Circular No. 637 — Section 5 l Chargeable Expenditure

What this is

Circular No. 637 was issued by the Central Board of Direct Taxes on 2 September 1992. Its subject is Section 5 l Chargeable Expenditure.

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

Extends the diplomatic exemption from expenditure tax to officials of international organisations. Section 5 of the Expenditure Tax Act, 1987 keeps out of chargeable expenditure any expenditure incurred by persons within the purview of the Vienna Convention on Diplomatic Relations, 1961 or the Vienna Convention on Consular Relations, 1963. The Board has been advised that the exemption is available to officials of all international organisations to which section 18 of the Schedule to the United Nations (Privileges and Immunities) Act, 1947 applies, which covers diplomatic missions and their personnel and World Bank Mission staff staying in hotels on official duty. Expenditure incurred by such persons is therefore not chargeable expenditure.

Why it was issued

The question was whether World Bank Mission staff and officials of other international organisations came within the exemption in section 5.

Who it reaches

Hotels collecting expenditure tax from guests
World Bank Mission staff staying in hotels on official duty
Officials of international organisations covered by the 1947 Act
Assessing Officers under the Expenditure Tax Act

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.5	s.5
s.18	no counterpart recorded

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 5 l CHARGEABLE EXPENDITURE
Whether World Bank Mission Staff and other international organisations are exempt

Under the provisions of section 5 of the Expenditure Tax Act, 1987, any expenditure incurred by persons within the purview of the Vienna Convention on Diplomatic Relations, 1961, or the Vienna Convention on Consular Relations, 1963, is not to be considered as a chargeable expenditure for the levy of the expenditure tax. The Board has been advised that this exemption is available to the officials of all international organisations to which the provisions of section 18 of the Schedule to the United Nations (Privileges and Immunities) Act, 1947, apply. Under this section, Diplomatic Missions and their personnel and the World Bank Mission Staff staying in hotels on official duty are covered. The expenditure incurred by such persons is, therefore, not to be considered as a chargeable expenditure under the Expenditure Tax Act, 1987.
Circular : No. 637, dated 2-9-1992.

What to watch

This is an Expenditure Tax Act, 1987 circular; section 5 here is of that Act, not the Income-tax Act.
The exemption for World Bank Mission staff is tied to a stay in a hotel on official duty.
The reach of the exemption is defined by section 18 of the Schedule to the United Nations (Privileges and Immunities) Act, 1947, so the organisation must be one that section applies to.
Expenditure tax on hotel expenditure belongs to that period; the levy is not part of the present direct tax code.

Where you meet it

In a hotel's expenditure tax assessment where the levy was not collected from an international organisation's officials.

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. 13/2024 [F.No. C-14011/41/2018-V&L] / SO 312(E) — Ministry of Finance 19 January 2024
Notification No. 12/2024 [F.No. C-14011/46/2018-V&L] / SO 311(E) — Ministry of Finance 19 January 2024
Circular No. 22/2022 — Condonation of delay under section 119 2 b of the income tax act 1961 in filing of form no.10a 1 November 2022
Notification No. 93/2021 [F.No. 370142/34/2021-TPL(Part III)] / GSR 578(E) — Ministry of Finance 18 August 2021
Circular No. 3/2021 — Circular under section 10 of the direct tax vivad se vishwas act 2020 4 March 2021
Circular No. 21/2020 — Clarifications on provisions of the direct tax vivad se vishwas act 2020 4 December 2020

← Circular No. 638 · Circular No. 636 →

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.