Circular No. 175

The problem of arrears has been the subject matter of adverse criticism by the comptroller and AuditorGeneral of India and various Parliamentary Committee and as such has been constantly engaging the

What this is

Circular No. 175 was issued by the Central Board of Direct Taxes on 14 August 1975. Its subject is The problem of arrears has been the subject matter of adverse criticism by the comptroller and AuditorGeneral of India and various Parliamentary Committee and as such has been constantly engaging the.

What it does

An administrative direction to the field on tax recovery, prompted by arrears which had hovered around Rs. 800 crore for three or four years and then rose steeply, the figures set out year by year from 31 March 1971 to 31 March 1975. The Board's reading is that the pendency is partly because powers already in the Act are not being used. It points to three. The power of distraint and sale of movable property under section 226(5) and the Third Schedule has been very sparingly used, though it is a useful mode of collection in small accounts and even the threat of it helps recovery. The power of arrest and detention in civil prison under rule 73 of the Second Schedule has not been used adequately, and more frequent use would both recover money in the case at hand and have a salutary effect on other defaulters. Immovable property is attached in many cases but there is inordinate delay in putting it to sale, and the Board draws attention to rule 59(1) inserted by the Taxation Laws (Amendment) Act, 1975, under which the Central Government may bid for the property at a subsequent sale where an earlier sale fetched less than the reserve price. It also records that the arrears shown under certificates by Tax Recovery Officers exceed the whole of the arrear demand that could have been certified, and requires the six-monthly reconciliation of the Tax Recovery Officer's and Income-tax Officer's registers already directed, the first report being due on 31 October 1975.

Why it was issued

The problem of arrears had drawn adverse criticism from the Comptroller and Auditor General and from Parliamentary Committees, and the figures for 31 March 1975 showed a steep increase that the Board wanted reversed.

Who it reaches

Assessees in default with arrear demands outstanding
Tax Recovery Officers and Income-tax Officers maintaining certificate registers
Defaulters whose immovable property stood attached without being brought to sale

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.226	s.416

The instrument, as the Board published it

The department publishes this one only as a PDF, so the words below were read out of that PDF by machine. That reading can carry its own mistakes — a misread number, a broken line. Check the signed document before you rely on a figure in it. The reading also stopped short of the end of the document: what is below is the opening, not the whole of it.

Circular No.175, dated 14-8-1975
The problem of arrears has been the subject matter of adverse criticism by the comptroller and AuditorGeneral of India and various Parliamentary Committee and as such has been constantly engaging the
attention of the Board. As will be seen from the chart given below, the arrears had virtually got
stabilized around Rs. 800 crores during the past 3 to 4 years. However, the arrears as on 31.03.1975
have again registered a steep increase and this trend needs to be reversed:-
ARREARS OF INCOME TAX
As on Gross Net
(RUPEES IN CRORES)
31.03.1971 738.77 499.68
31.03.1972 805.37 438.60
31.03.1973 790.02 433.10
31.03.1974 815.60 471.13
31.03.1975 935.96 537.72
2. The Boar consider that the heavy pendency of tax arrears is partly due to the fact that the various
powers conferred under the Income-tax Act have not been fully utilized; some of such powers are
mention below:-
(i) Powers of Distraint and Sale of Movable Property referred to in Section 226(5) and
the Third Schedule to the I.T. Act, 1961 seem to have been very sparingly used. This
is a useful mode of collection especially where small accounts are involved. In fact,
the threat or use of this power would considerably help in the recovery of arrears.
(ii) It is also seen that the powers of arrest and detention in civil prison available under
rule 73 of the Second Schedule to the Income-tax Act, 1961 also do not appear to
have been utilized adequately. More frequent use of this Rule will not only enable
the Department to effect recoveries in cases wherever recourse to this power is taken
but also have a salutary effect on other defaulters as well. The Board, in their
confidential letter F.No. 403/27/73-ITCC dated the 17th September, 1973 has
already drawn your attention to this aspect.
(iii) While immovable properties are attached by Tax Recovery Officers in a large
number of cases, there is generally an inordinate delay in putting them to sale. In this
connection, your attention is invited to the insertion of Rule 59(1) by the 'Taxation
Laws Amendment Act, 1975' whereby the Central Government can bid for the
property at any subsequent sale of the bid if the earlier sale had been for a price
which was less than the reserve price. This rule has been included in the Annexure
where other changes made by the Taxation Laws Amendment Act, 1975 relating to
recovery has been listed.
3. It is also seen that the total amount of arrears under certificates as shown by the Tax Recovery
Officers are considerably more than the entire arrears demand which could have been certified. The
Board, in their circular letter F.No. 404/217/74-ITCC dated 18th November, 1974 ( Instruction No.
149) have already desired that there should be a six-monthly reconciliation of the registers of the Tax
Recovery Officer and the Income-tax officer. The first report in respect of such reconciliation is due on
31st October, 1975.

What to watch

This is an instruction to officers on using recovery powers, not a concession — nothing in it helps an assessee resist recovery.
The powers it revives are the harshest in the recovery code: distraint and sale of movables, and arrest and detention in civil prison under the Second Schedule.
The reconciliation it directs is about the department's own records, and the discrepancy it notes — certified arrears exceeding the arrear demand capable of certification — points to figures that were unreliable at the time.
It is a document of 1975; the figures and the reporting dates in it are of historical interest only, though the statutory recovery powers it describes remain in the Act.

Where you meet it

Only in tracing the department's recovery practice of that period; a modern reader meets these powers through the Second and Third Schedules themselves rather than through this circular.

What it names

Rules it names. Rule 59, 73 of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.

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. 194 — S.0.1176(E)—In exercise of the powers conferred by Section 295 read with sub-clauses (iv), (v), (vi) and (vi a) of claus 25 July 2006
Notification No. JR14 — A notification under section 226 of the Income-tax Act, 1961 4 April 1964
Notification No. 1376 — A notification under section 226 of the Income-tax Act, 1961 3 April 1964
Notification No. 128 — A notification under section 226 of the Income-tax Act, 1961 2 March 1964
Notification No. 1448 — A notification under section 226 of the Income-tax Act, 1961 19 February 1964
Notification No. TV461 — A notification under section 226 of the Income-tax Act, 1961 5 February 1964

← Circular No. 176 · Circular No. 174 →

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.