Circulars and Notifications

 

I. Section 44 AB

CBDT Circular No. 561 dated 22-05-1990 reported in 184 ITR 2(St.)
The Circular clarifies that the companies following previous year different than financial year will have to get their accounts tax audited independently. The facility given under proviso to section 44AB permitting to issue of tax audit report on the basis of accounts audited under any other law will not be applicable to the companies following previous year different than financial year.
CBDT Circular No. 452, dated 17-3-1986 reported in 158 ITR 195 (St.)
Following clarifications are issued in connection with applicability of provisions of section 44AB to “Kachha arahita” and “Pucca arahita”.
So far as kachha arahitas are concerned, their turnover constitutes of gross commission received from the principal. Sales effected on behalf of the principal will not constitute kachha arahitas turnover.
Pucca arahitas generally act on principal to principal basis. In their cases therefore, total sales/turnover made by them will be turnover of their business.

II. Section 44AB Form No. 3CD

1. Clause 9 (a) and (b) : Books of Accounts

Notification No. SO17(E), dated 12-1-1977. (Reported in 106 ITR 26 ) (St)

Notification No. SO9102, dated 25-9-1992. (Reported in 107 CTR 83) (St)
Profession of authorized representative, profession of film artiste and company secretary are notified for maintenance of books specified in section 44AA.

MAINTENANCE OF BOOKS OF ACCOUNT – RULE 6 F

Notification No. 21/2002 dated 4-2-2002 reported 253 ITR (St.) 81.

Every person carrying on certain profession shall keep and maintain books of account for a period of six years as against the earlier limit of eight / sixteen years from the end of the relevant assessment year.

2. Clause 10: Presumptive Taxation

CBDT Circular No. 552 dated {Reported in 182 ITR 143, (St.)}
Section 44 BB: Foreign companies engaged in the Turnkey Power Projects
The Circular clarifies that approval by the Department of Power in the Ministry of Energy shall be the Central Government’s approval for the purposes of section 44BBB.

3. Clause 11(a) : Method of Accounting

  1. CBDT Instruction No. 1310, dated 26-2-1980 Rajendra Kumar Tulti vs. Eighth WTO, (1982) Reported in 1 ITD 213 (Bombay) (SB).
    In case of a film artiste following cash method of accounting and who is paid remuneration through annuity policy, amount of annual instalments received alone to be included in total income on receipt basis.
     

  2. CBDT Circular No. 409, dated 12-2-1985, reported in 153 ITR 4 (St)
    The circular provides that interest on cumulative deposit schemes of private sector undertakings should be taxed on accrual basis annually.
     

  3. Notification No. SO 69(E), dated 25-1-1996
    Following Accounting Standards are notified to be followed from the assessment year
    1997-98 by all assessees following mercantile system of accounting :
    Accounting Standard I relating to Disclosure of Accounting Policies.
    Accounting Standard II relating to Disclosure of Prior Period and Extra-ordinary items and changes in accounting policies.

4. Clause 13 : Scope of section 28

  1. Press Note issued by the Ministry of Finance dated 9-10-1952,
    It is clarified that bona fide customary collection by traders or businessmen devoted for charitable or education purposes are not subjected to tax. The Income Tax Officers are, however, to satisfy themselves about bona fides of such collections.
     

  2. CBDT Circular No. 599 dated 24-4-1991. Reported in 189 ITR 126 (St).

    CBDT Circular No. 655 dated 5-10-1993. Reported in 204 ITR 39 (St).

    The Assessing Officer should determine on the facts of each case whether securities held by banks are stock in trade or investments having regard to guidelines issued by the Reserve Bank of India from time to time.
     

  3. CBDT Instruction No 1971 dated 8-7-1976
    If the deposits received by a concern, in substance, partake the nature of a trading receipt rather than of a security deposit, the same should be taxable as revenue expenditure in the year of receipt.

