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Income Tax Act

Income Tax Act

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Income tax act 1961 Document Transcript

  • 1. INCOME-TAX ACT, 1961*[43 OF 1961][AS AMENDED BY FINANCE ACT, 2012]An Act to consolidate and amend the law relating to income-tax and super-taxBE it enacted by Parliament in the Twelfth Year of the Republic of India asfollows :—CHAPTER IPRELIMINARYShort title, extent and commencement.11. 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 dayof April, 1962.Definitions.2. In this Act, unless the context otherwise requires,—3[(1) "advance tax" means the advance tax payable in accordance with theprovisions of Chapter XVII-C;]4[5(1A)] 6"agricultural income"7means8—9[(a) any rent10or revenue10derived10from land10which is situated in Indiaand is used for agricultural purposes;](b) any income derived from such land10by—(i) agriculture10; or(ii) the performance by a cultivator or receiver of rent-in-kind of anyprocess ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to betaken to market10; or(iii) the sale by a cultivator or receiver of rent-in-kind of the produceraised or received by him, in respect of which no process has been
  • 2. performed other than a process of the nature described inparagraph (ii) of this sub-clause ;(c) any income derived from any building owned and occupied by thereceiver of the rent or revenue of any such land, or occupied by thecultivator or the receiver of rent-in-kind, of any land with respect towhich, 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 abuilding which the receiver of the rent or revenue or thecultivator, or the receiver of rent-in-kind, by reason of hisconnection with the land, requires as a dwelling house, or as astore-house, or other out-building, and(ii) the land is either assessed to land revenue in India or is subject toa local rate assessed and collected by officers of the Governmentas such or where the land is not so assessed to land revenue orsubject to a local rate, it is not situated—(A) in any area which is comprised within the jurisdiction of amunicipality (whether known as a municipality, municipalcorporation, notified area committee, town area committee,town committee or by any other name) or a cantonment boardand which has a population of not less than ten thousandaccording to the last preceding census of which the relevantfigures have been published before the first day of theprevious year ; or(B) in any area within such distance, not being more than eightkilometres, from the local limits of any municipality orcantonment board referred to in item (A), as the CentralGovernment may, having regard to the extent of, and scopefor, urbanisation of that area and other relevantconsiderations, specify in this behalf by notification in theOfficial Gazette11.]12[13[Explanation 1.]—For the removal of doubts, it is hereby declaredthat revenue derived from land shall not include and shall be deemednever to have included any income arising from the transfer of any landreferred to in item (a) or item (b) of sub-clause (iii) of clause (14) ofthis section.]14[Explanation 2.—For the removal of doubts, it is hereby declared thatincome derived from any building or land referred to in sub-clause (c)
  • 3. arising from the use of such building or land for any purpose (includingletting for residential purpose or for the purpose of any business orprofession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income.]15[Explanation 3.—For the purposes of this clause, any income derivedfrom saplings or seedlings grown in a nursery shall be deemed to beagricultural income;]16[17[(1B)] "amalgamation", in relation to companies, means the mergerof one or more companies with another company or the merger of twoor more companies to form one company (the company or companieswhich so merge being referred to as the amalgamating company orcompanies and the company with which they merge or which is formedas 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 of the amalgamation ;(ii) all the liabilities of the amalgamating company or companiesimmediately before the amalgamation become the liabilities of theamalgamated company by virtue of the amalgamation ;(iii) shareholders holding not less than 18[three-fourths] in value of theshares in the amalgamating company or companies (other thanshares already held therein immediately before the amalgamationby, or by a nominee for, the amalgamated company or itssubsidiary) become shareholders of the amalgamated company byvirtue of the amalgamation,otherwise than as a result of the acquisition of the property of onecompany by another company pursuant to the purchase of suchproperty by the other company or as a result of the distribution of suchproperty to the other company after the winding up of the first-mentioned company ;]19[(1C) "Additional Commissioner" means a person appointed to be anAdditional Commissioner of Income-tax under sub-section (1)of section 117 ;(1D) "Additional Director" means a person appointed to be an AdditionalDirector of Income-tax under sub-section (1) of section 117 ;]
  • 4. (2) "annual value", in relation to any property, means its annual value asdetermined under section 23 ;(3) 20[* * *](4) "Appellate Tribunal" means the Appellate Tribunal constitutedunder section 252 ;(5) "approved gratuity fund" means a gratuity fund which has been andcontinues to be approved by the 21[Chief Commissioner orCommissioner] in accordance with the rules contained in Part C of theFourth Schedule ;(6) "approved superannuation fund" means a superannuation fund or anypart of a superannuation fund which has been and continues to beapproved by the 21[Chief Commissioner or Commissioner] inaccordance with the rules contained in Part B of the Fourth Schedule ;22(7) "assessee"23means a person by whom 24[any tax] or any other sum ofmoney is payable under this Act, and includes—(a) every person in respect of whom any proceeding under this Acthas been taken for the assessment of his income 25[or assessmentof fringe benefits] or of the income of any other person in respectof which he is assessable, or of the loss sustained by him or bysuch other person, or of the amount of refund due to him or tosuch other person ;(b) every person who is deemed to be an assessee under anyprovision of this Act ;(c) every person who is deemed to be an assessee in default underany provision of this Act ;26[(7A) "Assessing Officer" means the Assistant Commissioner 27[or DeputyCommissioner] 28[or Assistant Director] 27[or Deputy Director] or theIncome-tax Officer who is vested with the relevant jurisdiction byvirtue of directions or orders issued under sub-section (1) or sub-section (2) ofsection 120 or any other provision of this Act, andthe 29[Additional Commissioner or] 30[Additional Director or] 31[JointCommissioner or Joint Director] who is directed under clause (b) ofsub-section (4) of that section to exercise or perform all or any of thepowers and functions conferred on, or assigned to, an Assessing Officerunder this Act ;]
  • 5. (8) "assessment"32includes reassessment ;(9) "assessment year" means the period of twelve months commencing onthe 1st day of April every year ;33[(9A) "Assistant Commissioner" means a person appointed to be an AssistantCommissioner of Income-tax 34[or a Deputy Commissioner of Income-tax] under sub-section (1) of section 117 ;]35[(9B) "Assistant Director" means a person appointed to be an AssistantDirector of Income-tax under sub-section (1) of section 117;](10) "average rate of income-tax" means the rate arrived at by dividing theamount of income-tax calculated on the total income, by such totalincome ;36[(11) "block of assets" means a group of assets falling within a class ofassets 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 commercialrights of similar nature,in respect of which the same percentage of depreciation is prescribed ;](12) "Board" means the 37[Central Board of Direct Taxes constituted underthe Central Boards of Revenue Act, 1963 (54 of 1963)] ;38[(12A) "books or books of account" includes ledgers, day-books, cash books,account-books and other books, whether kept in the written form or asprint-outs of data stored in a floppy, disc, tape or any other form ofelectro-magnetic data storage device;]39(13) "business"40includes any trade40, commerce or manufacture or anyadventure40or concern in the nature of trade40, commerce ormanufacture ;41(14) "capital asset" means property42of any kind held by an assessee,whether or not connected with his business or profession, but does notinclude—(i) any stock-in-trade, consumable stores or raw materials held for thepurposes of his business or profession ;
