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Income Tax Act – CHAPTER I

PRELIMINARY

1.Short title, extent and commencement
(1)This Act may be called the Income-tax Act, 1961.
(2)It extends to the whole of India.2
(3)Saveas otherwise provided in this Act, it shallcome into force on the 1st day of April, 1962.

2.Definitions In this Act, unless the context otherwise requires –
3[(1)”advance tax” means the advance tax payable in accordance with the provisions of Chapter XVII-C;]
4(1A)”agricultural income” means –
(a)any rent or revenue derived from land which is situated in India and is used for agricultural purposes;
(b)any income derived from such land by –
(i)agriculture; or
(ii)the performance by a cultivator or receiver of rent in kind ofany process ordinarily employed by a cultivator orreceiver of rent-in-kind to render the produce raised or received by him fit to be takento market; 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 bythe receiver of the rent or revenue of any such land, or occupiedby the cultivator or the receiver ofrent-in-kind, of any land with respect to which, or the produce ofwhich, any process mentioned in paragraphs (ii) and (iii)ofsub-clause (b) is carried on:
1[Provided that –
(i)the building is on or in the immediate vicinity of the land,andis 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 otherout-building, and
(ii)the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of theGovernmentassuch or where the land is not so assessedto 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, municipalcorporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board andwhichhasa 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 thaneightkilometers, from the locallimits 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 areaand other relevant considerations, specify in this behalf by notification2 in the Official Gazette.]
3[Explanation.-Forthe removal of doubts, it is herebydeclared that revenue derived from land shall not include and shall bedeemed nevertohave included any income arising from the transferofany land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section;]
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1Substitutedby the Taxation Laws (Amendment) Act,1970,w.r.e.f. 1-4-1962.
2Inserted by the Finance Act, 1989 w.r.e.f. 1-4-1970.
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2(1B)”amalgamation”,in relation to companies,meansthe 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 somergebeing referred to astheamalgamatingcompany 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 amanner that –
(i)all the property of the amalgamating company or companiesimmediately before the amalgamation becomes the property of theamalgamated company by virtue ofthe amalgamation;
(ii)all the liabilities of the amalgamating company or companiesimmediately before the amalgamation become the liabilities of theamalgamated company byvirtueofthe amalgamation;
(iii)shareholders holding not less than nine-tenths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property ofone companyby another company pursuant to the purchase of suchproperty by the othercompany or as a result ofthedistributionof such propertytotheother company after the winding up of the first- mentioned company;]
(2)”annualvalue”,inrelation to anyproperty, means its annual value as determined under section 23;
3[(3)Omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1 April, 1988.]
(4)”Appellate Tribunal” means the Appellate Tribunal constituted under section 252;
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1.Inserted by the Finance (No. 2) Act, 1967 w.e.f. 1-4-1967.
2.Renumbered for “(1A)” by the Direct Tax Laws (Amendment) Act,1987, w.e.f. 1-4-1989.
3.Prior to the omission, clause (3), as originally enacted,readas under: “(3) “Appellate Assistant Commissioner” means a personappointed to bean Appellate Assistant Commissioner of Income-taxunder sub-section (1) of section 117;”
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(5)”approved gratuity fund” means a gratuity fund which has been andcontinues to be approved by the 1[Chief Commissioner or Commissioner] in accordance with the rules contained in Part C ofthe Fourth Schedule;
(6)”approvedsuperannuation fund” means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the 2[Chief Commissioner or Commissioner] in accordance with the rules contained in Part B of the Fourth Schedule;
(7)”assessee”means a person by whom 3[any tax] orany other sum of money is payable under this Act, and includes-
(a)every person in respect of whom anyproceeding under this Act has been taken for the assessment of his income or ofthe income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, orof the amount of refund due to him or to such other person;
(b)every person who is deemed to be an assessee under any provision of this Act;
(c)every person who is deemed to be an assessee in default under any provision of this Act;
4[(7A)”Assessing Officer” means the Assistant Commissioner or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the DeputyCommissioner who is directed under clause (b)of sub-section (4) of that section to exercise or perform all or any ofthepowers and functions conferred on, or assigned to, an Assessing Officer under this Act;]
(8)”assessment”includes reassessment;
(9)”assessment year” means the period of twelve months commencing on the 1st day of April every year;
5[(9A)”Assistant Commissioner” means a person appointed to be an Assistant Commissioner of Income-tax under sub-section (1) ofsection 117;]
(10)”average rate of income-tax”means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income;
(11)”block of assets” means a group of assets falling within a class of assets, being buildings, machinery, plant or furniture, in respect of which the same percentage of depreciation is prescribed;]
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1.Substituted for ‘Commissioner’ by the Direct TaxLaws(Amendment) Act, 1987, w.e.f. 1-4-1988.
2.Ibid.
3.Substituted for “income-tax or super-tax” by the Finance Act,1965, w.e.f. 1-4-1965.
4.Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.1-4-1988.
5.Ibid.
6.Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.Earlier, the original clause wasomitted by the Finance Act, 1965, w.e.f. 1-4-1965.
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(12)”Board” meansthe 1[Central Board of Direct Taxes constituted under the Central Boards of Revenue Act,19632(54 of 1963)];
(13)”business” includes any trade, commerce or manufacture or anyadventure or concern in the nature oftrade, commerce or manufacture;
(14)”capitalasset”meansproperty of anykindheldby an assessee,whether or not connected with his businessorprofession, but does not include –
(i)any stock-in-trade, consumable stores or rawmaterials held for the purposes of his business or profession;
3[(ii)4 personal effects, that is to say, movable property (includingwearing apparel and furniture, but excluding jewellery) heldforpersonal use by theassessee or any member of his family dependent on him.
Explanation.-For the purposes of this sub-clause, “jewellery” includes –
(a)ornamentsmade of gold, silver, platinumor any other precious metal or any alloy containing one or more of such precious metals, whether or not containingany preciousorsemipreciousstone, andwhetherornot worked or sewn into any wearing apparel;
(b)precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;]
5[(iii)agricultural land in India, not being land situate –
(a)in any area which is comprised within the jurisdiction ofa municipality (whether known as a municipality, municipalcorporation, notified area committee, town area committee, town committee, or by anyother name) or a cantonment board and whichhas a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or
6(b)in any area within such distance, notbeing more thaneightkilometres, from the local limits of any municipalityorcantonment board referred to initem (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that areaand other relevant considerations, specify in this behalf by notification in the Official Gazette;]
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1.Substitutedfor “Central Board of Revenueconstitutedunderthe Central Board of Revenue Act, 1924 (4 of 1924)” by the CentralBoards of Revenue Act, 1963, w.e.f. 1-1-1964.
2.Substituted by the Finance Act, 1972, w.e.f. 1-4-1973.
3 .Substituted for “(iii) agricultural land in India” bytheFinance Act, 1970, w.e.f.1-4-1970.
