Vol 1

THIS BOOK HAS BEEN A REALITY
ONLY BECAUSE OF MY FAMILY &

STUDENTS.
CA SURAJ AGRAWAL
PREFACE
Taxation is a dynamic subject, which is not only a vast subject but also difficult to
comprehend in view of frequent amendments. Yet it is the scoring subject of your
syllabus. In addition, practice in the field of Taxation is also highly remunerative.
My association with the students has helped me to bring this book in its present form –
simplified, comprehensive and easy to understand.
The present edition of this book (as amended - Assessment Year 2020-21) is
designed to bridge the gap between theory & applications and incorporates the
following:
 Introduction & Tax Rates

 Taxability of Agriculture Income
 Clubbing of Income
 Set-off of losses & Carry forward
 TDS & TCS
 Charitable Trust
 Deductions [Section 80C to 80U] including Income Based Deduction
[Section 80IA - 80RRB] & Deduction u/s 10AA
Hope this book serves the purpose of the students. I shall be thankful to the readers for
their suggestions, criticism and feedback if any.
Email: suraj.agrawal@hotmail.com
Contact: 85272 30445; 01147542530
ACKNOWLEDGEMENT
This book is a result of sincere efforts of our family members, colleagues, associates,
well-wishers and students, whose contribution cannot go unacknowledged.
Master Reyaan, my wife CA Monika Agrawal and my mother deserve special mention
for the time (on which they had the first right) they allowed me for this book.
I dedicate this book to my beloved late grandparents & Papa.
CA Suraj Agrawal
Updated as on 16.06.2020 (10th Edition – 3rd Print)
“One more step towards success”

PROFILE – CA SURAJ AGRAWAL
CA Suraj Agrawal is a Commerce Graduate [B.Com (H)] from Kolkata University and has
qualified CA in November 2005 in First Attempt from Kolkata. He has also secured All India 27th
Rank in CA-Foundation – 1st level (First Attempt – 70% marks).
Besides CA, he has completed Certification Course of International Taxation of the ICAI in
2009. He has also qualified CPA (Certified Public Accountant) examination from AICPA
(USA) in 2009 with more than 90 Marks in each of four papers in First Attempt [Presently, he is
inspired to complete CIMA, London as well as LLM in International Taxation (UK) by Year
2024]
He has started his career by joining Direct Tax Department of Reliance Industries Limited,
Mumbai and worked for near 2 years in core tax team. He has also worked in Taxation Division
of Chaturvedi & Shah (Chartered Accountants), Delhi followed by Tax Division of Ernst &
Young, Gurgaon, India (A Leading Big 4 Firm having International Presence). During the
working tenure of more than 4 years, he is exposed to in-depth theoretical and practical
knowledge of Direct Taxation & has a consultancy exposure in various industries including
Energy - Oil & Gas, Airlines, Retail, Infrastructure and Shipping Industries.
With the above academic and practical knowledge, he is in teaching profession since 2010 to
serve professional students (taught 15,000 CA/CMAs Students till date). His in-depth
coverage of legal provisions in Tax with practical approach is very well recognized
among the students. He is also an associate member of ICAI and is also providing services as
Tax Consultant to various organisations.
He was also a member in WTO, FEMA & International Tax Study Group of the NIRC of the
ICAI for the year 2011-12 and was member of International Taxation & FEMA Research
Study Group of NIRC of the ICAI for the year 2010-11. He is regularly contributing tax articles
and various opinions on subjects of Direct Taxation including International Taxation in various
leading magazines [Taxmann] and professional forums.
CA Suraj Agrawal
“CA Rank Holder, Qualified CPA (USA), B.Com(H)”
Email: suraj.agrawal@hotmail.com
Contact: +91 85272 30445 / 011 4754 2530
Subjects: CA Inter / CMA Inter / CMA Final - DT & IDT
FB: http://www.facebook.com/suraj.agrawal.564
https://www.youtube.com/channel/UCv-ybxFp_X9EWiei7YhZQmw
https://www.facebook.com/Surajagrawaltaxationclasses.satc
“Thanks to all of you for making us proud”
Congratulations to all of you
CMA FINAL DT & IDT RESULT – DEC 2019 EXAM
SATC – 01147542530 / 8527230445
(NO FACE TO FACE CLASS IN CMA FINAL)
S. No. Name IDT Marks DT Marks Status Remarks
1 Varun Khattar (BOTH) 66 40 now CMA A.I.R. - 30
2 Deepesh Hoiyani 80 - now CMA IDT Highest in 4 Paper
IDT 2nd Highest in 4
3 Satish Jangra 72 - now CMA Paper
4 Pranshu Singhal 72 - now CMA IDT Highest in 4 Paper
5 Poonam Khemka 68 - now CMA IDT Highest in 4 Paper
6 Garima 68 - now CMA IDT Highest in 4 Paper
7 Tushar Khattar (BOTH) 63 43 now CMA IDT Highest in all 8 Paper
8 Rahul Kumar Ojha 62 - Now in Group 3 -
9 Amita Negi 60 - Now in Group 3 IDT Highest in 4 Paper
10 Rohit Saini (BOTH) 60 58 now CMA IDT Highest in all 8 Paper
11 Pooja Negi - 59 now CMA DT Highest in 4 Paper
12 Brijesh Kumar 54 - Now in Group 3 -
13 Rinku Kumar Bind - 54 Now in Group 4 DT Highest in 4 Paper
14 Apoorv Jaiswal - 54 now CMA -
15 Vikas Kumar Jha 53 - now CMA -
16 Shivcharan Singh S. 53 - Now in Group 3 -
17 Prateek Kumar Masih 49 - Now in Group 3 -
18 Shivam Garg (BOTH) 49 52 now CMA -
19 Sachin Sharma (BOTH) 48 - now CMA -
20 Ashmeet 47 - Now in Group 3 -
NOTICE: ALL ABOVE STUDENTS ARE REGISTERED STUDENTS OF SATC IN REGULAR

