Circular No. 11 | TaxSphere

What this is

Circular No. 11 was issued by the Central Board of Direct Taxes on 23 July 2001. Its subject is 11 dated 23 7 2001.

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.

What it does

Bars reopening of finished assessments to apply section 14A. Finance Act, 2001 inserted section 14A, denying deduction for expenditure incurred in relation to income that does not form part of total income, with effect from 1 April 1962; the Board explains it was made retrospective because a prospective insertion would have implied that such expenditure was allowable before. Instances came to notice of old assessments that had attained finality being reopened on the strength of the new section. The Board directs that assessments where the proceedings had become final before 1 April 2001 are not to be reopened under section 147 to disallow expenditure incurred to earn exempt income by applying section 14A.

Why it was issued

Reopening past completed assessments on the basis of the newly inserted section was likely to cause hardship to a large number of taxpayers and to increase avoidable litigation.

Who it reaches

Assessees whose assessments had become final before 1 April 2001
Assessees with exempt income and related expenditure in earlier years
Assessing Officers minded to issue notices under section 147 on the strength of section 14A
Assessees whose proceedings were still open on that date, who get no protection

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.14A	s.14
s.147	s.279

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 14A
Heads of Income
SECTION 14A l EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME
178. Clarification regarding restriction on re-opening of completed assessments on account of provisions of section 14A
1. The Finance Act, 2001 has inserted section 14A in the Income-tax Act, 1961 wherein it was specifically provided that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of total income under the Act. The amendment takes effect from 1-4-1962.
2. Section 14A was introduced retrospectively in order to clarify and state the position of law that any expenditure relatable to income which does not form part of total income cannot be set off against other taxable income. This section was not introduced with prospective effect, as that would have implied that before the introduction of the said provisions, expenditure incurred to earn exempt income was allowable.
3. Instances of reopening of old assessments, which had attained finality, after insertion of section 14A in the Act, have come to the notice of the Board. Reopening of past completed assessments, having attained finality, on the basis of newly inserted provisions of section 14A is likely to cause hardship to a large number of taxpayers and would result in increasing avoidable litigation.
4. The Board have considered this matter and hereby directs that the assessments where the proceedings have become final before the first day of April, 2001 should not be re-opened under section 147 of the Act to disallow expenditure incurred to earn exempt income by applying the provisions of newly inserted section 14A of the Act.
Circular : No. 11/2001, dated 23-7-2001.

What to watch

The cut-off is finality of the proceedings before 1 April 2001; a matter still pending on that date is outside the protection.
The bar is on reopening under section 147 to apply section 14A — it says nothing about the merits of a section 14A disallowance in a live assessment.
Section 14A itself remains retrospective from 1 April 1962; this circular restrains the machinery, not the charge.
A reopening on some other ground is not barred merely because a section 14A issue also exists in that year.

Where you meet it

On a notice under section 148 for an old year that proposes to disallow expenditure relating to exempt income.

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. 43/2016] [F.No. 370142/7/2016-TPL] / SO 1949(E) — [To BE Published in the Gazette of INDIA, Extraordinary, Part II, section 3, Sub-section (ii)] 2 June 2016
Circular 5/2014, dated 11-2-2014 — Section 14A of the Income-tax Act, 1961, read with rule 8d of the Income-tax Rules, 1962 - Expenditure incurred in relat 11 February 2014
Notification No. 45 — Amendment of the Income-tax Rules under section 14A of the Income-tax Act, 1961 24 March 2008
Notification No. 208 — Amendment of the Income-tax Rules under section 14A of the Income-tax Act, 1961 10 August 2006
Circular No. 8/2002 — Finance Act, 2002 27 August 2002
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

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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.