Circular No. 2

Section 193 l Interest on Securities

What this is

Circular No. 2 was issued by the Central Board of Direct Taxes on 6 February 1969. Its subject is Section 193 l Interest on Securities.

This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.

What it does

Modifies Circular No. 2-P(XXXIV-4) of 1966 dated 16th May 1966, which had directed that where Government securities stand registered in a banking company's name, tax be deducted from the interest at the rates in force for the banking company irrespective of the beneficial owner's status. The Board now holds that this does not bar effect being given to an exemption or abatement certificate under section 197(1) issued in favour of the beneficial owner. Section 199 treats tax deducted from interest on securities and paid over as tax paid on behalf of the owner of the securities, and owner there takes in a beneficial owner. So a person holding securities in a collecting bank's name may apply under section 197(1), and where the Income-tax Officer is satisfied from the application and other evidence that the applicant is the beneficial owner and the bank only the nominal holder, he is to grant the certificate, on which the Public Debt Office may deduct at the certified rate or deduct nothing.

Why it was issued

A question was raised whether the 1966 instructions stopped the payer of interest on securities from taking notice of a certificate issued to the beneficial owner.

Who it reaches

Beneficial owners of Government securities held through collecting banks
Banking companies holding securities for constituents
The Public Debt Office paying interest on such securities
Income-tax Officers deciding applications under section 197(1)

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.193	s.393
s.197	s.395, s.400
s.199	s.390

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

SECTION 193 l INTEREST ON SECURITIES
1005. Whether instructions issued in 1966 to bar person responsible for paying interest from taking cognizance of tax exemption or abatement certificate issued by ITO in favour of beneficial owner of securities held by banking companies, etc., on behalf of their constituents
1. In Board’s Circular No. 2-P(XXXIV-4) of 1966, dated 16-5-1966, instructions were issued that where Government securities are registered in the name of a banking company, tax should be deducted at source from the interest at the "rates in force" applicable to the banking company irrespective of the status of the beneficial owner of the securities.
2. A question has been raised as to whether these instructions bar the person responsible for paying "interest on securities" from taking cognizance of tax exemption or abatement certificate issued by the Income-tax Officer under section 197(1), in favour of the beneficial owner of the securities. Section 199 provides that any tax deducted from "interest on securities" and paid to the Central Government shall be treated as a payment of tax on behalf of the owner of the securities. The expression "owner of the securities" occurring in section 199 would include a beneficial owner as well. Thus, a person who holds securities not in his own name but in the name of a collecting bank is entitled to apply for the grant of an abatement or exemption certificate under section 197(1). If the Income-tax Officer is satisfied, inter alia, on the basis of the application and other evidence adduced before him, that the applicant is the beneficial owner and that the collecting bank is only the nominal holder of the securities on behalf of the applicant, he will grant the appropriate certificates. At the time of payment of interest on such securities, it will be in order for the Public Debt Office to deduct tax at the rate specified in the certificates or deduct no tax, as the case may be.
3. Circular No. 2-P(XXXIV-4) of 1966 should be treated as modified to the extent mentioned above.
Circular : No. 2 [F.No. 1/164/68-TPL], dated 6-2-1969.

What to watch

The relief needs a certificate; without one the 1966 instruction stands and deduction follows the bank's status.
The officer must be satisfied both that the applicant is the beneficial owner and that the bank is a nominal holder only.
The 1966 circular is modified only to this extent and otherwise continues.
This turns on section 199 as it then stood, in which credit followed the owner of the securities; the credit provisions have been recast since.

Where you meet it

In an application under section 197(1) by a constituent whose securities are registered in a bank's name, and where credit for tax deducted on security interest is claimed by someone other than the registered holder.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 75/2020 [F. No. 370142/8/2020-TPL] / GSR 574(E) — Ministry of Finance 22 September 2020
Notification No. Notification No. 27/2018 [F. No. 275/27/2017-IT(B)] / SO 2938(E) — The Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 18 June 2018
Notification No. 28/2018 [F. No. 275/27/2017-IT(B)] / SO 2939(E) — Indian Railway Finance Corporation Limited 54EC Capital Gains Bond" issued by Indian Railway Finance Corporation Limited 18 June 2018
Notification 59/2017 [F. No. 370 142/8/2017-TPL] / GSR 826(E) — Ministry of Finance 4 July 2017
Notification No. 05 — IDBI Flexibonds 2004-2005" issued by Industrial Development Bank of India Limited specified under section 193 17 January 2005
Circular No. 4/2004 — Tax Deduction at Source on income from Deep Discount Bonds 13 May 2004

← Circular No. 3 · Circular No. 1 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.