Financial Year 1971-72
Circular No. 59 was issued by the Central Board of Direct Taxes on 3 June 1971. Its subject is Financial Year 1971-72.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Forwards a draft circular letter to be issued at once to every Treasury Officer and Sub-Treasury Officer, setting out the rates for deducting income-tax and surcharge from interest on Government securities after 28 May 1971 under the Finance (No. 2) Bill, 1971. For a resident other than a company the rate on interest other than on a tax-free security is 20 per cent with surcharge at 3 per cent; for a non-resident other than a company, 30 per cent with surcharge at 4.5 per cent, or the rates in Paragraph A of Part III of the First Schedule applied as if the interest were the total income, whichever is higher, and on a tax-free security 15 per cent with surcharge at 2.25 per cent; for a domestic company 22 per cent, and for a company that is not a domestic company 44 per cent on tax-free securities and 70 per cent on others, all without surcharge. Deduction is at those rates except where an exemption or abatement certificate under section 197(1) is produced: certificates issued before 1 April 1971 are acted on if operative for the year ending 31 March 1972, certificates issued later are followed as they stand, no tax is deducted where the payee is satisfied to be exempt under sections 10 to 13, and no tax is deducted on 4¼ per cent National Defence Bonds, 1972 and the Gold Bonds named where held by a resident individual who declares his holding.
It continues the Board's circular No. 54 dated 16 March 1971 and puts the rates proposed by the Finance (No. 2) Bill, 1971 into the hands of the treasuries that actually pay the interest.
FINANCIAL YEAR 1971-72
1733. Instructions for deduction of tax at source from interest on securities during the financial year 1971-72 at the rates specified in Part III of First Schedule to Finance (No. 2) Bill, 1971
CLARIFICATION 1
In continuation of the Board’s Circular No. 54 [F. No. 275/37/71-ITJ], dated 16-3-1971 [Clarification 2], I am directed to forward a copy of draft circular letter setting out the rates at which income-tax and surcharge should be deducted from interest on Government securities after May 28, 1971. It is requested that a circular on the basis of this draft may be issued by you immediately to all Treasury Officers and Sub-Treasury Officers under your control, individually.
Circular : No. 59 [F. No. 275/37/71-ITJ], dated 3-6-1971.
DRAFT CIRCULAR REFERRED TO IN INSTRUCTIONS
1. I am to invite your attention to this Office Letter........regarding deduction of income-tax and surcharge from interest on Government securities during the financial year 1970-71.
2. According to the Finance (No. 2) Bill, 1971, income-tax is to be deducted from the entire amount of interest on securities at the following rates namely :Income-tax
Rate of income-tax
Rate of surcharge
I.
In the case of a person other than a company—
(i) where the person is resident—
on interest on security (excluding interest payable on a tax-free security)
20 per cent
3 per cent
(ii ) where the person is not resident in India—
(a) on interest on securities (excluding interest payable on a tax-free security)
income-tax at 30 per cent and surcharge at 4.5 per cent of the amount of theinterest,
or
income-tax and surcharge on income-tax in respect of the interest at the rates prescribed in Paragraph A of Part III of the First Schedule to the Finance No. 2 Bill, 1971, if such interest income had been the total income,
whichever is higher;
(b) on interest payable on a tax-free secutity
15 per cent
2.25 per cent
II.
In the case of a company—
(i) where the company is a domestic company—
on interest on securities (excluding interest payable on a tax-free security)
22 per cent
Nil
(ii) where the company is not a domestic company—
(a) on interest payable on a tax-free security
44 per cent
Nil
(b) on interest on other securities
70 per cent
Nil
3. The term "domestic company" for the present purposes, means an Indian company or any other company which, in respect of its income liable to income-tax under the Act, has made the prescribed arrangements for the declaration and payment within India, of the dividends (including dividends on preference shares) payable out of such income in accordance with the provisions of section 194.
