Circular No. 547

What it does

Brings ex gratia grants back into wealth-tax. Circular No. 385C, dated 3-7-1984 had laid down the procedure for taxing assessees on properties left in erstwhile East Pakistan after the Indo-Pak conflict of 1965 and the relief given to them, and item (ii) of it said that an ex gratia grant received before the valuation date need not be brought to tax in the assessment for that date. Audit pointed out that this ran counter to section 2(e) of the Wealth-tax Act, under which 'asset' includes property of every description, so that cash received before the valuation date is part of regular wealth. The Ministry of Law advised that the absence of any right to claim the sum does not change its nature once received, and that an ex gratia payment, though voluntary on the Government's part, becomes an asset in the recipient's hands and is liable to wealth-tax. Item (ii) of the earlier circular is accordingly deleted.

Why it was issued

Audit raised the conflict between item (ii) of the 1984 circular and section 2(e) of the Wealth-tax Act, and the matter was settled in a tripartite meeting in the Ministry of Law.

Who it reaches

Displaced persons who left property in erstwhile East Pakistan after the 1965 conflict
Recipients of ex gratia grants from Government on that account
Wealth-tax Officers assessing such persons

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.2	s.2, s.346, s.355

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.

1343. Wealth-tax assessment in respect of property left in erstwhile East Pakistan after Indo-Pak conflict of 1965
1. Attention is invited to the Board’s Circular No. 385C dated 3-7-1984 laying down the procedure regarding taxation under the W.T. Act of assessees in respect of their properties left in erstwhile East Pakistan after Indo-Pak conflict of 1965 and the relief granted to them in respect of such properties.
2. Audit has pointed out that according to item (ii) of the circular the ex gratia grant received by the assessees before the valuation date need not be brought to tax in the assessment relevant to the valuation date. This instruction runs counter to section 2(e) of the Wealth-tax Act which provides that "asset" includes property of every description. Cash received before the valuation date would necessarily form part of regular wealth and will be liable to tax in any case.
3. The matter was considered in tripartite meeting in the Ministry of Law. The Ministry of Law has opined that the mere fact that a person has no right to claim a sum does not alter its nature after it has been received. No doubt, ex gratia payment is a payment made voluntarily by the Government. Nevertheless, once it is received by an assessee, it becomes asset in his hands and is, therefore, liable to wealth-tax.
4. The above circular is, therefore, modified to the extent that item (ii) stands deleted.

Circular : No. 547, dated 18-10-1989.

What to watch

This is a Wealth-tax Act circular, not an income-tax one.
Only item (ii) of Circular No. 385C, dated 3-7-1984 goes; the rest of that circular's procedure and relief stands.
What matters is receipt before the valuation date: once received, the money is cash in hand and is wealth.
The Wealth-tax Act has since been recast in terms this text does not carry.

Where you meet it

In a wealth-tax assessment of a displaced assessee where the ex gratia grant received is added to net wealth.

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. 89/2026-CBDT [F. No. 164/1/2026-ITA-1] / SO 3936(E) — Ministry of Finance 17 July 2026
Notification No. 75/2026 [F. No. 275/18/2026-IT(B)] / SO 3610(E) : TDS Exemption on Ship Lease Payments to IFSC Units — 4 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 3 July 2026
Notification No. 74/2026 [F. No. 275/16/2026-IT(B)] / SO 3609(E) : TDS Exemption on Aircraft Lease Payments to IFSC Units — 4 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 3 July 2026
Notification No. 65/2025 [F. No. 300196/4/2019-ITA-I] / S.O. 2739(E) — Ministry of Finance 19 June 2025
Notification No. 56 /2025 [F.No.300164/4/2024-ITA-1] / SO 2576(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 12 June 2025
Notification No. 52/2025 [F. No. 300164/5/2024-ITA-1] / SO 2447(E) — Ministry of Finance 30 May 2025

← Circular No. 548 · Circular No. 546 →

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.

What this is