  • 6. 43[(ii) personal effects44, that is to say, movable property (includingwearing apparel and furniture) held for personal use44by theassessee or any member of his family dependent on him, butexcludes—(a) jewellery;(b) archaeological collections;(c) drawings;(d) paintings;(e) sculptures; or(f) any work of art.Explanation.—For the purposes of this sub-clause, "jewellery"includes—(a) ornaments made of gold, silver, platinum or any otherprecious metal or any alloy containing one or more ofsuch precious metals, whether or not containing anyprecious or semi-precious stone, and whether or notworked or sewn into any wearing apparel;(b) precious or semi-precious stones, whether or not set inany furniture, utensil or other article or worked or sewninto any wearing apparel;]45[(iii) agricultural land46in India, not being land situate—(a) in any area which is comprised within the jurisdiction ofa municipality46(whether known as a municipality,municipal corporation, notified area committee, town areacommittee, town committee, or by any other name) or acantonment board and which has a population46of notless than ten thousand according to the last precedingcensus of which the relevant figures have been publishedbefore the first day of the previous year ; or(b) in any area within such distance, not being more thaneight kilometres, from the local limits of any municipalityor cantonment board referred to in item (a), as the CentralGovernment may, having regard to the extent of, andscope for, urbanisation of that area and other relevantconsiderations, specify in this behalf by notification in theOfficial Gazette47;]48[(iv) 6½ per cent Gold Bonds, 1977,49[or 7 per cent Gold Bonds,1980,] 50[or National Defence Gold Bonds, 1980,] issued bythe Central Government ;]51[(v) Special Bearer Bonds, 1991, issued by the CentralGovernment ;]
  • 7. 52[(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme,1999 notified by the Central Government.]52a[Explanation.—For the removal of doubts, it is herebyclarified that "property" includes and shall be deemed to havealways included any rights in or in relation to an Indiancompany, including rights of management or control or anyother rights whatsoever;]53[54(15) 55"charitable purpose"56includes relief of the poor, education56,medical relief, 57[preservation of environment (including watersheds,forests and wildlife) and preservation of monuments or places orobjects of artistic or historic interest,] and the advancement of anyother 56object of general public utility:Provided that the advancement of any other object of general publicutility shall not be a charitable purpose, if it involves the carrying on ofany activity in the nature of trade, commerce or business, or anyactivity of rendering any service in relation to any trade, commerce orbusiness56, for a cess or fee or any other consideration, irrespective ofthe nature of use or application, or retention, of the income from suchactivity:]58[Provided further that the first proviso shall not apply if theaggregate value of the receipts from the activities referred to thereinis 59[twenty-five lakh rupees] or less in the previous year;]60[(15A) "Chief Commissioner" means a person appointed to be a ChiefCommissioner of Income-tax under sub-section (1) of section 117 ;]61[62[(15B)] "child", in relation to an individual, includes a step-child and anadopted child of that individual ;]63[(16) "Commissioner" means a person appointed to be a Commissioner ofIncome-tax 63a[or a Director of Income-tax] under sub-section (1)of section 117 64[* * *] ;]65[(16A) "Commissioner (Appeals)" means a person appointed to be aCommissioner of Income-tax (Appeals) under sub-section (1)of section 117 ;]66[(17) "company" means—(i) any Indian company, or
  • 8. (ii) any body corporate incorporated by or under the laws of acountry outside India, or(iii) any institution, association or body which is or was assessable orwas assessed as a company for any assessment year under theIndian Income-tax Act, 1922 (11 of 1922), or which is or wasassessable or was assessed under this Act as a company for anyassessment year commencing on or before the 1st day of April,1970, or(iv) any institution, association or body, whether incorporated or notand whether Indian or non-Indian, which is declared by general orspecial order of the Board to be a company :Provided that such institution, association or body shall bedeemed to be a company only for such assessment year orassessment years (whether commencing before the 1st day ofApril, 1971, or on or after that date) as may be specified in thedeclaration ;](18) "company in which the public are substantially interested"—a companyis said to be a company in which the public67are substantiallyinterested—68[(a) if it is a company owned by the Government or the ReserveBank of India or in which not less than forty per cent of the sharesare held (whether singly or taken together) by the Government orthe Reserve Bank of India or a corporation owned by that bank ;or]69[(aa) if it is a company which is registered under section 25 of theCompanies Act, 1956 (1 of 1956)70; or(ab) if it is a company having no share capital and if, having regard toits objects, the nature and composition of its membership andother relevant considerations, it is declared by order of the Boardto be a company in which the public are substantially interested :Provided that such company shall be deemed to be a company inwhich the public are substantially interested only for suchassessment year or assessment years (whether commencing beforethe 1st day of April, 1971, or on or after that date) as may bespecified in the declaration ; or]
  • 9. 71[(ac) if it is a mutual benefit finance company, that is to say, acompany which carries on, as its principal business, the businessof acceptance of deposits from its members and which is declaredby the Central Government under section 620A72of theCompanies Act, 1956 (1 of 1956), to be a Nidhi or Mutual BenefitSociety ; or]73[(ad) if it is a company, wherein shares (not being shares entitled to afixed rate of dividend whether with or without a further right toparticipate in profits) carrying not less than fifty per cent of thevoting power have been allotted unconditionally to, or acquiredunconditionally by, and were throughout the relevant previousyear beneficially held by, one or more co-operative societies ;]74[(b) if it is a company which is not a 75private company as defined inthe Companies Act, 1956 (1 of 1956), and the conditions specifiedeither in item (A) or in item (B) are fulfilled, namely :—(A) shares in the company (not being shares entitled to a fixedrate of dividend whether with or without a further right toparticipate in profits) were, as on the last day of the relevantprevious year, listed in a recognised stock exchange in Indiain accordance with the Securities Contracts (Regulation) Act,1956 (42 of 1956), and any rules made thereunder ;76[(B) shares in the company (not being shares entitled to a fixedrate of dividend whether with or without a further right toparticipate in profits) carrying not less than fifty per cent ofthe voting power have been allotted unconditionally to, oracquired unconditionally by, and were throughout the relevantprevious year beneficially held by—(a) the Government, or(b) a corporation established by a Central, State or ProvincialAct, or(c) any company to which this clause applies or anysubsidiary company of such company 77[if the whole ofthe share capital of such subsidiary company has beenheld by the parent company or by its nomineesthroughout the previous year.]Explanation.—In its application to an Indian company whosebusiness consists mainly in the construction of ships or in themanufacture or processing of goods or in mining or in thegeneration or distribution of electricity or any other form ofpower, item (B) shall have effect as if for the words "not less
  • 10. 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 underthe Co-operative Societies Act, 1912 (2 of 1912), or under any otherlaw for the time being in force in any State for the registration of co-operative societies ;78[(19A) "Deputy Commissioner" means a person appointed to be a DeputyCommissioner of Income-tax 79[* * *] under sub-section (1) of section117 ;80[(19AA) "demerger", in relation to companies, means the transfer, pursuant toa scheme of arrangement under sections 391 to 39481of the CompaniesAct, 1956 (1 of 1956), by a demerged company of its one or moreundertakings to any resulting company in such a manner that—(i) all the property of the undertaking, being transferred by thedemerged company, immediately before the demerger, becomesthe property of the resulting company by virtue of the demerger;(ii) all the liabilities relatable to the undertaking, being transferred bythe demerged company, immediately before the demerger,become the liabilities of the resulting company by virtue of thedemerger;(iii) the property and the liabilities of the undertaking or undertakingsbeing transferred by the demerged company are transferred atvalues appearing in its books of account immediately before thedemerger;(iv) the resulting company issues, in consideration of the demerger,its shares to the shareholders of the demerged company on aproportionate basis 81a[except where the resulting company itself isa shareholder of the demerged company];(v) the shareholders holding not less than three-fourths in value of theshares in the demerged company (other than shares already heldtherein immediately before the demerger, or by a nominee for, theresulting company or, its subsidiary) become share-holders of theresulting company or companies by virtue of the demerger,otherwise than as a result of the acquisition of the property orassets of the demerged company or any undertaking thereof by theresulting company;