4. In making payment or crediting interest on Government securities on or after May 28, 1971 you should, therefore, deduct income-tax at the rates specified above, except in the cases where an exemption or abatement certificate granted by an Income-tax Officer under sub-section (1) of section 197 is produced. The following instructions should be followed in this connection :
(1) Exemption or abatement certificates issued before April 1, 1971, authorising deduction of tax at a particular rate expressed as percentage of the amount of interest should be accepted and acted upon, if operative for the financial year ending on March 31, 1972.
(2) Where a certificate is issued by the Income-tax Officer on or after April 1, 1971 authorising deduction of tax at a specified rate in respect of any person, income-tax should be deducted at the rates specified therein.
(3) No tax should be deducted in cases in which from a certificate, issued by the Income-tax Officer or otherwise, you are satisfied that the payee is a person exempt from income-tax under sections 10 to 13.
(4) No tax should be deducted from any interest payable on 4¼ per cent National Defence Bonds, 1972 or 6½ per cent Gold Bonds, 1977 or 7 per cent Gold Bonds, 1980 where any such Bonds are held by a resident individual and in the case of the aforesaid Gold Bonds, where the holder thereof makes a declaration in writing before the person responsible for making the payment that the total nominal value of the 6½ per cent Gold Bonds, 1977 or, as the case may be, the 7 per cent Gold Bonds, 1980 held by him (including such Bonds, if any, held on his behalf by any other person) did not in either case exceed Rs. 10,000 at any time during the period to which the interest relates.
(5) No tax should be deducted from interest payable to a non-resident on 4¼ per cent National Defence Loans, 1968 and 4¾ per cent National Defence Loans, 1972 as the interest paid on these loans to non-residents is totally exempt from income-tax under Notification No. SO 3331, issued under section 10(4). In the case of residents receiving interest on these loans, deduction of tax has to be made at the prescribed rates, except when the recipient is an individual.
(6) No tax should be deducted from interest payable on National Savings Certificates (First Issue) including National Savings Certificates (First Issue) Bank Series or 7-year National Savings Certificates (Fourth Issue).
(7) No tax should be deducted from any interest payable on any other security of the Central or State Government where the security is held by a resident individual, and the holder makes a declaration in writing before you to the effect that :
(a) he has not previously been assessed under the 1961 Act, or under the 1922 Act;
(b) his total income of the previous year in which the interest is due is not likely to exceed the maximum amount not chargeable to income-tax; and
(c) the total nominal value of the securities held by him (including such securities, if any, as are held on his behalf, by any other person) did not exceed Rs. 2,500 at any time during the said previous year.
(8) No tax should be deducted from any sum payable by way of interest or dividends in respect of any securities or shares owned by a corporation established by or under a Central Act which under any law for the time being in force is exempt from income-tax on its income.
(9) Under section 288B, fractions of one rupee contained in the amount of tax (including advance tax and tax deducted at source) will have to be rounded off to the nearest rupee by ignoring amounts less than fifty paise and increasing amounts of fifty paise or more to one rupee. Hence, the amount of tax to be deducted at source should be rounded off to the nearest rupee in accordance with the aforesaid provision of the Act.
(10) In cases of doubt the Income-tax Officer should be consulted before making the deduction from interest on Government securities.
CLARIFICATION 2
1. Reference is invited to the Board’s Circulars F. No. 275/41/70-ITJ, dated 24-3-1970, 7-4-1970 and 8-6-1970, on the subject of deduction of tax from interest on securities.
2. As it may take some time before the Finance Bill for 1971-72, is introduced in Parliament and passed into law, it is desired that, till further instructions, deduction of tax from "interest on securities" may be made during the financial year 1971-72 at the same rates as were in force during the financial year 1970-71.
3. This may please be brought to the notice of all Treasury Officers and Sub-Treasury Officers under your control.
Circular : No. 54 [F. No. 275/37/71-ITJ], dated 16-3-1971.
Only in an old dispute about deduction on Government security interest paid in 1971-72.
Source: the Income Tax Department’s own published text — its page for this instrument.