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1[(iv)6 1/2 per cent Gold Bonds, 1977, 2[or 7 per cent Gold Bonds, 1980,] 1[or National Defence Gold Bonds, 1980,] issued by the Central Government;]
4[(V)Special Bearer Bonds, 1991, issued by the Central Government;]
(15)5 “charitablepurpose”includesreliefofthepoor, education, medical relief, and the advancement of any other object of general public utility 6[* * *];
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1.Inserted by the Taxation Laws (Amendment) Act, 1962, w.e.f.13-12-1962.
2.Inserted by the Finance (No. 2) Act, 1965, w.e.f. 1-4-1965.
3.Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1965, w.e.f. 4-12-1965.
4.Inserted bytheSpecial BearerBonds (Immunities and Exemptions) Act, 1981, w.e.f. 12-1-1981.
5.The words ‘not involving the carrying on of anyactivity for profit’ omitted by the Finance Act, 1983, w.e.f. 1-4-1984.
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(15A)”Chief Commissioner”means a person appointed to be a ChiefCommissionerof Income-tax under sub-section(1) of section 117;
(15B)”child”,in relation to anindividual, includes a step-child and an adopted child of that individual;]
(16)”Commissioner” means a person appointed to be a Commissioner of Income-tax under sub-section (1) of section 117;
(16A)”Commissioner (Appeals)”means a person appointed to be a Commissioner of Income-tax (Appeals) under sub-section (1) ofsection 117;
7[(17)”company”means –
(i)any Indian company, or
(ii)any body corporate incorporated by or under the laws of a country outside India; or
(iii)any institution, association or body which isor was assessableor was assessed as a company forany 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:
Providedthatsuch 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;]
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1.Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.1-4-1988.
2.Insertedby the Taxation Laws (Amendment) Act, 1975,w.e.f.1-4-1976.
3.Renumbered for “(15A)” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
4.Substituted by the Finance Act, 1970, w.e.f. 1-4-1970.
5.The words ” and includes a person appointed tobean Additional CommissionerofIncome-tax under that sub-section”omittedbythe Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
6.Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978.
7.Substituted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.
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(18)”company in which the public are substantially interested” a company issaidto be a companyinwhichthe public are substantially interested –
2[(a)if it is a company owned by theGovernment or the ReserveBankof India or in which not less thanforty per cent ofthe shares areheld (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank; or]
3[(aa)ifitisa company whichisregisteredunder section 25 of the Companies Act, 1956 (1 of 1956); or
(ab)if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership andother relevantconsiderations, it is declared by order of the Board to be a company in whichthe 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 assessmentyear or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration; or]
5[(ac)if it is a mutual benefit finance company, that is to say, acompanywhich carrieson, as itsprincipal business,thebusiness of acceptance of depositsfromits members and which is declared by the Central Government under section 620A of the Companies Act, 19566 (1 of 1956), to be a Nidhi or Mutual Benefit Society; or]
7[(ad)if it is a company, whereinshares(not being shares entitled to a fixed rate of dividend whether with or withouta further right to participate in profits)carrying notless than fifty per cent of the voting powerhavebeen allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous yearbeneficially held by, one or more co-operative societies;]
8[(b)if it is a company which is not a privatecompany as defined in the Companies Act, 1956 (1 of 1956), andthe 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 orwithout a further right to participate in profits) were, as on the last day of the relevant previous year,listedina recognised stock exchange in India in accordancewith the Securities Contracts (Regulation)Act, 1956 1 (42 of 1956), and any rules made there under;
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2.Substituted by the Finance Act, 1964, w.e.f. 1-4-1964.
3.Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.
4.Inserted by the Finance Act, 1985, w.r.e.f. 1-4-
5.Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.
6.SubstitutedbytheFinance Act,1969,w.e.f.1-4-1970.
Earlier, it was amended by the Finance Act, 1965, w.e.f. 1-4-1965 and the Finance Act, 1966, w.e.f. 1-4-1966.
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2[(B)sharesin 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 votingpower havebeen allotted unconditionally to or acquired unconditionally by, and were throughout the relevant previous year beneficially held by –
(a)the Government, or
(b)acorporationestablishedbyaCentral,Stateor Provincial Act, or
(c)any company to which this clause applies or anysubsidiarycompanyof such company 1[if thewholeofthe share capital of such subsidiary company has been held by the parent company or by its nominees throughouttheprevious year.
Explanation.-In its application to an Indian company whose businessconsists 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 otherform 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-operativesociety”meansa co-operativesociety registeredunder the Co-operative Societies Act, 1912 4 (2 of1912), or under any other law for the time being in force in anyState for the registration of co-operative societies;
(19A)”Deputy Commissioner” means a person appointed to be a DeputyCommissioner of Income-tax 6[or an Additional Commissioner of Income-tax] under sub-section (1) of section 117;
(19B)”Deputy Commissioner (Appeals)”means a person appointed to be a Deputy Commissioner of Income-tax (Appeals) 7 [or an Additional Commissioner of Income-tax (Appeals)] under sub-section (1) of section 117;]
8[(19c)”Deputy Director” means a person appointed to be a Deputy Director of Income-tax or an Additional Director of Income-tax under sub-section (1) of section 117;]
(20)”director”, “manager” and “managing agent”, in relation to a company,havethemeanings respectively assignedtotheminthe Companies Act, 1956 1 (1 of 1956);
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2.Substituted by the Finance Act, 1983, w.e.f. 2-4-1983.
3.Substitutedfor’wheresuchsubsidiarycompanyfulfilsthe conditions laid down in clause (b) of section 108′ by the Finance Act, 1987, w.e.f. 1-4-1988.
4.Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
5.serted by the Finance Act, 1994, w.e.f. 1-6-1994.
6.bid.
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2[(21)”Director General or Director” means a person appointed to be a Director General of Income-tax or, as the case may be, a Director ofIncome-tax, under sub-section (1) of section 117, andincludesa person appointed under that sub-section to be 3[an Additional Director ofIncome-taxor] a Deputy Director of Income-taxoranAssistant Director of Income-tax;]
(22)”dividend” includes –
(a)any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entailsthe release by the company to its shareholders of all or any part of the assets of the company;
(b)any distribution to its shareholders by acompany 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 companypossessesaccumulated profits, whether capitalised or not;
(c)any distribution made to the shareholders of a company on its liquidation, to the extent to which thedistribution isattributableto the accumulated profits of the company immediately before its liquidation, whether capitalised or not;
(d)any distribution to its shareholders by a company on thereductionof its capital, to the extenttowhichthe companypossesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April,1933, whether such accumulated profits have been capitalised or not;
(e)any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representingapart of the assetsof the company or otherwise) 5[made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficialowner of shares (not being shares entitledto a fixedrateof dividend whether with or without arightto participate in profits) holding not less than ten per cent of thevotingpower,ortoanyconcern,inwhichsuch shareholderis a member or a partner and in which hehas a substantial interest (hereafter in this clause referred to as thesaidconcern)] or any payment by any suchcompany on behalf,orfor-theindividualbenefit,ofany such shareholder,tothe extent to which the companyineither case possesses accumulated profits;
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1.Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.Prior to the substitution, clause (21) read as under: (21) ‘Director of Inspection’ means a person appointed to be a Director of Inspectionunder sub-section (1) ofsection117, and includes apersonappointedto be an Additional Director of Inspection, a Deputy Director of Inspection or an Assistant Director of Inspection;’
3.Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.