  • 11. (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 CentralGovernment in this behalf.Explanation 1.—For the purposes of this clause, "undertaking" shallinclude any part of an undertaking, or a unit or division of anundertaking or a business activity taken as a whole, but does notinclude individual assets or liabilities or any combination thereof notconstituting a business activity.Explanation 2.—For the purposes of this clause, the liabilities referredto in sub-clause (ii), shall include—(a) the liabilities which arise out of the activities or operations of theundertaking;(b) the specific loans or borrowings (including debentures) raised,incurred and utilised solely for the activities or operations of theundertaking; and(c) in cases, other than those referred to in clause (a) or clause (b), somuch of the amounts of general or multipurpose borrowings, ifany, of the demerged company as stand in the same proportionwhich the value of the assets transferred in a demerger bears to thetotal value of the assets of such demerged company immediatelybefore the demerger.Explanation 3.—For determining the value of the property referred to insub-clause (iii), any change in the value of assets consequent to theirrevaluation shall be ignored.Explanation 4.—For the purposes of this clause, the splitting up or thereconstruction of any authority or a body constituted or establishedunder a Central, State or Provincial Act, or a local authority or a publicsector company, into separate authorities or bodies or local authoritiesor companies, as the case may be, shall be deemed to be a demerger ifsuch split up or reconstruction fulfils 82[such conditions as may benotified in the Official Gazette83, by the Central Government];(19AAA) "demerged company" means the company whose undertaking istransferred, pursuant to a demerger, to a resulting company;]
  • 12. (19B) "Deputy Commissioner (Appeals)" means a person appointed to be aDeputy Commissioner of Income-tax (Appeals) 84[or an AdditionalCommissioner of Income-tax (Appeals)] under sub-section (1)of section 117 ;]85[(19C) "Deputy Director" means a person appointed to be a Deputy Directorof Income-tax 86[* * *] under sub-section (1) of section 117 ;](20) 87"director", "manager" and "managing agent", in relation to acompany, have the meanings respectively assigned to them in theCompanies Act, 1956 (1 of 1956) ;88[(21) "Director General or Director" means a person appointed to be aDirector General of Income-tax or, as the case may be, a Director ofIncome-tax, under sub-section (1) of section 117, and includes a personappointed under that sub-section to be 89[an Additional Director ofIncome-tax or] a 90[Joint] Director of Income-tax or an AssistantDirector 91[or Deputy Director] of Income-tax ;](22) 92"dividend"93includes—(a) any distribution93by a company of accumulated profits93, whethercapitalised or not, if such distribution entails the release by thecompany to its shareholders of all or any part of the assets of thecompany ;(b) any distribution93to its shareholders by a company of debentures,debenture-stock, or deposit certificates in any form, whether withor without interest, and any distribution to its preferenceshareholders of shares by way of bonus, to the extent to which thecompany possesses accumulated profits93, whether capitalised ornot ;(c) any distribution93made to the shareholders of a company on itsliquidation, to the extent to which the distribution is attributable tothe accumulated profits of the company immediately before itsliquidation, whether capitalised or not ;(d) any distribution93to its shareholders by a company on thereduction of its capital, to the extent to which the companypossesses accumulated profits93which arose after the end of theprevious year ending next before the 1st day of April, 1933,whether such accumulated profits have been capitalised or not ;
  • 13. (e) any payment by a company, not being a company in which thepublic are substantially interested, of any sum (whether asrepresenting a part of the assets of the company orotherwise) 94[made after the 31st day of May, 1987, by way ofadvance95or loan to a shareholder95, being a person who is thebeneficial owner of shares (not being shares entitled to a fixed rateof dividend whether with or without a right to participate inprofits) holding not less than ten per cent of the voting power, orto any concern in which such shareholder is a member or a partnerand in which he has a substantial interest (hereafter in this clausereferred to as the said concern)] or any payment by any suchcompany on behalf, or for the individual benefit, of any suchshareholder, to the extent to which the company in either casepossesses accumulated profits96;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 cashconsideration, where the holder of the share is not entitled in theevent of liquidation to participate in the surplus assets ;97[(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to thecapitalised profits of the company representing bonus sharesallotted to its equity shareholders after the 31st day of March,1964, 98[and before the 1st day of April, 1965] ;](ii) any advance or loan made to a shareholder 99[or the said concern]by a company in the ordinary course of its business, where thelending of money is a substantial part of the business of thecompany ;(iii) any dividend paid by a company which is set off by the companyagainst the whole or any part of any sum previously paid by it andtreated as a dividend within the meaning of sub-clause (e), to theextent to which it is so set off;1[(iv) any payment made by a company on purchase of its own sharesfrom a shareholder in accordance with the provisions of section77A 2of the Companies Act, 1956 (1 of 1956);(v) any distribution of shares pursuant to a demerger by the resultingcompany to the shareholders of the demerged company (whetheror not there is a reduction of capital in the demerged company).]
  • 14. Explanation 1.—The expression "accumulated profits", wherever itoccurs in this clause, shall not include capital gains arising before the1st day of April, 1946, or after the 31st day of March, 1948, and beforethe 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 thedate of distribution or payment referred to in those sub-clauses, and insub-clause (c) shall include all profits of the company up to the date ofliquidation,3[but shall not, where the liquidation is consequent on thecompulsory acquisition of its undertaking by the Government or acorporation owned or controlled by the Government under any law forthe time being in force, include any profits of the company prior tothree successive previous years immediately preceding the previousyear in which such acquisition took place].4[Explanation 3.—For the purposes of this clause,—(a) "concern" means a Hindu undivided family, or a firm or anassociation of persons or a body of individuals or a company ;(b) a person shall be deemed to have a substantial interest in aconcern, other than a company, if he is, at any time during theprevious year, beneficially entitled to not less than twenty per centof the income of such concern ;]5[(22A) "domestic company" means an Indian company, or any other companywhich, in respect of its income liable to tax under this Act, has madethe prescribed arrangements for the declaration and payment, withinIndia, of the dividends (including dividends on preference shares)payable out of such income ;]6[(22AA) "document" includes an electronic record as defined in clause (t)7ofsub-section (1) of section 2 of the Information Technology Act, 2000(21 of 2000);]8[(22AAA) "electoral trust" means a trust so approved by the Board in accordancewith the scheme made in this regard by the Central Government;]9[10[(22B)] "fair market value", in relation to a capital asset, means—(i) the price that the capital asset would ordinarily fetch on sale in theopen market on the relevant date ; and
  • 15. (ii) where the price referred to in sub-clause (i) is not ascertainable,such price as may be determined in accordance with the rulesmade under this Act ;]11[(23) (i) "firm" shall have the meaning assigned to it in the Indian PartnershipAct, 1932 (9 of 1932)12, and shall include a limited liabilitypartnership13as defined in the Limited Liability Partnership Act, 2008(6 of 2009);(ii) "partner" shall have the meaning assigned to it in the IndianPartnership Act, 1932 (9 of 1932), and shall include,—(a) any person who, being a minor, has been admitted to the benefitsof partnership; and(b) a partner of a limited liability partnership13as defined in theLimited Liability Partnership Act, 2008 (6 of 2009);(iii) "partnership" shall have the meaning assigned to it in the IndianPartnership Act, 1932 (9 of 1932), and shall include a limited liabilitypartnership13as defined in the Limited Liability Partnership Act, 2008(6 of 2009);]14[(23A) "foreign company" means a company which is not a domesticcompany ;]15[(23B) "fringe benefits" means any fringe benefits referred to in section115WB;]16(24) "income"17includes17—(i) profits and gains17;(ii) dividend ;18[(iia) voluntary contributions received by a trust created wholly orpartly for charitable or religious purposes or by an institutionestablished wholly or partly for such purposes 19[or by anassociation or institution referred to in clause (21) or clause (23),or by a fund or trust or institution referred to in sub-clause (iv) orsub-clause (v) 20[or by any university or other educationalinstitution referred to in sub-clause (iiiad) or sub-clause (vi) or byany hospital or other institution referred to in sub-clause (iiiae) orsub-clause (via)] of clause (23C) of section 10 21[or by anelectoral trust]].
