Statutory position — s.33AB(3) to (8): the five permitted withdrawals, the four barred purchases that are taxed back in full, the non-utilisation charge, and the eight-year lock-in on scheme assets
CBDT Circulars & InstructionsCuts both ways
My tea client took money out of the NABARD account and spent part of it on a car and on machinery for the head office, and sold a machine bought out of the account four years ago. What is taxed back, and in which year?
Sections 33AB(3) to (8) are where the deduction is lost, and each limb produces a deemed profit chargeable under "Profits and gains of business or profession" in a different year. Sub-section (3) allows withdrawal only for the purposes specified in the scheme or the deposit scheme, or in five listed circumstances — closure of business, death of the assessee, partition of a Hindu undivided family, dissolution of a firm and liquidation of a company. Sub-section (4) then catches misapplication: where an amount released by NABARD or withdrawn from the Deposit Account is used to purchase plant or machinery for office premises or residential accommodation including a guest-house, office appliances other than computers, plant or machinery whose whole actual cost is already allowed as a deduction in one previous year, or new plant or machinery for an industrial undertaking making an Eleventh Schedule article, "the whole of such amount so utilised" is deemed to be the profits and gains of that previous year. Sub-section (5) taxes back the whole amount withdrawn where the withdrawal is on closure of business or dissolution of a firm, expressly "as if the business had not closed or, as the case may be, the firm had not been dissolved". Sub-section (7) taxes back so much of a released or withdrawn amount as is not actually utilised for the business within that same previous year, with a proviso sparing amounts released on closure of the account on death, partition of a HUF or liquidation. And sub-section (8) imposes an eight-year lock-in on assets: an asset acquired in accordance with the scheme that is sold or otherwise transferred before eight years from the end of the previous year in which it was acquired brings back, as profits of the year of transfer, so much of the cost of the asset as is relatable to the section 33AB(1) deduction.
