Circular No. 4/2006

Clarification Regarding the Meaning of the Expression "The Produce of Animal Husbandry’ Used in Sub-clause (ii) of Clause (f) of rule 6DD of the Income-tax Rules, 1962

What this is

Circular No. 4/2006 was issued by the Central Board of Direct Taxes on 29 March 2006. Its subject is Clarification Regarding the Meaning of the Expression "The Produce of Animal Husbandry’ Used in Sub-clause (ii) of Clause (f) of rule 6DD of the Income-tax Rules, 1962.

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

Settles what 'the produce of animal husbandry' means in sub-clause (ii) of clause (f) of rule 6DD. The Board takes the wider reading: the expression takes in livestock and meat, besides the hides and skins the rule names. So a cash payment above Rs. 20,000 made to a producer for buying such produce attracts no disallowance under section 40A(3) read with rule 6DD. The Board adds a limit: the exception is not available where the payee is not shown to be the producer and is only a trader, broker or other middleman, whatever he is called.

Why it was issued

Representations said some income-tax authorities were allowing cash purchases of livestock and meat under this sub-clause while others were disallowing them, the divergence being put down to the ambiguity in the expression.

Who it reaches

Meat and livestock traders paying producers in cash
Assessing Officers applying section 40A(3) to cash purchases of farm produce
Slaughterhouses and processors buying animals from farmers
Middlemen in the livestock trade, who are outside the relief

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.40A	s.29, s.36

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.

CLARIFICATION REGARDING THE MEANING OF THE EXPRESSION "THE PRODUCE OF ANIMAL HUSBANDRY’ USED IN SUB-CLAUSE (ii) OF CLAUSE (f) OF RULE 6DD OF THE INCOME-TAX RULES, 1962
CIRCULAR NO. 4/2006, DATED 29-3-2006
Disallowance of twenty percent of the expenditure under the provisions of sub-section (3) of section 40A is made in the computation of income in any case where a payment is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft for a sum exceeding twenty thousand rupees. However, payment otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft does not attract the aforesaid disallowance in certain circumstances prescribed under Rule 6DD of the Income-tax Rules, 1962. Such exceptions, inter alia, refer to payment made to the producer for the purchase of the produce of "animal husbandry (including hides and skins)….." under sub-clause (ii) of clause (f) of rule 6DD.
2. Representations have been received from certain quarters that some Income-tax authorities are permitting payment of cash beyond rupees twenty thousand for the purchase of livestock and meat by considering them to be covered under the aforesaid sub-clause and at the same time some others are making disallowances. Divergent decisions are being attributed to ambiguity regarding the meaning of the expression ‘the produce of animal husbandry’ used in sub-clause (ii) of clause (f) of rule 6DD.
3. The Board after examination of the issue are of the view that the expression ‘the produce of animal husbandry’ used under rule 6DD(f)( ii) would include ‘livestock and meat’ and in a case where payment exceeding rupees twenty thousand is made to a producer of the products of animal husbandry (including livestock, meat, hides and skins) otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft for the purchase of such produce, no disallowance should be attracted under section 40A(3) read with rule 6DD. It is further clarified that exception will not be available on the payment for the purchase of livestock, meat, hides and skins from a person who is not proved to be the producer of these goods and is only a trader, broker or any other middleman by whatever name called.

[F.No. 203/24/2005-ITA-II]

What to watch

The relief turns on the payee being the producer; if he is not proved to be one, the cash payment stands disallowed.
So the file needs material showing the seller reared or produced the goods, not merely that meat or livestock was bought.
The note is written against a section 40A(3) that disallowed twenty per cent of the payment over a Rs. 20,000 threshold, as the text itself sets out; check the text of the section and of rule 6DD as they stood for the year in hand.
The clarification is about rule 6DD(f)(ii) alone and does not touch the other exceptions in rule 6DD.

Where you meet it

In a scrutiny assessment where the Assessing Officer proposes a section 40A(3) disallowance on cash purchases of animals or meat, and in the appeal that follows.

What it names

Rules it names. Rule 6DD 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.

It mentions. Circular No. 4/2006

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.

Circular No. 27/2017 — Clarification on cash sale of agricultural produce by cultivators/agriculturists 3 November 2017
Circular No. 10/2008 — Clarification Regarding the Meaning of the Expression 'Fish or Fish Products' Used in Sub-clause (iii ) of Clause (f) of 5 December 2008
Notification No. 98 — Income-tax (Eighth Amendment) Rules, 2008 - Insertion of rule 18DDA and Form No. 10CCBD 22 October 2008
Circular No. 3/2008 — Explanatory Notes to the Provisions of the Finance Act, 2007 12 March 2008
Circular No. 8/2006 — 8/2006 dated 06 10 2006 6 October 2006
Notification No. 58 — Amendment of the Income-tax Rules under section 40A of the Income-tax Act, 1961 17 February 2005

← Circular No. 5/2006 · Circular No. 3/2006 →

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.