  • 16. 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 taxableunder clauses (2) and (3) of section 17 ;22[(iiia) any special allowance or benefit, other than perquisite includedunder sub-clause (iii), specifically granted to the assessee to meetexpenses wholly, necessarily and exclusively for the performanceof the duties of an office or employment of profit ;(iiib) any allowance granted to the assessee either to meet his personalexpenses at the place where the duties of his office or employmentof profit are ordinarily performed by him or at a place where heordinarily resides or to compensate him for the increased cost ofliving ;](iv) the value of any benefit or perquisite23, whether convertible intomoney or not, obtained from a company either by a director or bya person who has a substantial interest in the company, or by arelative of the director or such person, and any sum paid by anysuch company in respect of any obligation which, but for suchpayment, would have been payable by the director or other personaforesaid ;24[(iva) the value of any benefit or perquisite23, whether convertible intomoney or not, obtained by any representative assessee mentionedin clause (iii) or clause (iv) of sub-section (1) of section 160 or byany person on whose behalf or for whose benefit any income isreceivable by the representative assessee (such person beinghereafter in this sub-clause referred to as the "beneficiary") andany sum paid by the representative assessee in respect of anyobligation which, but for such payment, would have been payableby the beneficiary ;](v) any sum chargeable to income-tax under clauses (ii) and (iii)of section 28 or section 41 or section 59 ;25[(va) any sum chargeable to income-tax under clause (iiia) of section28 ;]26[(vb) any sum chargeable to income-tax under clause (iiib) of section28 ;]
  • 17. 27[(vc) any sum chargeable to income-tax under clause (iiic) of section28 ;]28[(vd)] the value of any benefit or perquisite taxable under clause (iv)of section 28 ;29[(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 amutual insurance company or by a co-operative society, computedin accordance with section 44 or any surplus taken to be suchprofits and gains by virtue of provisions contained in the FirstSchedule ;30[(viia) the profits and gains of any business of banking (includingproviding credit facilities) carried on by a co-operative societywith its members;](viii) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original sub-clause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;]31[(ix) any winnings from lotteries32, crossword puzzles, races includinghorse races, card games and other games of any sort or fromgambling or betting of any form or nature whatsoever.]33[Explanation.—For the purposes of this sub-clause,—(i) "lottery" includes winnings from prizes awarded to anyperson by draw of lots or by chance or in any other mannerwhatsoever, under any scheme or arrangement by whatevername called;(ii) "card game and other game of any sort" includes any gameshow, an entertainment programme on television or electronicmode, in which people compete to win prizes or any othersimilar game ;]34[(x) any sum received by the assessee from his employees ascontributions to any provident fund or superannuation fund or anyfund set up under the provisions of the Employees State InsuranceAct, 1948 (34 of 1948), or any other fund for the welfare of suchemployees ;]35[(xi) any sum received under a Keyman insurance policy includingthe sum allocated by way of bonus on such policy.
  • 18. Explanation.—For the purposes of this clause*, the expression"Keyman insurance policy" shall have the meaning assigned to itin theExplanation to clause (10D) of section 10 ;]36[(xii) any sum referred to in 37[clause (va)] of section 28;]38[(xiii) any sum referred to in clause (v) of sub-section (2) of section56;]39[(xiv) any sum referred to in clause (vi) of sub-section (2) of section56;]40[(xv) any sum of money or value of property referred to in clause(vii) 41[or clause (viia)] of sub-section (2) of section 56;]The following sub-clause (xvi) shall be inserted after sub-clause (xv) of clause (24) of section 2 by the Finance Act, 2012,w.e.f. 1-4-2013 :(xvi) any consideration received for issue of shares as exceeds the fairmarket value of the shares referred to in clause (viib) of sub-section (2) of section 56;(25) "Income-tax Officer" means a person appointed to be an Income-taxOfficer under 42[* * *] section 117 ;43[(25A) "India" means the territory of India as referred to in article 1 of theConstitution, its territorial waters, seabed and subsoil underlying suchwaters, continental shelf, exclusive economic zone or any othermaritime zone as referred to in the Territorial Waters, ContinentalShelf, Exclusive Economic Zone and other Maritime Zones Act, 1976(80 of 1976), and the air space above its territory and territorial waters;](26) "Indian company" means a company formed and registered under theCompanies Act, 1956 (1 of 1956), and includes—(i) a company formed and registered under any law relating tocompanies formerly in force in any part of India (other than theState of Jammu and Kashmir 44[and the Union territories specifiedin sub-clause (iii) of this clause]) ;45[(ia) a corporation established by or under a Central, State orProvincial Act ;(ib) any institution, association or body which is declared by theBoard to be a company under clause (17) ;]
  • 19. (ii) in the case of the State of Jammu and Kashmir, a companyformed and registered under any law for the time being in force inthat State ;46[(iii) in the case of any of the Union territories of Dadra and NagarHaveli, Goa†, Daman and Diu, and Pondicherry, a companyformed and registered under any law for the time being in force inthat Union territory :]Provided that the 47[registered or, as the case may be, principal officeof the company, corporation, institution, association or body] in allcases is in India ;48[(26A) "infrastructure capital company" means such company which makesinvestments by way of acquiring shares or providing long-term financeto any enterprise or undertaking wholly engaged in the businessreferred to in sub-section (4) of section 80-IA or sub-section (1)of section 80-IAB or an undertaking developing and building a housingproject referred to in sub-section (10) of section 80-IB or a project forconstructing a hotel of not less than three-star category as classified bythe Central Government or a project for constructing a hospital with atleast one hundred beds for patients;(26B) "infrastructure capital fund" means such fund operating under a trustdeed registered under the provisions of the Registration Act, 1908 (16of 1908) established to raise monies by the trustees for investment byway of acquiring shares or providing long-term finance to anyenterprise or undertaking wholly engaged in the business referred to insub-section (4) of section 80-IA or sub-section (1) of section 80-IAB oran undertaking developing and building a housing project referred to insub-section (10) of section 80-IB or a project for constructing a hotel ofnot less than three-star category as classified by the CentralGovernment or a project for constructing a hospital with at least onehundred beds for patients;](27) 49[* * *](28) "Inspector of Income-tax" means a person appointed to be an Inspectorof Income-tax under sub-section 50[(1)] of section 117 ;51[52(28A) "interest"52ameans interest payable in any manner in respect of anymoneys borrowed or debt incurred (including a deposit, claim or othersimilar right or obligation) and includes any service fee or other chargein respect of the moneys borrowed or debt incurred or in respect of anycredit facility which has not been utilised ;]
  • 20. 53[(28B) "interest on securities" means,—(i) interest on any security of the Central Government or a StateGovernment ;(ii) interest on debentures or other securities for money issued by oron behalf of a local authority or a company or a corporationestablished by a Central, State or Provincial Act ;]54[(28BB) "insurer" means an insurer, being an Indian insurance company, asdefined under clause (7A) of section 255of the Insurance Act, 1938 (4of 1938), which has been granted a certificate of registration undersection 3 of that Act;]56[(28C) "Joint Commissioner" means a person appointed to be a JointCommissioner of Income-tax or an Additional Commissioner ofIncome-tax under sub-section (1) of section 117;(28D) "Joint Director" means a person appointed to be a Joint Director ofIncome-tax or an Additional Director of Income-tax under sub-section(1) ofsection 117;](29) "legal representative" has the meaning assigned to it in clause (11) ofsection 2 of the Code of Civil Procedure, 1908 (5 of 1908)57;58[(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 ofa long-term capital asset ;]59[(29BA) "manufacture", with its grammatical variations, means a change in anon-living physical object or article or thing,—(a) resulting in transformation of the object or article or thing into anew and distinct object or article or thing having a different name,character and use; or(b) bringing into existence of a new and distinct object or article orthing with a different chemical composition or integral structure;]60[(29C) "maximum marginal rate" means the rate of income-tax (includingsurcharge on income-tax, if any) applicable in relation to the highestslab of income in the case of an individual 61[, association of personsor, as the case may be, body of individuals] as specified in the FinanceAct of the relevant year ;]