5. Clause 14 : Depreciation

  1. CBDT Circular No. 9 dated 23-3-1943
    In respect of purchase of an asset under an agreement where the ownership of the asset is at once transferred to the lessee, depreciation should be allowed to the lessee on purchase price.
    Where the terms of the agreement provide that the equipment shall eventually become the property of the hirer or confer an option to purchase the equipment the transaction should be regarded as one of hire purchase. In such cases the periodical payments made by the hirer should for the tax purposes be regarded as made up of:

    1. Consideration for hire, to be allowed as a deduction in the assessment, and

    2. Payment on account of purchase to be treated as capital outlay depreciation being allowed to the lessee on the initial value (i.e., the amount for which the hired subject would have been sold for cash at the date of the agreement.)

    The allowances to be made in respect of hire should be the difference between the aggregate amount of the periodical payments under the agreement and the initial value, the amount of this allowance being spread evenly over the terms of agreement.
     

  2. CBDT Circular No. 609 dated 29-7-1991. Reported in 191 ITR 1 (St).

The Circular clarifies that tour operators or travel agents are entitled to depreciation on foreign motor cars owned by them and used for providing transportation services to tourists whether in package tour or otherwise.
CBDT Circular No. 655 dated 6-1-1992 Reported in 193 ITR 108 (St).
The Circular clarifies that “Motor Vans” are akin to Motor lorries” or Motor Buses and therefore qualify for higher rate of depreciation if they are used for providing transport services to tourists

   C.  CBDT Circular No. 652 dated 14-6-1993. Reported in 202 ITR 55 (St).

The Circular clarifies that higher rate of depreciation will be inadmissible on motor lorries used in the assessee’s business of transportation of goods on hire.

6. Clause 15 : Amount Inadmissible under sections 33AB, 33ABA, 33AC, 35, 35ABB, 35AC, 35CCA, 35CCB, 35D, 35E

Notification No. 111/F. No.225/192/99
ITA/II Reported in 242 ITR 62 (St)
CBDT has notified manufacture or production of an helicopter or aircraft as manufacture or production of article or thing for the purposes of section 35(2AB)(1)
Notification No. 240 Dated 1-10-2003
Reported in 263 ITR 128 (St)
Part III of Form No. 3AC being Audit Report u/s 33AB(2) of the Income-tax Act, 1961 has been modified.

7. Clause 17(a) : Expenditure of Capital Nature

  1. CBDT Instruction No. 943 dated 2-4-1976
    The Circular permits deduction of amount of deposit under OYT scheme for telephone connection in the year in which the deposit is made irrespective of the fact whether the telephone has been installed or not in that year. The Circular clarifies that in case of refund of deposit, the same will be subjected to tax under section 41(1) in the year of refund.

  2. CBDT Circular No 671 dated 27-10-1993 Reported in 115 CTR 3 (St).
    The circular permits deduction of amount of deposit under Tatkal Telephone Deposit Scheme for telephone connection in the year of payment. In case of refund of deposit, the same will be subjected to tax under section 41(1) in the year of refund.

  3. CBDT Circular No. 420 dated 4-6-1985 Reported in 115 ITR 43 (St).
    The circular permits deduction of amount of security deposit for telex connection in the year of payment. In case of refund of deposit, the same will be subjected to tax under section 41(1) in the year of refund.

8. Clause 17(f): Amount Inadmissible Under Section 40

CBDT Circular No. 91/58/66 – ITJ 19 dated 18-5-1967.
“Cess” does not fall within section 40(a)(ii).

9. Clause 17(g) : Payments to Partners – Section 40(b)

CBDT Circular No. 739 dated 25-3-1996. reported in 131 CTR 53 (St.)
The Circular provides that no deduction under section 40(b)(v) will be admissible to the firm unless partnership deed either specifies the amount of remuneration payable to each individual working partner or lay down the manner of quantifying such remuneration.

