the commencement of this Act before any
income-tax authority, the Appellate Tribunal or any court, by way of appeal,

reference, or revision, shall be continued and disposed of as if this Act had

not been passed;
(d) where in respect of any assessment year after the year ending on the 31st
day of March, 1940,
(i) a notice under section 34 of the repealed Act had been issued before the
commencement of this Act, the proceedings in pursuance of such notice
may be continued and disposed of as if this Act had not been passed;
(ii) any income chargeable to tax had escaped assessment within the
meaning of that expression in section 147 and no proceedings under
section 34 of the repealed Act in respect of any such income are pending
at the commencement of this Act, a notice under section 148 may,
subject to the provisions contained in section 149 or section 150, be
issued with respect to that assessment year and all the provisions of this
Act shall apply accordingly1;
2
(e) [subject to the provisions of clause (g) and clause (j) of this sub-section,]
section 23A of the repealed Act shall continue to have effect in relation to
the assessment of any company or its shareholders for the assessment year
ending on the 31st day of March, 1962 or any earlier year, and the
provisions of the repealed Act shall apply to all matters arising out of such
assessment as fully and effectually as if this Act had not been passed;
(f) any proceeding for the imposition of a penalty in respect of any assessment
completed before the first day of April, 1962, may be initiated and any such
penalty may be imposed as if this Act had not been passed;
(g) any proceeding for the imposition of a penalty in respect of any assessment
for the year ending on the 31st day of March, 1962, or any earlier year,
which is completed on or after the 1st day of April, 1962, may be initiated
and any such penalty may be imposed under this Act;
(h) any election or declaration made or option exercised by an assessee under
any provision of the repealed Act and in force immediately before the
commencement of this Act shall be deemed to have been an election or
declaration made or option exercised under the corresponding provision of
this Act;
(i) where, in respect of any assessment completed before the commencement of
this Act, a refund falls due after such commencement or default is made
after such commencement in the payment of any sum due under such
completed assessment,3 the provisions of this Act relating to interest payable
by the Central Government on refunds and interest payable by the assessee
for default shall apply;
(j) any sum payable by way of income-tax, super-tax, interest, penalty or
otherwise under the repealed Act may be recovered under this Act, but
without prejudice to any action already taken for the recovery of such sum
under the repealed Act;
(k) any agreement entered into, appointment made, approval given, recognition
granted, direction, instruction, notification, order or rule issued under any
provision of the repealed Act shall, so far as it is not inconsistent with the
corresponding provision of this Act, be deemed to have been entered into,
made, granted, given or issued under the corresponding provision aforesaid
and shall continue in force accordingly;

(l) 4any notification issued under sub-section (1) of section 60 5[or section 60A]
of the repealed Act and in force immediately before the commencement of
this Act shall, to the extent to which provision has not been made under this
Act, continue in force 6[***]:
7
[Provided that the Central Government may rescind any such notification
or amend it so as to rescind any exemption, reduction in rate or other
modification made thereunder;]
(m) where the period prescribed for any application, appeal, reference or
revision under the repealed Act had expired on or before the commencement
of this Act, nothing in this Act shall be construed as enabling any such
application, appeal, reference or revision to be made under this Act by
reason only of the fact that a longer period therefor is prescribed or
provision is made for extension of time in suitable cases by the appropriate
authority.
Power to remove difficulties.
298. (1) If any difficulty arises in giving effect to the provisions of this Act the
Central Government may, by general or special order, do anything not inconsistent
with such provisions which appears to it to be necessary or expedient for the purpose
of removing the difficulty.
(2) In particular, and without prejudice to the generality of the foregoing power, any
such order may provide for the adaptations or modifications subject to which the
repealed Act shall apply in relation to the assessments for the assessment year ending
on the 31st day of March, 1962, or any earlier year.
8
[(3) If any difficulty arises in giving effect to the provisions of this Act as amended
by the Direct Tax Laws (Amendment) Act, 1987, the Central Government may, by
order, do anything not inconsistent with such provisions for the purpose of removing
the difficulty:
Provided that no such order shall be made after the expiration of three years from the
1st day of April, 1988.
(4) Every order made under sub-section (3) shall be laid before each House of
Parliament.]