  • 21. 62[(29D) "National Tax Tribunal" means the National Tax Tribunalestablished under section 3 of the National Tax Tribunal Act, 2005;](30) "non-resident" means a person who is not a "resident" 63[, and for thepurposes of sections 92, 93 64[* * *] and 168, includes a person who isnot ordinarily resident within the meaning of clause (6) of section 6] ;65(31) "person"66includes—(i) an individual66,(ii) a Hindu undivided family66,(iii) a company,(iv) a firm67,(v) an association of persons67or a body of individuals67, whetherincorporated or not,(vi) a local authority, and(vii) every artificial juridical person, not falling within any of thepreceding sub-clauses.68[Explanation.—For the purposes of this clause, an association ofpersons or a body of individuals or a local authority or an artificialjuridical person shall be deemed to be a person, whether or not suchperson or body or authority or juridical person was formed orestablished or incorporated with the object of deriving income, profitsor gains;](32) "person who has a substantial interest in the company", in relation to acompany, means a person who is the beneficial owner of shares, notbeing shares entitled to a fixed rate of dividend whether with or withouta right to participate in profits, carrying not less than twenty per cent ofthe voting power ;(33) "prescribed" means prescribed by rules made under this Act ;(34) "previous year" means the previous year as defined in section 3 ;69(35) "principal officer", used with reference to a local authority or acompany or any other public body or any association of persons or anybody of individuals, means—
  • 22. (a) the secretary, treasurer, manager or agent of the authority,company, association or body, or(b) any person connected with the management or administration ofthe local authority, company, association or body upon whomthe70[Assessing] Officer has served a notice of his intention oftreating him as the principal officer thereof ;71(36) "profession" includes vocation72;73[(36A) "public sector company" means any corporation established by orunder any Central, State or Provincial Act or a Government com-pany74as defined in section 617 of the Companies Act, 1956 (1 of1956) ;](37) 75"public servant" has the same meaning as in section 21 of the IndianPenal Code (45 of 1860) ;76[(37A) "rate or rates in force" or "rates in force", in relation to an assessmentyear or financial year, means—(i) for the purposes of calculating income-tax under the first provisoto sub-section (5) of section 132, or computing the income-taxchargeable under sub-section (4) of section 172 or sub-section (2)of section 174 or section 175 or sub-section (2) of section 176 ordeducting income-tax under section 192 from income charge-ableunder the head "Salaries" 77[* * *] or 78[computation of the"advance tax" payable under Chapter XVII-C in a case not fallingunder 79[section 115A or section 115B 80[or section115BB 81[or section 115BBB] or section 115E] or] section164 80[or section 164A 82[* * *]] 83[or section 167B], the rate orrates of income-tax specified in this behalf in the Finance Act ofthe relevant year, and for the purposes of computation of the"advance tax" payable under Chapter XVII-C 84[in a case fallingundersection 115A or section 115B 85[or section115BB 86[or section 115BBB] or section 115E] or section164 85[or section 164A 87[* * *]]88[or section 167B], the rate orrates specified in section 115A or 89[section 115B or section115BB 90[or section 115BBB] or section 115E or section164 or section 164A 87[* * *] 88[or section 167B], as the case maybe,] or the rate or rates of income-tax specified in this behalf inthe Finance Act of the relevant year, whichever is applicable ;](ii) for the purposes of deduction of tax under sections193, 194, 194A 91[, 194B] 92[, 194BB] 93[and 194D], the rate or
  • 23. rates of income-tax specified in this behalf in the Finance Act ofthe relevant year ;]94[(iii) for the purposes of deduction of tax under section 195, the rate orrates of income-tax specified in this behalf in the Finance Act ofthe relevant year or the rate or rates of income-tax specifiedin 95[an agreement entered into by the Central Governmentunder section 90, or an agreement notified by the CentralGovernment under section 90A, whichever is applicable by virtueof the provisions of section 90, or section 90A, as the case maybe];]96(38) "recognised provident fund"96ameans a provident fund which has beenand continues to be recognised by the 97[Chief Commissioner orCommissioner] in accordance with the rules contained in Part A of theFourth Schedule, and includes a provident fund established under ascheme framed under the Employees Provident Funds Act, 1952 (19 of1952) ;(39) 98[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;](40) "regular assessment"96ameans the assessment made under 99[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;1[(41A) "resulting company" means one or more companies (including awholly owned subsidiary thereof) to which the undertaking of thedemerged company is transferred in a demerger and, the resultingcompany in consideration of such transfer of undertaking, issues sharesto the shareholders of the demerged company and includes anyauthority or body or local authority or public sector company or acompany established, constituted or formed as a result of demerger;](42) "resident" means a person who is resident in India within the meaningof section 6 ;2[3(42A) 4["short-term capital asset" means a capital asset held by an assesseefor not more than 5[thirty-six] months immediately preceding the dateof its transfer :]6[Provided that in the case of a share held in a company 7[or any othersecurity listed in a recognised stock exchange in India or a unit of the
  • 24. 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] 8[or a zero coupon bond], the provisions of this clauseshall have effect as if for the words "thirty-six months", the words"twelve months" had been substituted.]9[Explanation 1].—(i) In determining the period for which any capitalasset is held by the assessee—(a) in the case of a share held in a company in liquidation, there shallbe excluded the period subsequent to the date on which thecompany goes into liquidation ;(b) in the case of a capital asset which becomes the property of theassessee in the circumstances mentioned in 10[sub-section (1)]of section 49, there shall be included the period for which theasset was held by the previous owner referred to in the saidsection ;11[(c) in the case of a capital asset being a share or shares in an Indiancompany, which becomes the property of the assessee inconsideration of a transfer referred to in clause (vii) of section 47,there shall be included the period for which the share or shares inthe amalgamating company were held by the assessee ;]12[(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 subscribeto such financial asset or subscribed to by the person in whosefavour the assessee has renounced his right to subscribe to suchfinancial asset, the period shall be reckoned from the date ofallotment of such financial asset ;(e) in the case of a capital asset, being the right to subscribe to anyfinancial asset, which is renounced in favour of any other person,the period shall be reckoned from the date of the offer of suchright by the company or institution, as the case may be, makingsuch offer ;]13[(f) in the case of a capital asset, being a financial asset, allottedwithout any payment and on the basis of holding of any otherfinancial asset, the period shall be reckoned from the date of theallotment of such financial asset ;]