10. Clause 17(h): Amount inadmissible under section 40A(3)

  1. Press Note dated 2-5-1969 issued by the Government (Ministry of Finance) reported in 72 ITR 9 (St).
    On applicability of section 40A(3), clarification are given in the form of question – answer. The circular, inter alia, clarifies that :
    Section applies to all categories of expenditure involving payments for goods or services which are deductible in computing taxable income.
    Payments made for goods purchased on credit are also covered by the section.
    Loan transaction or hundi transactions are outside the scope of section 40A(3),
    Payments made by commission agents (arhatiyas) do not fall under section 40A(3),
    Payments made to grower or producer of agriculture produce are excluded.
     

  2. CBDT Circular No. 34 dated 5-3-1970 reported in 76 ITR 13 (St).
    Payments made to Railways on account of freight charges or for booking of wagons and payments of sales tax and excise duty are covered by clause (b) of rule 6DD exempting such payments from the purview of section 40A(3).
     

  3. CBDT Circular No. 33 dated 29-12-1969, reported in 75 ITR 5 (St).
    Bank may return paid cheques to their constituents to enable them to produce the same before the Income Tax officer in support of claim for payments being made by crossed cheques.
     

  4. CBDT Circular No. 250 dated 11-1-1979 reported 131 ITR 75 (St).
    Any payment for business expenditure made during the period when cheque clearing operations are suspended or other similar circumstances exist will not be covered by provisions of section 40A(3) subject, however, to establishing genuineness of payment and identity of payee.
     

  5. CBDT Instruction vide letter F. No. 142(14)/70–TPL dated 28-9-1970 reported in 78 ITR 14 (St.)
    Payments for business expenditure made during the period of suspension of cheque clearing and banking operations consequential to strike of banking employees and until clearance of cheques is resumed will be expended from operation of section 40A(3) subject, however, to establishing genuineness of payment and identity of payee.
     

  6. CBDT Circular No. 220, dated 31-5-1977 reported in 108 ITR 8 (St)
    Illustrative circumstances meeting with requirement of conditions laid down in Rule 6DD(j) spelt out in the circular. Guidelines were also provided to establish genuineness of the transaction.

11. Clause 17(i) : Provision for Gratuity Payment
CBDT Circular No. 169 dated 23-6-1975
The circular seeks to clarify that provisions of section 40A(7) do not apply to provision made for the purposes of contribution to approved gratuity funds or provisions for payment of gratuity due to employee in respect of gratuity payable during the previous year.

12. Clause 21(i): Disallowance under section 43B

CBDT Circular No. 496, dated 25-9-1987 reported in 169 ITR 53 (St)
The circular clarifies that where the State Governments make an amendment to the Sales Tax Act to the effect that the Sales Tax deferred under the scheme shall be treated as actually paid, such a provision will meet the requirement of section 43B.
CBDT Circular No. 674, dated 29-12-1993 reported in 205 ITR 119 (St)
The circulars clarifies that amount of sales tax liability converted into loan under Deferred Scheme notified by the State Governments through Government orders will meet with the requirement of section 43B.

13. Clause 23 : Hundi Borrowings

CBDT Circular No. 208, date 15-11-1976 reported in 107 ITR 195 (St)
CBDT Circular No 221, date 6-6-1977 reported in 108 ITR 10 (St)
The aforesaid circulars explain the term “Hundi” and exclude specified types of Darshani Hundi transactions from applicability of provisions of section 69D. CBDT has clarified that the transaction of Darshani Hundi has to be examined with reference to the facts and circumstances of the case so as to determine whether or not there is borrowing on hundi.

14. Clause 24(a) and 24(b) : Loans/Deposit of Rs.20,000/- or more taken or accepted/repayment thereof

  1. Notification No. SO 3607 dated 18-7-1986 reported in 164 ITR 4 (St)
    Section 269SS exempts notified institutions from the purview of the section. Notified institutions under clause (e) of proviso to section 269SS is Housing Development Finance Corporation Limited, Mumbai, in respect of its Home Savings Plan Scheme, Loan Linked Deposit Scheme and Certificate of Deposit Scheme including Cumulative Interest Scheme.
     