5.Substitutedfor ‘by way of advance or loan to ashareholder, being a person who has a substantial interest in the company,’ bythe Finance Act, 1987, w.e.f. 1-4-1988.
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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 notentitled in the event of liquidation to participate in the surplus assets; 1[(ia)a distribution made in accordance with sub-clause(c) orsub-clause(d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, 2[and before the 1st day of April, 1965];]
(ii)any advance or loan made to a shareholder 3[or the said concern] by a company in the ordinary course of its business, where thelendingof money is a substantialpart ofthe business of the company;
(iii)any dividend paid by a company which is set off by thecompanyagainst the whole oranypartof any sum previously paid by it and treated as a dividendwithinthe meaningof sub-clause (e), to the extent to which it isso set off.
Explanation 1.-The expression “accumulated profits”, wherever it occurs in this clause, shall not include capital gains arisingbefore the 1st day of April, 1946, or after the 31st day of March, 1948,and before the 1st day of April, 1956.
Explanation2.-Theexpression “accumulated profits” insub-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,andin subclause (c) shall include all profitsofthe companyupto the. date of liquidation, 4[but shall not,wherethe liquidation is consequentonthecompulsoryacquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, includeany profitsofthecompany prior tothreesuccessivepreviousyears immediately preceding the previous year in which such acquisition took place].
Explanation 3.-For the purposes of this clause –
(a)”concern”means a Hindu undivided family, or a firmor an association ofpersons or a body of individuals or a company;
(b)a person shall be deemed to have a substantial interest inaconcern, other than a company, if he is, at any time during the previous year, beneficially entitled to notless than twenty per cent of the income of such concern;]
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1.Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.
2.Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.
3.Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
4.Inserted by the Direct Taxes (Amendment) Act, 1964, w.r.e.f. 1-4-1962.
5.Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
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(23)”firm”, “partner” and “partnership”have the meanings respectively assigned to them in the Indian Partnership Act, 1932 4 (9 of 1932); but the expression “partner” shall also include any person who, being a minor has been admitted to the benefits of partnership;
5[(23A)”foreign company”means a company which is not a domestic company;]
(24)”income” includes –
(i)profits and gains;
(ii)dividend;
7[(iia)voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partlyfor such purposes 8[or by an association or institution referred to in clause(21)orclause(23), or by a fund or trust or institutionreferred 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;]
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1.Insertedby the Direct Tax Laws (Amendment) Act,1987,w.e.f. 1-4-1989. quit
2.Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.
3.Renumberedfor “(22A)” by the Direct TaxLaws(Amendment) Act, 1987, w.e.f. 1-4-
5.Insertedbythe Direct Tax Laws (Amendment) Act,1987,w.e.f. 1-4-1989.
7.Inserted by the- Finance Act, 1972, w.e.f. 1-4-1973.
8.Substitutedfor’orbya trustorinstitutionofnational importance refer-red to in clause (d) of sub-section (1) of section 80F” by the Direct Tax Laws (Amendment), Act, 1989, w.e.f. 1-4-1989. Earlier, the said expression was substituted for” not being contributions made with a specific direction that they shall form part ofthecorpus of the trust or institution’ by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.
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(iii)the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17;
1[(iiia)any special allowance 2 or benefit, other than perquisite includedundersub-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 dutiesof his office or employment of profit are ordinarilyperformed by him or at a place where heordinarilyresides or to compensate him for the increased cost of living;]
(iv)the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantialinterest in the company, or by a relative of thedirectoror such person,and any sum paid by any such company inrespect of any obligation which, but for such payment, would havebeen payable by the director or other person aforesaid;
3[(iva)thevalue of any benefit orperquisite, whether convertible into money or not, obtained by any representative assesseementionedin clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit anyincome isreceivableby the representative assessee (such person being hereafter in this sub-clause referred to as the “beneficiary”) and any sum paid by the representative assessee in respect of anyobligation which,but for such payment, would have been payable bythe beneficiary;]
(v)any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59;
4[(va)any sum chargeable to income-tax under clause (iiia) of section 28;]
5[(vb)]any sum chargeable toincome-tax under clause (iiib) of section 28;
6[(vc )anysumchargeable to income-taxunder clause (iiic) of section 28;]
7[(vd)]thevalueof any benefit orperquisite taxable under clause (iv) of section 28;
8[(ve)any sum chargeable to income-tax under clause (v) of section 28;]
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1.Insertedby the Direct Tax Laws (Amendment) Act, 1989,w.r.e.f. 1-4-1962
2.Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980.
3.Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1962.
4.Inserted, ibid, w.r.e.f. 1-4-1967.
5.Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1972.
6.Renumbered for “(va)” by the Finance Act, 1990, w.e.f.1-4-1990.The original clause (va) was inserted by the FinanceAct, 1964, w.e.f. 1-4-1964.
8.Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.
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(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, computedinaccordance with section44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule;
1[(viii)Omitted by the Finance Act, 1988, with effect from April, 1988. It was inserted by the Finance Act, 1964,w.e.f 1-4-1964.]
2[(ix)any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any formornature whatsoever;]
3[(x)any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State InsuranceAct, 1948 (34 of 1948), or any other fund forthe welfare of such employees;] interest in the company or a relative of the director or the other person.
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1.Prior to omission, sub-clause (viii) read as under: “(viii)any annuity due, or commuted value of any annuitypaid, under the provisions of section 280D;”
2.Inserted by the Finance Act, 1972 w.e.f. 1-4-1972.
3.Inserted by the Finance Act, 1987 w.e.f. 1-4-1988.
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The word’income’is of the widest amplitude
4.The word ‘income’ is of the widest amplitude and it mustbe givenits natural and grammatical meaning.The definition of income in section 2(24) is inclusive.The purpose of the definition is not to limit the meaning of ‘income’ but to widen its net and the several clauses therein are not exhaustive of the meaning of income; even if a receiptdidnot fall within the ambit of any ofthose clauses, it mightstill be income if it partook the nature of income.The words “other games of any sort’ were of wide amplitude and their meaning was not confined to mere gambling or betting activities.Assuming that the expression “winnings”had acquired aparticular meaning viz. receipts from activities of a gambling or betting nature only, it did notfollowthatmonies received from non-gamblingor non-betting activities were not included within the ambit of income.The assessee contest, if not a race and the assessee entered the contest to win it.
What he got was a return for his skill and endurance.It was “income” construed in its widest sense.Though it was casual in nature, it was nevertheless income.
