Section 295

Section 295 — the law in short

What the courts have decided on section 295, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v. Willamson Financial Services (Supreme Court) — a Chapter VI-A deduction on a tea company's composite income is allowed AFTER the Rule 8(1) sixty-forty apportionment, not against the whole composite income Supreme CourtHelps department
  Our tea company exports. Should the section 80HHC deduction be worked out on the whole composite income before Rule 8 splits it sixty-forty, or only on the forty per cent that is taxable?
  Only on the forty per cent. The Supreme Court held that the deduction under section 80HHC is required to be allowed AFTER the apportionment of income under Rule 8(1), and answered the issue in favour of the Department. The legal fiction in Rule 8(1) is confined to that rule: it assigns chargeability and computability only to the non-agricultural forty per cent, and it cannot be extended into section 80HHC(3)(a), because deductions under Chapter VI-A are made from gross total income and are not part of the computation of income under the head "Profits and gains of business".
• Arun Kumar v Union of India Supreme CourtHelps taxpayerSuperseded by amendment
  The officer has valued my company flat under Rule 3 and added the difference to my salary. I pay the licence fee my employer charges everybody. Must he first prove I actually got a concession in rent?
  On the law as the Supreme Court found it in 2006, yes: 'concession' in s.17(2)(ii) is a jurisdictional fact, and Rule 3 is only a machinery provision that cannot be reached until the officer has first found as a fact that a concession was given. That space was closed almost at once — the Finance Act 2007 inserted the very deeming provision the Court said the Act did not contain, with retrospective effect from 1 April 2002, so from AY 2002-03 a concession is deemed wherever the value computed under Rule 3 exceeds the rent recovered.
• Thiru Arooran Sugars Ltd v CIT, Madras Supreme CourtHelps department
  I grow sugarcane and crush all of it in my own mill, so I never sell any cane. My cost of cultivation is higher than the market price. Can the Assessing Officer still deduct the market value of the cane under rule 7 instead of my actual costs?
  Yes. Rule 7(2)(a) applies wherever the agricultural produce is of a kind ordinarily sold in the market in its raw state, and sugarcane is such a produce, so the deduction from composite profits is the average price at which cane was sold during the previous year, not the assessee's cultivation expenses. The Supreme Court held that 'market' in rule 7 does not require an open market where buyers and sellers congregate, that the controlled price under the Sugarcane Control Order is the market price, and that it makes no difference that the assessee was the only buyer in its region.
• Statutory position — s.194BA: winnings from online games, net winnings, and where s.194B stops CBDT Circulars & InstructionsCuts both ways
  The gaming platform deducted tax on my gross winnings from each game. Should it have been deducting on net winnings under s.194BA instead, and from when?
  Section 194BA was inserted by the Finance Act, 2023 with effect from 1 April 2023 and, notwithstanding anything contained in any other provision of the Act, requires a person paying income by way of winnings from any online game during the financial year to deduct tax on the NET WINNINGS in the payee's user account, computed in the manner prescribed, at the end of the financial year at the rates in force. Where there is a withdrawal from the user account during the year, deduction is at the time of withdrawal on the net winnings comprised in that withdrawal, as well as on the remaining net winnings in the user account computed in the prescribed manner at the end of the year — and from the same date the second proviso to s.194B takes online-game winnings out of s.194B altogether.
• Notification 67/2022 — the 194S forms CBDT Circulars & InstructionsCuts both waysNo later treatment found
  I deducted 1% under s.194S on a peer-to-peer purchase. Which challan and which certificate, and by when?
  Form 26QE and Form 16E, on a thirty-day clock. A specified person deducting under s.194S pays the tax within thirty days from the end of the month of deduction, accompanied by a challan-cum-statement in Form 26QE filed electronically within the same thirty days, and issues the certificate in Form 16E to the payee within fifteen days of that due date. Form 26Q was substituted at the same time to carry ss.194R and 194S for deductors who are not specified persons.
• Statutory position — Rule 7: where income is partly agricultural and partly business, the market value of the assessee's own produce comes out and nothing else does CBDT Circulars & InstructionsCuts both waysNo later treatment found
  We grow our own raw material and process it in our own factory. How is the business profit computed, and can we also claim the cultivation expenses?
  Rule 7 of the Income-tax Rules, 1962 governs income that is partly agricultural income as defined in section 2 and partly income chargeable under "Profits and gains of business". In determining the part chargeable to income-tax you DEDUCT the market value of the agricultural produce the assessee has raised, or received as rent-in-kind, which has been used as raw material in the business or whose sale receipts are included in the business accounts — and no further deduction is made for any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind. Sub-rule (2) then fixes "market value": where the produce is ordinarily sold in the market in its raw state, or after a process ordinarily employed to render it fit for market, it is the average price at which it was so sold during the relevant previous year; where it is not ordinarily so sold, it is the aggregate of the expenses of cultivation, the land revenue or rent paid for the area in which it was grown, and such amount as the Assessing Officer finds to represent a reasonable profit.
• Statutory position — Rule 8: tea grown and manufactured by the seller, forty per cent taxable and sixty per cent agricultural, and the sub-rule (2) replanting allowance CBDT Circulars & InstructionsCuts both waysNo later treatment found
  Our client grows tea and manufactures it in its own factory. What proportion of the composite income is taxable under the Income-tax Act, and what does sub-rule (2) allow for replanting?
  Rule 8(1) of the Income-tax Rules, 1962 provides that income derived from the sale of tea GROWN AND MANUFACTURED BY THE SELLER IN INDIA shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax. The balance sixty per cent is agricultural income, exempt under s.10(1) and within the States' taxing power. Sub-rule (2) directs that in computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and that in determining that cost no deduction shall be made in respect of any subsidy which, under clause (30) of section 10, is not includible in total income.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.