  • 25. 14[(g) in the case of a capital asset, being a share or shares in an Indiancompany, which becomes the property of the assessee inconsideration of a demerger, there shall be included the period forwhich the share or shares held in the demerged company wereheld by the assessee ;]15[(h) in the case of a capital asset, being trading or clearing rights of arecognised stock exchange in India acquired by a person pursuantto demutualisation or corporatisation of the recognised stockexchange in India as referred to in clause (xiii) of section 47, thereshall be included the period for which the person was a member ofthe recognised stock exchange in India immediately prior to suchdemutualisation or corporatisation;(ha) in the case of a capital asset, being equity share or shares in acompany allotted pursuant to demutualisation or corporatisation ofa recognised stock exchange in India as referred to in clause (xiii)of section 47, there shall be included the period for which theperson was a member of the recognised stock exchange in Indiaimmediately prior to such demutualisation or corporatisation;]16[(hb) in the case of a capital asset, being any specified security orsweat equity shares allotted or transferred, directly or indirectly,by the employer free of cost or at concessional rate to hisemployees (including former employee or employees), the periodshall be reckoned from the date of allotment or transfer of suchspecified security or sweat equity shares;](ii) In respect of capital assets other than those mentioned in clause (i), theperiod for which any capital asset is held by the assessee shall bedetermined subject to any rules which the Board may make in thisbehalf.]17[Explanation 2.—For the purposes of this clause, the expression"security"18shall have the meaning assigned to it in clause (h) ofsection 2 of the Securities Contracts (Regulation) Act, 1956 (42 of1956).]19[Explanation 3.—For the purposes of this clause, the expressions"specified security" and "sweat equity shares" shall have the meaningsrespectively assigned to them in the Explanation to clause (d) of sub-section (1) of section 115WB;]20[(42B) "short-term capital gain" means capital gain arising from the transferof a short-term capital asset ;]
  • 26. 21[(42C) "slump sale" means the transfer of one or more undertakings as aresult of the sale for a lump sum consideration without values beingassigned to the individual assets and liabilities in such sales.Explanation 1.—For the purposes of this clause, "undertaking" shallhave the meaning assigned to it in Explanation 1 to clause (19AA).Explanation 2.—For the removal of doubts, it is hereby declared thatthe determination of the value of an asset or liability for the solepurpose of payment of stamp duty, registration fees or other similartaxes or fees shall not be regarded as assignment of values to individualassets or liabilities ;]22[(43) "tax" in relation to the assessment year commencing on the 1st day ofApril, 1965, and any subsequent assessment year means income-taxchargeable under the provisions of this Act, and in relation to any otherassessment year income-tax and super-tax chargeable under theprovisions of this Act prior to the aforesaid date 23[and in relation to theassessment year commencing on the 1st day of April, 2006, and anysubsequent assessment year includes the fringe benefit tax payableunder section 115WA] ;]24[(43A) "tax credit certificate" means a tax credit certificate granted to anyperson in accordance with the provisions of Chapter XXII-B25and anyscheme made thereunder ;](43B) 26[* * *]27[(44) "Tax Recovery Officer" means any Income-tax Officer who may beauthorised by the Chief Commissioner or Commissioner, by general orspecial order in writing, to exercise the powers of a Tax RecoveryOfficer 28[and also to exercise or perform such powers and functionswhich are conferred on, or assigned to, an Assessing Officer under thisAct and which may be prescribed];](45) "total income" means the total amount of income referred to in section5, computed in the manner laid down in this Act ;(46) 29[* * *]30(47) 31["transfer"32, in relation to a capital asset, includes,—(i) the sale32, exchange32or relinquishment32of the asset ; or(ii) the extinguishment of any rights therein32; or
  • 27. (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 byhim, such conversion or treatment ;] 33[or]34[(iva) the maturity or redemption of a zero coupon bond; or]35[(v) any transaction involving the allowing of the possession of anyimmovable property to be taken or retained in part performance ofa contract of the nature referred to in section 53A36of the Transferof Property Act, 1882 (4 of 1882) ; or(vi) any transaction (whether by way of becoming a member of, oracquiring shares in, a co-operative society, company or otherassociation of persons or by way of any agreement or anyarrangement or in any other manner whatsoever) which has theeffect of transferring, or enabling the enjoyment of, anyimmovable property.36a[Explanation 1].—For the purposes of sub-clauses (v) and (vi),"immovable property" shall have the same meaning as in clause (d)of section 269UA.]36b[Explanation 2.—For the removal of doubts, it is hereby clarifiedthat "transfer" includes and shall be deemed to have always includeddisposing of or parting with an asset or any interest therein, or creatingany interest in any asset in any manner whatsoever, directly orindirectly, absolutely or conditionally, voluntarily or involuntarily, byway of an agreement (whether entered into in India or outside India) orotherwise, notwithstanding that such transfer of rights has beencharacterised as being effected or dependent upon or flowing from thetransfer of a share or shares of a company registered or incorporatedoutside India;]37[(48) "zero coupon bond" means a bond—(a) issued by any infrastructure capital company or infrastructurecapital fund or public sector company 38[or scheduled bank] on orafter the 1st day of June, 2005;(b) in respect of which no payment and benefit is received orreceivable before maturity or redemption from infrastructurecapital company or infrastructure capital fund or public sectorcompany 38[or scheduled bank]; and
  • 28. (c) which the Central Government may, by notification39in theOfficial Gazette, specify in this behalf.40[Explanation.—For the purposes of this clause, the expression"scheduled bank" shall have the meaning assigned to it in clause(ii) of theExplanation to sub-clause (c) of clause (viia) of sub-section (1) of section 36.]]41["Previous year" defined.3. For the purposes of this Act, "previous year" means the financial yearimmediately preceding the assessment year :Provided that, in the case of a business or profession newly set up, or a source ofincome newly coming into existence, in the said financial year, the previous yearshall be the period beginning with the date of setting up of the business orprofession or, as the case may be, the date on which the source of income newlycomes into existence and ending with the said financial year.]CHAPTER IIBASIS OF CHARGECharge of income-tax.424. 43(1) Where any Central Act enacts that income-tax44shall be charged for anyassessment year at any rate or rates, income-tax at that rate or those rates shall becharged for that year 45in accordance with, and 46[subject to the provisions(including provisions for the levy of additional income-tax) of, this Act] in respectof the total income45of the previous year 47[* * *] of every person :Provided that where by virtue of any provision of this Act income-tax is to becharged 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 bededucted at the source or paid in advance, where it is so deductible or payableunder any provision of this Act.Scope of total income.485. 49(1) Subject to50the provisions of this Act, the total income45of any previousyear of a person who is a resident includes all income from whatever sourcederived which—