(25)”Income-tax-Officer”meansaperson appointedtobean Income-tax Officer under 1[* * *] section 117;
2[(25A)”India”shall be deemed to include the Unionterritories of Dadra and Nagar Haveli, Goa, Daman and Diu and Pondicherry –
(a)as respects any period, for the purposes of section6; and
(b)as respects any period included in the previous year, for the purposes of making any assessment for the assessment yearcommencingon the 1st day of April, 1963, orforany 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 tocompanies formerly in force in any part ofIndia(other than the State ofJammuandKashmir3[andtheUnion territories specified in sub-clause (iii) of this clause]);
4[(ia)a corporation established by or under a Central, State or Provincial Act;
(ib)any institution, association or body which isdeclared by the Board to be a company under clause (17);]
(ii)in the case of the State of Jammu and Kashmir, a companyformed and registered under any lawfor the time being in force in that State;
5[(iii)inthe case of any of theUnionterritories of Dadra and Nagar Haveli,Goa, Damanand Diu, andPondicherry, acompany formedandregistered under any law for the timebeingin force in that Union territory:]
Provided that the 1[registered or, as the case may be,principal officeof the company, corporation, institution, associationor body] in all cases is in India;
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1.The words ‘sub-section (1) of’ omitted by the DirectTaxLaws (Amendment) Act, 1989, w.r.e.f. 1-4-1988.Earlier, they were inserted by the Direct Tax Laws (Amendment.) Act, 1987, with effectfromthe same date.
2.Inserted by the Taxation Laws (Extension ‘to Union Territories) Regulation, 1963, w.e.f. 1-4-1963.
3.Ibid.
4.Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.
5.Insertedby the Taxation Laws (Extension toUnionTerritories) Regulation, 1963, w.e.f. 1-4-1963.
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4[(28A)”interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes anyservice fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;]
6[(28B)”interest on securities” means –
(i)interest on any security of the Central Government or a State Government;
(ii)interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation establishedby a Central, StateorProvincial Act;]
(29)”legalrepresentative” has the meaning assigned to it in clause (11) of section 2 of the Code of Civil Procedure, 1908 7 (5 of 1908);
8[(29A)”long-term capital asset” means a capital asset which is not a short-.term capital asset;
(29B)”long-term capital gain” means capital gain arising from the transfer of a long-term capital asset;]
9[(29C)”maximum marginal rate”means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual 10[association of personsor, as the case may be, body of individuals] as specifiedin the Finance Act of the relevant year;]
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1.Substituted for “registered office of the company” by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.
2.Prior to omission, clause (27) read as under: “(27) ‘Inspecting AssistantCommissioner’ means a person appointed tobe an Inspecting Assistant CommissionerofIncome-tax under sub-section (1) of section 117;
3.Substitutedfor”(2)” by the Direct Tax Laws(Amendment)Act, 1987, w.e.f. 1-4-1988.
4.Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.
5.Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.
6.Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
7.InsertedbytheDirect Tax Laws(Amendment)Act,1987, w.e.f. 1-4-1989.
8.Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
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(30)”non-resident”means a person who is not a ‘resident’, and for thepurposesof sections 92, 93 1[* * *] and168,includes a personwhoisnot ordinarily resident within themeaningofsub-section (6) of section 6;
(31)”person” includes –
(i)an individual,
(ii)a Hindu undivided family,
(iii)a company,
(iv)a firm,
(v)an association of persons or a bodyofindividuals, whether incorporated or not,
(vi)a local authority, and
(vii)every artificial juridical person, not falling within any of the preceding sub-clauses;
(32)”personwho 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 dividendwhether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power;
(33)”prescribed”means prescribed by rules made under this Act;
(34)”previous year” means the previous year as defined in section 3;
(35)”principalofficer”, usedwith referenceto a local authority or a company or any other public body or any association of persons or any body of individuals, means –
(a)the secretary, treasurer, manager or agent of the authority, company, association or body, or
(b)any person connected with the management or administration of the local authority, company, association or body upon whom the 2[Assessing] Officer has served a noticeofhis intention of treating himastheprincipal officer thereof;
(36)”Profession”includes vocation;
3[(36A)”public sector company” means any corporation established by or underany Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 19564 (1 of 1956);]
(37)”public servant”has the same meaning as in section 21 of the Indian Penal Code, 18605 (45 of 1860);
6[(37A)”rate or rates in force” or “rates in force”, in relation to an assessment year or financial year, mean –
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1.The figure 113 omitted by the Finance Act, 1965, w.e.f. 1-4-1965.
2.Substitutedfor “Income-tax” by the Direct Tax Laws(Amendment) Act, 1987, w.e.f. 1-4-1988.
3.Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.
5.Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.
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(i)forthe purposes of calculating income-taxunderthe first proviso to sub-section (5) of section 132, or computing theincome-tax chargeable under sub-section (4)ofsection 172 or sub-section (2) of section 174 or section 175 orsub-section(2)of section 176 ordeductingincome-taxunder section 192 from income chargeable under the head”Salaries” 1[* * *] or 2 [computation of the “advance tax” payable under Chapter XVII-C, in a case not falling under 3[section 115A or section 115B4[or section 115BB or section 115E] or] section 164 5[or section 164A 6[* * *]] 7[or section 167B], the rate or ratesofincome-tax specified inthisbehalfin the Finance Actof the relevant year, and for thepurposes of computation of the “advance Tax” payable under Chapter XVII-C 8[in a case falling under section 115A or section 115B9[or section 115BB or section 115E] or section 164 10[or section 164A11[* * *]] 12[or section 167B], the rate or rates specified in section 115A or 13[section 115B or section 115BB or section 115E or section 164 orsection 164A 14[** *1 15[or section 167B], as the case may be,] or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year,whichever is applicable;]
(ii)forthepurposes of deduction of taxundersections 193, 194, 194A 16[194B] 17[, 194BB] 18[and 194D], the rate or ratesof income-tax specified in this behalf in theFinance Act of the relevant year;]
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1.Thewordsor sub-section (9) of section 80Efromanypayment referredto therein’ omitted by the Direct Tax Laws (Amendment)Act, 1987, w.e.f. 1-4-1989. These words were inserted by the FinanceAct, 1968, w.e.f. 1-4-1968.
2.Substitutedfor ‘computation of the “advance tax” payableunder Chapter XVII-C,the rate or rates of income-tax specified in this behalfin the Finance Act of the relevant year’ by theFinanceAct, 1970, w.e.f. 1-4-1971.
3.Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.
4.Insertedbythe Direct Tax Laws (Amendment) Act,1987,w.e.f. 1-4-1988.
5.Ibid.
6.The words or section 167A” omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.These words were inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
7.Insertedbythe Direct Tax Laws (Amendment) Act,1987,w.e.f. 1-4-1989.
8.Substitutedfor “in a case falling under section 164,therate specified in that section’ by the Finance Act, 1976, w.e.f. 1-6-1976
9.Insertedbythe Direct Tax Laws (Amendment) Act,1987,w.e.f. 1-4-1988.
10.ibid.
11.Thewords”orsection 167A” omitted bythe Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.These words were inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
12.Inserted by the Direct Tax Laws (Amendment) Act,1987,w.e.f. 1-4-1989.
13.Substitutedfor”section 115B or, as the case maybe,section 164″ by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
14.The words “or section 167A” omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.These words were inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
15.Insertedbythe Direct Tax Laws (Amendment) Act,1987,w.e.f. 1-4-1989.
16.Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.
17.Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.
18.Substituted for “, 194D and 195 by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.