  2. CBDT Circular No. 522, dated 18-8-1988 reported in 173 ITR 44 (St.)
    The circular clarifies that amended provisions [as amended by the Direct Tax Laws (Amendment) Act, 1987] of sections 269SS and 269T will apply to loans taken or repaid on or after 1-4-1989.
     

  3. CBDT Circular No. 556, dated 23-2-1990
    The circular clarifies that sale proceeds by “Kachcha Arhatiya” of goods belonging to an agriculturist do not bear character of deposit and remittance thereof does not fall within the purview of section 269T.

15. Clause 25: Brought forward Losses or Depreciation allow-ance to the extent available

  1. CBDT Circular No. 26 dated 7-7-1955
    The Circular requires the Department to dopt mode of set off of losses within sections 70 and 71 which is most beneficial to the assessee.
     

  2. CBDT Circular No. 587 dated 11-2-1990 reported in 187 ITR 48 (St.)
    The Circular clarifies that subject to exceptions contained in sections 73 and 74A, provisions of section 71 will have precedence over provisions of sections 72 and 74 etc.
     

  3. CBDT Circular No. 13 (102) / - IT 53 dated 8-9-1954
    Hedging transactions in respect of raw materials or merchandise or in respect of stocks and shares or Stock Exchange transactions in the nature of jobbing or arbitrage are excluded from the purview of “Speculative Transactions”.

16. Annexure to Form No. 3CD
Notification No. 280/2004 dated 16-11-2004
It has been notified by the CBDT for the amendment in Form no. 3CA, in item no. 3, after the words, figures & letters “Form no. 3CD”, the words “and the Annexure thereto” shall be submitted. An annexure is added with a note that if the annexure is not filled up, the form will be considered as incomplete.

III. Other Reports

Audit Report u/s 80-I / 80-IA / 80-IB/80-IC

  1. Notification No. 240/2002 dated 6-9-2002 reported in 257 ITR (St.) 29
    The report of the audit of the accounts of an assessee other than assessee engaged in multi-plex theatres or convention centres u/ss 80-I/80-IA/80-IB shall be in Form number 10CCB.
    A separate report is to be furnished by each undertaking or enterprise accompanied by the Profit and Loss account and balance sheet of the undertaking/enterprise as if undertaking/enterprise were a distinct entity.
    In case of an enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining an infrastructure facility, a copy of the agreement with the Central Government or the State Government or the Local Authority shall also accompany in the above form as the case may be. In any other case, a copy of the agreement, approval or permission to carry on the said activity shall accompany the form.

  2. Notification No. SO 167(E) Dated 4-2-2005. reported in 272 ITR (St.) 25
    The amended Rule 18BBB now provides that report in the form No. 10CCB shall be furnished for claiming deduction u/s 80IC of the Act. Report in Form 10CCB has also been modified.

  3. Notification No. 156/2003 dated 18-6-2003 reported in 262 ITR (St.) 5
    The Notification No. 240/2002 dated 6-9-2002 (Reported in 257 ITR (St.) 29)
    Relating to report of the audit of the accounts in Form 10CCB will come in to force from
    6-9-2002 and not from 1st April, 2002 stated earlier.

  4. Prescribed conditions and particulars of Audit Report for Multiplex Theatres u/s 80 ib(7A) & 80 ib(14)(da) – Rule 18 db :
    Notification No. 398/2002 dated 20-12-2002 reported in 259 ITR (St.) 1
    The prescribed area, facilities and amenities for multiplex theatres have been laid down for claiming deduction u/s 80 IB(7A) and 80 IB(14)(da). For this purpose, audit report in Form No. 10CCBA has been prescribed.

  5. Audit Report for claiming deduction u/s 80 ib – rule 18dd
    Newly inserted Rule 18DD provides that Audit report for claiming deduction
    in the case of an undertaking deriving profits from the business of operating and maintaining a hospital in a rural area u/s 80IB (11B) shall be in Form No. 10CCBC.