  • 29. (a) is received51or is deemed to be received51in India in such year by or onbehalf of such person ; or(b) accrues or arises51or is 51deemed to accrue or arise to him in India duringsuch year ; or(c) accrues or arises51to him outside India during such year :Provided that, in the case of a person not ordinarily resident in India within themeaning of sub-section (6)* of section 6, the income which accrues or arises tohim outside India shall not be so included unless it is derived from a businesscontrolled in or a profession set up in India.(2) Subject to50the provisions of this Act, the total income45of any previous yearof a person who is a non-resident includes all income from whatever sourcederived which—(a) is received51or is deemed to be received51in India in such year by or onbehalf of such person ; or(b) accrues or arises51or is 51deemed to accrue or arise to him in India duringsuch year.Explanation 1.—Income accruing or arising outside India shall not be deemed tobe received51in India within the meaning of this section by reason only of the factthat it is taken into account in a balance sheet prepared in India.Explanation 2.—For the removal of doubts, it is hereby declared that incomewhich has been included in the total income of a person on the basis that it hasaccrued52or arisen52or is deemed to have accrued52or arisen52to him shall notagain be so included on the basis that it is received or deemed to be received byhim in India.53[Apportionment of income between spouses governed by Portuguese CivilCode.5A. (1) Where the husband and wife are governed by the system of community ofproperty (known under the Portuguese Civil Code of 1860 as "COMMUNIAODOS BENS") in force in the State of Goa and in the Union territories of Dadra andNagar Haveli and Daman and Diu, the income of the husband and of the wifeunder any head of income shall not be assessed as that of such community ofproperty (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 (otherthan under the head "Salaries") shall be apportioned equally between the husbandand the wife and the income so apportioned shall be included separately in the total
  • 30. income of the husband and of the wife respectively, and the remaining provisionsof this Act shall apply accordingly.(2) Where the husband or, as the case may be, the wife governed by the aforesaidsystem of community of property has any income under the head "Salaries", suchincome shall be included in the total income of the spouse who has actually earnedit.]Residence in India.546. 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 hundredand eighty-two days or more ; or(b) 55[* * *](c) having within the four years preceding that year been in India for a period orperiods amounting in all to three hundred and sixty-five days or more, is in Indiafor a period or periods amounting in all to sixty days or more in that year.56[Explanation.—In the case of an individual,—(a) being a citizen of India, who leaves India in any previous year 57[as a memberof the crew of an 58Indian ship as defined in clause (18) of section 3 of theMerchant Shipping Act, 1958 (44 of 1958), or] for the purposes of employmentoutside India, the provisions of sub-clause (c) shall apply in relation to that year asif for the words "sixty days", occurring therein, the words "one hundred andeighty-two days" had been substituted ;(b) being a citizen of India, or a person of Indian origin within the meaningof Explanation to clause (e) of section 115C, who, being outside India, comes on avisit to India in any previous year, the provisions of sub-clause (c) shall apply inrelation to that year as if for the words "sixty days", occurring therein, the words"one hundred and 59[eighty-two] days" had been substituted.](2) A Hindu undivided family, firm or other association of persons is said to beresident in India in any previous year in every case except where during that yearthe control and management60of its affairs60is situated wholly60outside India.(3) A company is said to be resident in India in any previous year, if—(i) it is an Indian company ; or
  • 31. (ii) during that year, the control and management60of its affairs60is situatedwholly60in India.(4) Every other person is said to be resident in India in any previous year in everycase, except where during that year the control and management of his affairs issituated wholly outside India.(5) If a person is resident in India in a previous year relevant to an assessment yearin respect of any source of income, he shall be deemed to be resident in India in theprevious year relevant to the assessment year in respect of each of his other sourcesof income.61[(6) A person is said to be "not ordinarily resident" in India in any previous yearif such person is—(a) an individual who has been a non-resident in India in nine out of the tenprevious years preceding that year, or has during the seven previous yearspreceding 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 innine out of the ten previous years preceding that year, or has during the sevenprevious years preceding that year been in India for a period of, or periodsamounting in all to, seven hundred and twenty-nine 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 anemployee participating in a recognised provident fund, to the extent providedin rule 6 of Part A of the Fourth Schedule ;(ii) the transferred balance in a recognised provident fund, to the extent providedin sub-rule (4) of rule 11 of Part A of the Fourth Schedule ;62[(iii) the contribution made, by the Central Government 63[or any other employer]in the previous year, to the account of an employee under a pension schemereferred to in section 80CCD.]Dividend income.8. 64[For the purposes of inclusion in the total income of an assessee,—
  • 32. (a) any dividend] declared by a company or distributed or paid by it within themeaning 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 incomeof the previous year in which it is so declared, distributed or paid, as the casemay be ;65[(b) any interim dividend shall be deemed to be the income of the previous year inwhich the amount of such dividend is unconditionally made available by thecompany to the member who is entitled to it.]Income deemed to accrue or arise in India.669. 67(1) The following incomes shall be deemed68to accrue or arise in India :—69(i) all income accruing or arising, whether directly or indirectly70, through orfrom any business connection70in India, or through or from any property70inIndia, or through or from any asset or source of income in India, 71[* * *] orthrough the transfer of a capital asset situate in India.72[Explanation 1].—For the purposes of this clause—(a) in the case of a business of which all the operations73are not carried outin India, the income of the business deemed under this clause to accrueor arise in India shall be only such part of the income as is reasonablyattributable to the operations73carried out in India ;(b) in the case of a non-resident, no income shall be deemed to accrue orarise in India to him through or from operations which are confined tothe purchase of goods in India for the purpose of export ;74[* * *]75[(c) in the case of a non-resident, being a person engaged in the business ofrunning a news agency or of publishing newspapers, magazines orjournals, no income shall be deemed to accrue or arise in India to himthrough or from activities which are confined to the collection of newsand views in India for transmission out of India ;]76[(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 Indiaor who is resident in India ; or
  • 33. (3) a company which does not have any shareholder who is a citizenof India or who is resident in India,no income shall be deemed to accrue or arise in India to suchindividual, firm or company through or from operations77which areconfined to the shooting of any cinematograph film in India.]78[Explanation 2.—For the removal of doubts, it is hereby declared that"business connection" shall include any business activity carried outthrough a person who, acting on behalf of the non-resident,—(a) has and habitually exercises in India, an authority to concludecontracts on behalf of the non-resident, unless his activities arelimited to the purchase of goods or merchandise for the non-resident; or(b) has no such authority, but habitually maintains in India a stock ofgoods or merchandise from which he regularly delivers goods ormerchandise 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-residentscontrolling, controlled by, or subject to the same common control,as that non-resident:Provided that such business connection shall not include any businessactivity carried out through a broker, general commission agent or anyother agent having an independent status, if such broker, generalcommission agent or any other agent having an independent status isacting in the ordinary course of his business :Provided further that where such broker, general commission agent orany other agent works mainly or wholly on behalf of a non-resident(hereafter in this proviso referred to as the principal non-resident) or onbehalf of such non-resident and other non-residents which arecontrolled by the principal non-resident or have a controlling interest inthe principal non-resident or are subject to the same common control asthe 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 aperson referred to in clause (a) or clause (b) or clause (c)of Explanation 2, only so much of income as is attributable to theoperations carried out in India shall be deemed to accrue or arise inIndia.]