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1[(iii)for the purposes of deduction of tax under section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, whichever isapplicable by virtue of the provisions of section 90;]
(38)2″recognised provident fund” means a providentfund which has been and continues to be recognised by the 3[Chief Commissioner or Commissioner] in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund establishedunder a scheme framed under the Employees’ Provident Funds Act, 1952 4 (19of 1952);
5[(39)Omitted by the Finance Act, 1992, w.e.f. 1-4-1993]
(40)”regularassessment” meansthe assessment made under6[sub- section (3) of] section 143 or section 144;
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1.Substituted by the Finance Act, 1992, w.e.f. 1-6-1992.Priorto the substitution, sub clause (iii), as inserted by the Finance (No.2) Act, 1991, w.e.f. 1-10-1991, read as under: “(iii)for the purposes of deduction of taxundersection 195,therate or rates of income-tax specifiedin section 115Aorthe rate or rates of income-tax specifiedin this behalf in the Finance Act of the relevant year, whichever is applicable;”
3.Substituted for “Commissioner” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
5.Prior to the omission, clause (39), as inserted by the Direct Tax Laws (Amendment) Act, 1989, read as under: “(39) “registeredfirm”means a firmregisteredunderthe provisions of clause (a) of sub-section (1) of section 185 ordeemed to be registered under the provisions ofsubsection(6)ofthat section or under those provisions read with sub-section (7) of section 184;”
Earlier, the following original clause was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989: “(39)’registeredfirm’meansafirmregisteredunderthe provisionsof clause (a) of sub-section (1) of section 185 or under that provision read with sub-section (7) of section 184;”
6.Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989.
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(41)”relative”,in relation to an individual, means thehusband, wife, brother or sister or any lineal ascendant or descendant ofthat individual;
(42)”resident”means a person who is resident in India within the meaning of section 6;
1[(42A)2[“short-term capital asset”3 means a capital asset held by an assessee for not more than4[thirty-six]monthsimmediately preceding the date of its transfer”:]
6[Provided that in the case of a share held in a company 7[or any othersecuritylisted in a recognised stock exchange in India or a unitof the Unit Trust of India established under the UnitTrust of India Act, 1963 (52 of 1963) or a unit of aMutualFundspecified under clause (23D) of section 10], the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twelve months” had been substituted.]
Explanation8[1].-Indeterminingthe period for which any capital asset is held by the assessee –
(a)in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation;
(b)in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in 9[sub-section (1)] of section 49, there shall be included the period for which the asset was held by theprevious owner referred to in the said section;
10[(c)inthe case of a capital asset being ashareor sharesin an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause(vii)ofsection 47, there shallbe included the period forwhich the share or shares in the amalgamating company were held by the assessee;]
11[(d)inthe 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 onthe basisof’ 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 periodshall be reckoned from the date of allotment ofsuch financial asset;
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1.Inserted by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962.
2.Substitutedby the Finance Act, 1973, w.e.f. 1-4-1974. It was also amended by the Finance Act, 1966, w.e.f. 1-4-1966; Finance(No. 2) Act, 1967, w.e.f. 1-4-1967 and Finance Act, 1968, w.e.f. 1-4-1969.
4.Substitutedfor “sixty” by the Finance (No. 2)Act,1977, w.e.f. 1-4-1978.
6.Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
7.Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.
8.Ibid.
9.Substituted for “clauses (i) to (iii)” by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.
10.Inserted by the Finance (No. 2) Act, 1967 w.e.f. 1-4-1967.
11.Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.
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(e)in the case of a capital asset, beingthe right to subscribe to anyfinancial asset, whichisrenounced in favour of any other person, the period shall be reckoned from the date ofthe offer of such rightbythecompanyor institution, as the case may be, making such offer;]
1[(f)in the case of a capital asset, being a financial asset, allottedwithout any payment and on the basis of holding of any other financial asset, the period shall be reckonedfrom the date of the allotment of such financial asset;] (ii) in respect of capital assets other than those mentionedin clause (i), the period for which any capital asset is held bythe assessee shall be determined subject to any rules which the Boardmay make in this behalf,]
2[Explanation 2.-For the purposes of this clause, the expression “security”shallhave the meaning assigned to it inclause(h) of section2 of the Securities Contracts (Regulation) Act,1956 3 (42 of 1956)
4[(42B)”short-term capital gain” meanscapital gain arising from the transfer of a short-term capital asset;]
5[(42C)Omittedby the Finance Act, 1990, witheffectfrom 1 April, 1990. Earlier, it was inserted by the Direct Tax Laws (Second Amendment) Act, 1989, with effect from the same date.]
6[(43)”tax” in relation to the assessment yearcommencing on the 1st day ofApril, 1965, and any subsequent assessment year means income-taxchargeable under the provisions ofthis Act, and in relation to anyotherassessment year income-tax and super-tax chargeable under the provisions of this Act prior totheaforesaid date;]
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1.Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996.
2.Inserted by the Finance Act, 1994, w.e.f 1-4-1995.
3.Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
4.Prior to the omission, it read as under:
5.”(42C) ‘security’ means a Government security as defined in clause (2) ofsection 2 of the Public Debt Act,1944(18of 1944);”
6.Substituted by the Finance Act, 1965, w.e.f. 1-4-1965.
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1[(43A)”tax credit certificate” means a tax creditcertificate granted to any person in accordance with the provisionsofChapter XXII-B and any scheme made thereunder;]
2[(43B)Omittedby the Direct Tax Laws (Amendment)Act, 1987, with effect from 1 April, 1989.]
3[(44)”Tax Recovery Officer” means any Income-tax Officer who may beauthorisedby the ChiefCommissioneror Commissioner, by generalor special order in writing, to exercise the powers of a Tax Recovery Officer;]
(45)”totalincome”means the total amount of income referred to in section 5, computed in the manner laid down in this Act;
4[(46) * * *]
(47)5[“transfer”,in relation to a capital asset, includes –
(i)the sale, exchange or relinquishment of the asset; or
(ii)the extinguishment of any rights therein; or
(iii)the compulsory acquisition thereof under any law; or
(iv)in a case where the asset is converted by the owner thereofinto, or is treated by him as, stock-in-trade of a businesscarried on by him, such conversionortreatment;] 6[or]
7[(v)any transaction involving the allowing of the possession of any immovable property to be taken orretained in part performance of acontract of the nature referred to in section 53A ofthe Transfer of Property Act, 1882 1 (4 of 1882); or
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1.Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.This clause needs to be omitted consequent upon the omission of Chapter XXII-Bby the Finance Act, 1990, w.e.f. 1-4-1990.
2.Priorto the omission, clause (43B), as inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972, read as under: “(43B)”TaxRecovery Commissioner” means a Commissioner or an Assistant Commissioner of Income-tax who may be authorised by the Central Government, by general or special notification in the Official Gazette, to exercise the powers of a Tax Recovery Commissioner;”
3.Substituted by theDirect Tax Laws(Amendment). Act, 1987, w.r.e.f. 1-4-1988 [as amended by the Direct Tax Laws (Amendment)Act, 1989].Prior to the substitution, clause (44), as substituted bythe Finance Act, 1963, w.r.e.f. 1-4-1962, read as under: “(44) “Tax Recovery Officer” means –
(i)a Collector or an Additional Collector;
(ii)anysuchofficerempoweredtoeffectrecovery of arrears of land revenue or other public demand under anylaw relating to land revenue or other public demand for thetime being in force in the State as may be authorised by the State Government,bygeneralorspecialnotificationin the OfficialGazette, to exercise the powers of a Tax Recovery Officer;
(iii)any GazettedOfficerofthe Central or aState Governmentwho may be authorised by the Central Government, by general or special notification in the OfficialGazette, to exercise the powers of a Tax Recovery Officer;”
4.itted by the Finance Act, 1965, w.e.f. 1-4-1965.
