Clarification regarding 'Amounts not deductible' under sub-clause (i) of clause (a) of section 40 on Inocme-tax Act, 1961 ('Act') - regarding
Circular 3/2015 was issued by the Central Board of Direct Taxes on 12 February 2015. Its subject is Clarification regarding 'Amounts not deductible' under sub-clause (i) of clause (a) of section 40 on Inocme-tax Act, 1961 ('Act') - regarding.
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.
This is not the department’s typed text. The department published this one as a scanned image of a signed paper, so there is no text in the file to copy. What follows was read off that image by optical character recognition and is reproduced without correction — the mistakes you can see are the machine’s, and there may be others you cannot. It is here so the document can be found and read; it is not a substitute for the file, which is linked below. Do not quote from this page.
ircular No. 3/2 |
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
North Block, New Delhi
Dated the 12t of February, 2015
Subject: - Clarification regarding ‘Amounts not deductible’ under sub-clause |(i)
of clause (a) of section 40 of Income-tax Act, 1961 (‘Act’) -rega ding. |
Section 40(a)(i) of the Act stipulates that in computing the income chargeable un :
the head “Profits or gains of business or Profession”, any interest, yalty, fees for technital
Services or other sum chargeable under this Act either payable in India to a non-resid t (not being a company) /a foreig company or payable outside India; shall not be allowed a deduction, if there has been a failure in deduction or in payment of tax deducted in respe |
of such amounts under Chapter XVII-B of the Act.
2. Disallowance regarding ‘other sum chargeable’ under section 40(a)(i) is triggere when the deductor fails to withhold tax as per provisions of section 195 of the Act. Doub have been raised about the interpretation of the term ‘other sum c argeable’ i.e. whethe this term refers to the whole su being remitted or only the portio representing the su chargeable to income-tax under relevant Provisions of the Act.
8. Central Board of Direct Taxes has already issued Instruction No. 02/2014 date
26.02.2014 (F.No. 500/33/2013- TD-I) regarding deduction of tax fat source under sub-
Section (1) of section 195 read with section 201 of the Act relating to Payments made to non-residents in cases where no application is filed by the deducto for determining the
Sum so chargeable under sub-section (2) of section 195 of the Act. Vide this Instruction,
Board has clarified that in cases where tax is not deducted at source nder section 195 of the Act, the Assessing Officer shall etermine the appropriate portion of the sum chargeable to tax, as mentioned in sub-section (1) of section 195, to ascertain the ax-liability on which the deductor shall be deemed to be an assessee in default under section 201 of the Act. It has been further clarified that such appropriate Portion of the said sum will depend on the i facts and circumstances of each cas taking into account the nature of emittances, income component therein or any other fact relevant to determine such appropfiate proportion.
4. As disallowance of amount under section 40(a)(i) of the Act in Se of a deductor is interlinked with the sum char eable under the Act as mentioned in se¢tion 195 of the Act for the purposes of tax deduction at ource, the Central Board of Direct Taxes, in exercise of
Powers conferred under section 119 of the Act, hereby clarifies that for the Purpose of
Se
making disallowance of ‘other sum chargeable’ under sectio 40(a)(i) of the Act, the appropriate portion of ai sum which is chargeable to tax under the Act shall form the basis |
of such disallowance a shall be the same as determined by th Assessing Officer hav ng |
jurisdiction for the Purpdse of sub-section (1) of section 195 of he Act as per Instruction |
No. 2/2014 dated Sika ind 4 of CBDT. Further, where determination of ‘other sum |
chargeable’ has been ms under sub-sections (2), (3) or (7) of section 195 of the Act, such |
a determination will form th basis for disallowance, if any, under section 40(a)(i) of the |
Act. | |
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5. This may be brought to th notice of all concerned.
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6. Hindi version to follow, |
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a]
(Rohit Garg)
Deputy Secretary to the Government of Indi
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(F.No. 225/201/2014-ITA.I) |
Copy to:
1. Chairman and all Members of CBDT
2. O/o Pr. Director General of Income-tax (Sys lems) with request for uploadin:
on official website
. All Pr. Chief-Commissioners/Pr. Directors-General of Income-tax
. All Officers and Technical Sections of CBDT
- Director of Income tax (Inv.)/IT & Audit/Vi ance/Inv./RSP&PR/Recovery
- _ Director of Income tax (O&MS), New Delhi |
- _ ITCC Division of CBDT (3 copies) |
- NIC, M/o-Finance for uploading on Departments website |
. Database Cell for uploading on IRS Officers bsite |
10. Guard File yo (Rohit Garg)
Deputy Secretary to the overnment of India
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Source: the department’s scanned file.
Source: the Income Tax Department’s own published text — its page for this instrument.