  • 34. 79[Explanation 4.—For the removal of doubts, it is hereby clarified thatthe expression "through" shall mean and include and shall be deemedto have always meant and included "by means of", "in consequence of"or "by reason of".Explanation 5.—For the removal of doubts, it is hereby clarified thatan asset or a capital asset being any share or interest in a company orentity registered or incorporated outside India shall be deemed to beand shall always be deemed to have been situated in India, if the shareor interest derives, directly or indirectly, its value substantially fromthe assets located in India;](ii) income which falls under the head "Salaries", if it is earned79ain India.80[Explanation.—For the removal of doubts, it is hereby declared thatthe 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 byservices rendered in India and forms part of the service contract ofemployment,shall be regarded as income earned in India ;](iii) income chargeable under the head "Salaries" payable by the Government toa citizen of India for service outside India ;(iv) a dividend paid by an Indian company outside India ;81[(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 inrespect of any debt incurred, or moneys borrowed and used, for thepurposes of a business or profession carried on by such person outsideIndia or for the purposes of making or earning any income from anysource outside India ; or(c) a person who is a non-resident, where the interest is payable in respectof any debt incurred, or moneys borrowed and used, for the purposes ofa business or profession carried on by such person in India ;(vi) income by way of royalty82payable by—
  • 35. (a) the Government ; or(b) a person who is a resident, except where the royalty is payable inrespect of any right, property or information used or services utilisedfor the purposes of a business or profession carried on by such personoutside India or for the purposes of making or earning any income fromany source outside India ; or(c) a person who is a non-resident, where the royalty is payable in respectof any right, property or information used or services utilised for thepurposes of a business or profession carried on by such person in Indiaor for the purposes of making or earning any income from any sourcein India :Provided that nothing contained in this clause shall apply in relation to somuch of the income by way of royalty as consists of lump sum considerationfor the transfer outside India of, or the imparting of information outside Indiain respect of, any data, documentation, drawing or specification relating toany patent, invention, model, design, secret formula or process or trade markor similar property, if such income is payable in pursuance of an agreementmade before the 1st day of April, 1976, and the agreement is approved by theCentral Government :83[Provided further that nothing contained in this clause shall apply inrelation to so much of the income by way of royalty as consists of lump sumpayment made by a person, who is a resident, for the transfer of all or anyrights (including the granting of a licence) in respect of computer softwaresupplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on ComputerSoftware Export, Software Development and Training, 1986 of theGovernment of India.]Explanation 1.—For the purposes of the 84[first] proviso, an agree-ment madeon or after the 1st day of April, 1976, shall be deemed to have been madebefore that date if the agreement is made in accordance with proposalsapproved by the Central Government before that date; so, however, that,where the recipient of the income by way of royalty is a foreign company, theagreement shall not be deemed to have been made before that date unless,before the expiry of the time allowed under sub-section (1) or sub-section (2)of section 139 (whether fixed originally or on extension) for furnishing thereturn 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 becomeschargeable to tax under this Act, whichever assessment year is later, thecompany exercises an option by furnishing a declaration in writing tothe85[Assessing] Officer (such option being final for that assessment year and
  • 36. for every subsequent assessment year) that the agreement may be regarded asan agreement made before the 1st day of April, 1976.Explanation 2.—For the purposes of this clause, "royalty" meansconsideration (including any lump sum consideration but excluding anyconsideration which would be the income of the recipient chargeable underthe head "Capital gains") for—(i) the transfer of all or any rights (including the granting of a licence) inrespect of a patent, invention, model, design, secret formula or processor trade mark or similar property ;(ii) the imparting of any information concerning the working of, or the useof, a patent, invention, model, design, secret formula or process or trademark or similar property ;(iii) the use of any patent, invention, model, design, secret formula orprocess or trade mark or similar property ;(iv) the imparting of any information concerning technical, industrial,commercial or scientific knowledge, experience or skill ;86[(iva) the use or right to use any industrial, commercial or scientificequipment but not including the amounts referred to in section 44BB;](v) the transfer of all or any rights (including the granting of a licence) inrespect of any copyright, literary, artistic or scientific work includingfilms or video tapes for use in connection with television or tapes foruse in connection with radio broadcasting, but not includingconsideration for the sale, distribution or exhibition of cinematographicfilms ; or(vi) the rendering of any services in connection with the activities referredto in sub-clauses (i) to 86[(iv), (iva) and] (v).87[Explanation 3.—For the purposes of this clause, "computer software"means any computer programme recorded on any disc, tape, perforated mediaor other information storage device and includes any such programme or anycustomized electronic data.]87a[Explanation 4.—For the removal of doubts, it is hereby clarified that thetransfer of all or any rights in respect of any right, property or informationincludes and has always included transfer of all or any right for use or rightto use a computer software (including granting of a licence) irrespective ofthe medium through which such right is transferred.
  • 37. Explanation 5.—For the removal of doubts, it is hereby clarified that theroyalty includes and has always included consideration in respect of anyright, property or information, whether or not—(a) the possession or control of such right, property or information is withthe payer;(b) such right, property or information is used directly by the payer;(c) the location of such right, property or information is in India.Explanation 6.—For the removal of doubts, it is hereby clarified that theexpression "process" includes and shall be deemed to have always includedtransmission by satellite (including up-linking, amplification, conversion fordown-linking of any signal), cable, optic fibre or by any other similartechnology, whether or not such process is secret;](vii) income by way of fees for technical services88payable by—(a) the Government ; or(b) a person who is a resident, except where the fees are payable in respectof services utilised in a business or profession carried on by suchperson88aoutside India or for the purposes of making or earning anyincome from any source outside India ; or(c) a person who is a non-resident, where the fees are payable in respect ofservices utilised in a business or profession carried on by such personin India or for the purposes of making or earning any income from anysource in India :89[Provided that nothing contained in this clause shall apply in relation to anyincome by way of fees for technical services payable in pursuance of anagreement made before the 1st day of April, 1976, and approved by theCentral Government.]89[Explanation 1.—For the purposes of the foregoing proviso, an agreementmade on or after the 1st day of April, 1976, shall be deemed to have beenmade before that date if the agreement is made in accordance with proposalsapproved by the Central Government before that date.]Explanation 89[2].—For the purposes of this clause, "fees for technicalservices" 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 doesnot include consideration for any construction90, assembly, mining or like
  • 38. project undertaken by the recipient or consideration which would be incomeof the recipient chargeable under the head "Salaries".](2) Notwithstanding anything contained in sub-section (1), any pension payableoutside India to a person residing permanently outside India shall not be deemed toaccrue or arise in India, if the pension is payable to a person referred to in article314 of the Constitution or to a person who, having been appointed before the 15thday of August, 1947, to be a Judge of the Federal Court or of a High Court withinthe meaning of the Government of India Act, 1935, continues to serve on or afterthe commencement of the Constitution as a Judge in India.91[Explanation.—For the removal of doubts, it is hereby declared that for thepurposes of this section, income of a non-resident shall be deemed to accrue orarise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) andshall be included in the total income of the non-resident, whether or not,—(i) the non-resident has a residence or place of business or businessconnection in India; or(ii) the non-resident has rendered services in India.]If you enjoyed reading the first two chapters of Income Tax Act, 1961 and want the complete book,contact rajusnarayanan@financialconsultantindelhi.com or call 9810596775.