5.bstitutedfor”transfer” in relation to a capitalasset, includes the sale, exchange or relinquishment of the assetor the extinguishment of any rights therein or thecompulsoryacquisition thereof under any law;” by the Taxation Laws (Amendment), Act1984, w.e.f. 1-4-1985.
6.serted by the Finance Act, 1987, w.e.f. 1-4-1988.
7.bid.
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(vi)anytransaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
Explanation.-Forthe purposes of sub-clauses (v) and(vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA;]
2[(48)Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
3[3.”Previous year” defined4
(1)Save as otherwise provided in this section, “previous year” for thepurposes of this Act, means the financialyearimmediately preceding the assessment year:
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2.Prior to the omission, clause (48) read as under; “(48) “unregistered firm” means a firm which is not aregistered firm.”
Earlier,it was omitted by the Direct Tax Laws (Amendment)Act, 1987, w.e.f.1-4-1989butreintroducedbytheDirectTaxLaws (Amendment) Act, 1989, w.e.f. the same date.
3.Substitutedby the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989.Priorto the substitution, section 3, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: “Previousyear” defined.-(1) For the purposes ofthisAct, “previous year” means –
(a)the financial year immediately preceding the assessment year; or
(b)if the accounts of the assessee have been made up to a datewithin the said financial year, then, at the option of the assessee, the twelve months ending on such date; or
(c)inthe caseof any person or business or classof persons or business not falling within clause (a) or clause (b), such period as may be determined by the Board or byany authority authorised by the Board in this behalf; or
(d)in the case of a business or profession newly set up in the said financial year, the period beginning with the date of the setting up of the business or profession and –
(i)ending with the said financial year, or
(ii)if the accounts of the assessee have been made up toa date within the said financial year, then,, at the optionof the assessee, ending on that date, or
(iii)ending with the period, if any, determined under clause (c), as the case may be; or
(e)in the case of a business or profession newly set up in thetwelve months immediately preceding thesaidfinancial year –
(i)ifthe accounts of the assessee have been made upto a datewithin the said financial year and the period fromthe date of the setting up of the business or profession to such date does not exceed twelve months, then, at theoption of the assessee, such period, or
(ii)if any period has been determined under clause (c), then theperiod beginning with the date of the setting up of the business or profession and ending with that period, as the case may be; or
(f)where the assessee is a partner in a firm and the firm has been assessed as such, then, in respect of the assessee’s share in the income of the ->->
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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 newlycomes into existence and ending with the said financial year.
(2)”Previousyear”,inrelation to the assessment year commencing onthe1st day of April, 1989, means the period which begins with the dateimmediately following thelast day ofthe previousyear relevant to the assessment year commencing onthe 1st day of April, 1988, and ends on the 31st day of March, 1989:
Providedthat where the assessee has adoptedmorethanone periodasthe”previous year” in relation totheassessment year commencing on the 1st day of April, 1988, for different sources of his income, thepreviousyearinrelationtotheassessmentyear commencing on the 1st day of April, 1989, shall be reckoned separately in the manner aforesaid in respect of each such source of income,and the longer or the longest of the periods so reckonedshallbethe previous year for the said assessment year:
2[Providedfurther that in the case of a business orprofession newly set up, or a source of income newly coming into existence on or after the, 1st day of April, 1987, but before the 1st dayofApril, 1988 and where the -> -> firm, the period determined as the previous year for the assessment of the income of the firm; or
(g)in respect of profits and gains from life insurance business, the year immediately preceding the assessment year for which annual accounts arerequired to be preparedunder the Insurance Act, 1938 (4 of 1938),orunder that Act read with section 43ofthe Life Insurance Corporation Act, 1956 (31 of 1956).
(2)Where an assessee has newly set up a business orprofession inthe said financial year and his accounts are made up to a date in the assessment year in respect of a period not exceeding twelve months fromthedateof such setting up,then, notwithstanding anything containedin sub-clause (iii) of clause (d) of sub-section (1), the assesseeshall,in respect of that business orprofession, at his option,bedeemed to have no previous year for the said assessment yearunderthatclause and such option shall, in relation to the immediatelysucceedingassessmentyear, have effectas an option exercised under sub-clause (i) of clause (e) of sub-section (1).
(3)Subject to the other provisions of this section, an assessee may have different previous years in respect of separatesources of his income.
(4)Where in respect of a particular source of income or in respect of a business or profession newly set up, an assessee has once exercised the option under clause (b) or sub-clause (ii) of clause (d) or sub-clause (i) of clause (e) of sub-section (1) or hasoncebeen assessed,then, he shall not, In respect of that source, or, as the case may be, business or profession, be entitled to vary themeaning of the expression “previous year” as then applicable to him, except with the consent of the AssessingOfficeranduponsuch conditions as the Assessing Officer may think fit to impose.”
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1.See rule 125.
2.Insertedby the Direct Tax Laws (Amendment) Act,1989,w.e.f. 1-4-1989.
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accountsinrelationto such business or profession or source of incomehavenotbeen made up to the 31st day ofMarch,1988,the “previousyear” in relation to the assessment year commencing on the 1st day of April, 1989, shall be the period beginning with the date of settingup of the business or profession or, as the case may be,the date on which the source of income newly comesintoexistenceand ending on the 31st day of March, 1989:
Provided also that where the assessee has adopted one or more periodsasthe “previous year” in relation tothe assessmentyear commencing on the 1st day of April, 1988, for any source or sources of his income, in addition to the business or profession or source of income referredtointhe second proviso,the previous year in relation to the assessment year commencing on the 1st dayofApril, 1989, shall be reckoned separately in the manner aforesaid inrespect of each such source of income, and the longer or the longest of the periods so reckoned shall be the previous year in relation to the said assessment year.]
(3)Where the previous year in relation to the assessmentyear commencingon the 1st day of April, 1989, referred to insub-section (2) exceeds a period of twelve months, the provisionsofthisAct shall apply subject to the modifications specified in the rules in the Tenth Schedule.]
CHAPTER II
BASIS OF CHARGE
4.Charge of income-tax 1
(1)Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with,and 2[subjecttothe provisions (including provisions forthe levy of additional income-tax) of, this Act]in respect of the total income of the previous year * *] of every person:
Provided that whereby virtue of anyprovisionofthis 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.
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1.Substituted for ‘subject to the provisions of, this Act”by the Direct Tax Laws (Amendment)’ Act, 1987, w.e.f. 1-4-1989. This amendment was consequent to the insertion of Chapter XIV-B (comprising of section 158B), but after the withdrawalofthe chapter, withouteven coming into effect,thisamendmenttoo needs to be undone.
3.The words “or previous years, as the case may be,” omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
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liability arising from contracts as well as torts.it would be incorrect to assume that the share of an assessee in a formconsists only ofincome yielding assets.It equally comprises of risk and liability of paying debts on behalf of the firm.An assesseecannot, under the Hindu law make a declaration whereby the joint family would have to bear the risk and liability of the business and such a declaration should be ignored altogether.
6.Where payment is made to compensate for the loss of the use of any goods in which the assessee does not carry on any business orthe payment is a just equivalent of the cost incurred by the assessee, but excess accrues due to fortuitous circumstances or is awindfall, then accrual may be a receipt, but it would not be incomearising from business, and, therefore, not taxable under the Act.
7.In the hands of an assessee, who maintains his accounts on the mercantilesystem, sales tax collected but not paid to the Sales Tax Departmentpending adjudication of dispute over his liability to pay sales tax, is a revenue receipt of the yearinwhichitis collected.
8.Where a companygoes into liquidationand the liquidator distributes the assets of the company among theshareholders,what each shareholder gets is in lieu of his shareholding.That is the worth,thevalue and the price of his shareholding.A shareholder participates inthe distribution of the assets of a companyon its liquidation by virtue of and because of his shareholding.It is true that a liquidator does not sell the shares.It is equally truethat there is no transfer of shares by the shareholder to the liquidator or to any other person. That is not really necessary. So long asmoney isreceivedinlieuof shares, there is areceiptandwhere an assesseeisa dealer in shares, any surplus amount receivedby him constitutes his income.The money received by the assessee in lieu of itsshareholding partakes of the same character in which he held the shares.If he held the shares as stock-in-trade, the moneyreceived byit represents his income i.e. a revenue receipt in its hands. If it held thembyway ofinvestment,themoneyit receives represents a capital receipt by it.
Scope of total income
5.Scope of total income 1.
(1)Subject to the provisions of this Act, the total income of any previousyear of a person who is a resident includes all incomefrom whatever source derived which –
(a)is received or is deemed to be received inIndiain such year by or on behalf of such person; or
(b)accruesor arises or is deemed to accrue or ariseto him in India during such year; or
(c)accruesorarises to him outsideIndiaduringsuch year:
Provided that, in the case of a person not ordinarily resident in Indiawithin the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be soincluded unless it is derived from a business controlled in or a profession set up in India.
(2)Subjectto the provisions of this Act, the total income of anypreviousyear of a person who is a non-residentincludes all income from whatever source derived which –
(a)is receivedor is deemed to be received in Indiain such year by or on behalf of such person; or
(b)accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1.-Income accruing or arising outside India shall not bedeemed to be received in India within the meaning of thissection by reason only of the fact that it is taken into account in a balance sheet prepared in India.
Explanation2.-For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on thebasis that it has accrued or arisen or is deemed to haveaccrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.
1[5A.Apportionment of income between spouses governed byPortuguese Civil Code
(1)Where thehusband and wife are governed by thesystem of communityof 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 thehusbandand of the wife under any head of incomeshallnotbe assessed as that of such community of property (whether treated asan associationof persons or a body of individuals), but such incomeof thehusbandand of the wife under each head ofincome (otherthan underthe head “Salaries”) shall be apportioned equally between the husbandand 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 wifegoverned by the aforesaid system of community of property has any incomeunder the head
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1Inserted by the Finance Act, 1994, w.r.e.f. 1-4-1963.
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“Salaries”,such income shall be included in the total income of the spouse who has actually earned it.]
Residence in India 1
6.Residence in India
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 ormore; or
2[(b) * * *]
(c)havingwithin the four years preceding that yearbeen inIndia for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period orperiodsamounting in all to sixty days or moreinthat year.
3[Explanation.-In the case of an individual –
(a)being a citizen of India, who leaves India in any previous year 4 [as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the MerchantShipping Act, 1958 (44 of 1958), or] for the purposes of employment outside India, the provisions of sub clause (c) shall apply in relation to thatyear as if for the words “sixtydays”, occurringtherein, the words “one hundredandeighty two days” had been substituted;
(b)being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixtydays”, occurringtherein,thewords5[“onehundred and eighty-two days”] had been substituted.]
(2)A Hinduundividedfamily, firm orother association of persons is said to be resident in India in any previous year inevery case except where during that year the control and management of its affairs is situated wholly outside India.
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2.Omitted by the Finance Act, 1982, w.e.f. 1-4-1983.
3.Substituted by the Direct Tax Laws (Second Amendment) Act,1989, w.e.f.1-4-1990.Priorto the substitution,theExplanation,as substituted by the Finance Act, 1982, w.e.f. 1-4-1983, read as under:
3[Explanation:Inthe case ofanindividual,beinga citizen of India –
(a)who leaves India in any previous year for thepurposes of employment outside India, the provisions of sub-clause (c) shall applyin relation to that year as ifforthewords “sixtydays”, occurring therein, the words “one hundredand eighty-two days’ had been substituted;
(b)who, being outside India, comes on a visit to Indiain any previous year, the provisions of sub-clause(c) shall applyinrelation to that year as if for thewords’sixty days”,occurring therein, the words “ninety days”hadbeen substituted.”
It was originally inserted by the Finance Act, 1978, w.e.f.1-4-1979.
4.Inserted by the Finance Act, 1990, w.e.f. 1-4-1990.
5.Substituted for “one hundred and fifty days” by the FinanceAct, 1994, w.e.f. 1-4-1995.
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(3)A companyissaid to be residentinIndiainany previous year, if –
(i)it is an Indian company; or
(ii)during that year, the control and management of its affairs is situated wholly in India.
(4)Everyother person is said to be resident in Indiain 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 deemedto be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.
(6)A person is said to be “not ordinarily resident” in India in any previous year if such person is –
(a)an individualwho has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; or
(b)a Hinduundivided family whose manager has not been residentinIndiain nine out of thetenpreviousyears precedingthatyear, or has not during thesevenprevious yearspreceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more.
7.Income deemed to be received
Thefollowingincomesshall be deemed to bereceivedinthe previous year –
(i)theannualaccretionin theprevious year to the balanceatthecredit of an employeeparticipating in a recognisedprovident 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 PartA of the Fourth Schedule.
Dividend income
8.Dividend income
1[Forthepurposesofinclusion in thetotalincome of an assessee –
(a)anydividend] 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 shallbedeemed to be the income of the previous year in which it is so declared, distributed or paid, as the case may be;
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1.Substituted for ‘Forthe purposes of inclusion in the total income of an assessee, any dividend’ by the Finance Act, 1965,w.e.f. 1-4-1965.
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1[(b)any interim dividend shall be deemed to be the income ofthe previous year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it.]
9.Income deemed to accrue or arise in India 2.
(1)The following incomes shall be deemed to accrue or arise in India –
3(i)all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through orfrom any asset or source of income in India 4[* orthroughthe transfer of a capital asset situate in India.
Explanation.-For the purposes of this clause –
(a)inthe case of a business of which all theoperations arenotcarried out in India, the incomeofthebusiness deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India;
(b)in the case of a non-resident, no income shall be deemedtoaccrue or arise in India to him throughorfrom operation,which are confined to the purchase of goods in India for the purpose of export; 5[* * *]
6[(c)inthe case of a non-resident, being a person engaged newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which areconfined to the collection of news andviewsin India for transmission out of India;]
7[(d)in the case of a non-resident, being –
(1)an individual who is not a citizen of India; or
(2)a firm which does not have any partner who is a citizen of India or who is resident in India; or
(3)a company which does not have any share holder who is a citizen of India or who is resident in India, no incomeshall be deemed to accrue or arise in India to such individual, firm or company through or fromoperations which are confined to the shooting of any cinematography film in India;]
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1.Inserted by the Finance Act, 1965, w.e.f. 1-4-196
4.Thewords”or through or from any money lent at interest and broughtintoIndia in cash or in kind” omitted by theFinanceAct, 1976, w.e.f. 1-6-1976.
5.Proviso omitted by the Finance Act, 1964, w.e.f. 1-4-1964.
6.Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1962.
7.Insertedby the Taxation Laws (Amendment) Act,1984,w.r.e.f. 1-4-1982.
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(ii)incomewhich falls under the head “Salaries” if it is earned in India.
1[Explanation.-Fortheremovalofdoubts, it is hereby declared that income of the nature referred to in this clause payablefor service rendered in India shall beregardedas income earned in India;]
(iii)income chargeable under the head “Salaries” payable by theGovernmentto a citizen of Indiaforserviceoutside India;
(iv)a dividend paid by an Indian company outside India;
2[(v)income by way of interest payable by –
(a)the Government; or
(b)a person who is a resident,except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or forthe purposes of making or earning anyincomefrom any source outside India; or
(c)a person who is a non-resident, where the interest ispayable in respect of any debt incurred, or moneys borrowed andused, for the purposes of abusinessor profession carried on by such person in India;
(vi)income by way of royalty payable by –
(a)the Government; or
(b)a person who is a resident, except where the royalty is payable in respect of any right, property or informationused or services utilised for the purposes of a business or profession carried on bysuchperson outsideIndia 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 ispayableinrespect of any right, property or informationused or services utilised for thepurposes of a business or profession carried on by such person in Indiaorforthe purposes of makingorearningany income from any source in India:
Provided that nothing contained in this clause shallapply inrelationto so much of the income by way of royalty as consistsof 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 relatingto any patent, invention, model, de sign, secret formula or process or trade mark or similar property, if such incomeis payable in pursuance of an agreementmadebefore the 1st day of April, 1976, and the agreement is approved by the Central Government:
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1.Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1979.
2.Clauses(v), (vi) and (vii) inserted by the FinanceAct,1976,w.e.f. 1-6-1976.
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1[Providedfurther that nothing contained in thisclauseshall applyinrelationto so much of the income bywayofroyalty as consists of lump sum payment made by a person, who is a resident,for thetransferofallor any rights (includingthegrantingofa licence) inrespect of computer software supplied by a nonresident manufacturer along with a computer or computer-based equipmentunder anyschemeapproved under the Policy onComputerSoftwareExport, Software Development and Training, 1986 of the Government of India.]
Explanation1.-Forthepurposes of the2[first]proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to havebeenmadebefore that date if theagreementismade in accordancewith proposals approved by the CentralGovernment 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 allowed under sub-section (1) or sub-section (2) of section 139 (whetherfixed 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 declarationin writing to the 3[Assessing] Officer (such option being final forthat assessment yearand for every subsequent assessment year)thatthe 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 excludingany considerationwhich would be the income of therecipientchargeable under the head “Capital gains”) for –
(i)thetransfer of all or any rights (including the granting of a licence) in respect of apatent, invention, model, design, secret formula or process or trade mark or similar property;
(ii)the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property;
(iii)the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;
(iv)the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;
(v)the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in 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
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1.Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
2.Substituted for “foregoing”, ibid.
3.Substitutedfor “Income-tax” by the Direct Tax Laws(Amendment) Act, 1987, w.e.f. 1-4-1988.
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(vi)therendering of any services in connection with the activities referred to in sub-clauses (i) to (v);
1[Explanation 3.-For the purposes of this clause, the expression “computer software” shall have the meaning assigned to it in clause (b) of the Explanation to section 80HHE;]
(vii)incomeby way of fees for technicalservicespayable by –
(a)the Government; or
(b)a person who is a resident, except where the fees are payableinrespect of services utilised inabusiness or profession carried on by such person outside India or for the purposes ofmaking or earning any incomefrom anysource outside India; or
(c)a personwho is a non-resident, wherethe fees are payableinrespect of services utilised inabusiness or professioncarriedon by such person in India or for the purposes of making or earning any income from any source in India:
2[Provided that nothing contained in this clause shall apply inrelationtoany income by wayoffees fortechnical services payable in pursuance of an agreement made before the 1st day of April,1976, andapproved by the Central Government.]
3[Explanation1.-For the purposes of the foregoingproviso, anagreement made on or after the 1st day of April, 1976, shallbedeemed to have been made before that dateif the agreement is made in accordance with proposalsapprovedby the Central Government before that date.]
Explanation4[2].-For the purposes of thisclause, “fees fortechnical services” means anyconsideration(including anylumpsumconsideration) for the rendering of any managerial, technical or consultancy services (includingthe provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient orconsiderationwhichwould be incomeoftherecipient chargeable under the head “Salaries”.]
(2)Notwithstandinganything 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 thepension is payable to a person referred to in Article 314 of theConstitution ortoaperson who, having been appointed before the15thdayof August,1947, to be a Judge of the Federal Court or of aHigh Court within the meaning of the Government of India Act, 1935, continuesto serveon or after the commencement of the Constitution as a Judgein India.
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1.Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
2.Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.
3.Ibid.
4.Ibid.
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Where a foreign agent of Indian exporter operates in his own countryand no part of his income arises in India and his commission is usually remitted directly to him and is not received by him oron his behalf in India, the agent is not liable to income-tax in India on the commission.
A non-resident will not be liable to tax in India, on any income attributable to operations confined to purchase of goods in India for export even though the nonresident has an office or agency in India forthispurpose.Where a non-resident allowsanIndian customer facilities of extended credit for payment there would be no assessment merely for this reason provided that the contracts to sell weremade outside India and the sales were made on aprincipaltoprincipal basis.
Section 9 does not seek to bring into the tax net the profits of a non-residentwhich cannot reasonably be attributedto operations carried out in India.Even if there be a business connection in India the wholeofthe profit accruing or arising from the business connection is not deemed to accrue or arise in India. It is only that portion of the profit which can reasonablybeattributedtothe operationsofthe business carried out in India which isliableto income-tax.
5.Themere existenceof an agency, establishedby a non-resident in India, will not be sufficient to make the non-resident liable to tax, if the sole function of the agency is to purchase goods for export.
6.Where shares in Indian companies are allotted in consideration for the machinery and plant, the income embedded inthe payments wouldbereceived in India as the shares in the Indian companies are located in India and would accordingly attract liability to income-tax as income received in India.

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