CMA FINAL DT/IDT/BOTH PENDRIVE/VIDEO CLASS & NOT ONLY A YOUTUBE OR
TELEGRAM CHANNEL SUBSCRIBER OR MERELY REFERRED OUR BOOKS.
CONGRATULATIONS
CMA FINAL INDIRECT TAX/GST RESULT FROM SATC
S. NO. NAME OF STUDENTS REGISTRATION NUMBER MARKS IN IDT EXAM
1 PARAS JAIN (AIR 42) `04141009584 84 Jun-19
2 DEEPESH HOIYANI `01171005959 80 Dec-19
3 AMARDEEP `04151002203 79 Dec-18
4 SHREY GUPTA `04151004191 77 Dec-18
5 VASUDEVAN KALASHASTHY `04161004499 75 Jun-19
6 ASHISH SINGH `04142005774 74 Dec-18
7 SATISH JANGRA `04142010658 72 Dec-19
8 PRANSHU SINGHAL `01171007386 72 Dec-19
9 PANKAJ TRIVEDI 14092006037 68 Jun-19
10 POONAM KHEMKA `04161003969 68 Dec-19
11 GARIMA `14101014557 68 Dec-19
12 VARUN KHATTAR (AIR 30) `04141003976 66 Dec-19
13 RAVI GUPTA `04132003787 65 Dec-18
14 SHUBHAM GUPTA `04151001994 64 Dec-18
15 KETAN JAIN `04112022182 64 Dec-17
16 JAVED AKHTAR `04122012930 63 Dec-18
17 KAPIL SHARMA `04152003027 63 Jun-19
18 MD. SAIF `04142003895 63 Dec-17
19 TUSHAR KHATTAR `04131000398 63 Dec-19
20 RAHUL KUMAR OJHA `03122001946 62 Dec-19
21 MOHD. ADIL `04142010375 61 Jun-18
22 MANISHA BHATIA `04162001141 61 Jun-19
23 RAHUL YADAV `04151003566 60 Jun-19
24 SYED SHABAD ALAM `03151001485 60 Jun-19
25 AMITA NEGI `04142011566 60 Dec-19
S. NO. NAME OF STUDENTS REGISTRATION NUMBER MARKS IN IDT EXAM
26 ROHIT SAINI `04171006308 60 Dec-19
27 SHIVEK MADAAN `04152000047 59 Jun-19
28 ANKITA NAGPURKAR `04151008311 58 Jun-18
29 NIKHIL `04152006069 58 Jun-19
30 VISHAL CHAUHAN `04122005659 57 Dec-18
31 NAVEEN GOSWAMI `0414100550 56 Jun-19
32 ANURAG PANT `04132012214 56 Dec-17
33 NISHTHA AGRAWAL `04121009440 55 Jun-18
34 HIMANSHU TYAGI `04132000652 55 Jun-18
35 APOORV JAISWAL `04142003143 55 Jun-19
36 SHILPA AGGARWAL `04151003054 54 Jun-18
37 HIMANSHU JAIN `04142010175 54 Jun-18
38 BRIJESH KUMAR `04132003196 54 19-Dec
39 ANUP `04121013398 53 Dec-18
40 MD. SHAHNAWAZ HUSSAIN `04132009413 53 Dec-17
41 VIKAS KUMAR JHA `04152004183 53 Dec-19
42 SHIVCHARAN SINGH S. `12112040190 53 Dec-19
43 AMIT KR KASHYAP `04142005646 52 Dec-18
44 SUMIT `04131008313 49 Jun-19
45 PRATEEK KUMAR MASIH `04141010163 49 Dec-19
46 SHIVAM GARG `04162002400 49 Dec-19
47 SACHIN SHARMA `04141002900 48 Dec-19
48 ASHMEET - 47 Dec-19
49 AMIT YADAV `04121000259 44 Jun-19
SURAJ AGRAWAL TAX CLASSES

LAXMINAGAR I 8527230445 , 01147542530
SURAJ AGRAWAL TAX CLASS
CONGRATULATIONS
CMA FINAL DT RESULT AT SATC
DT Marks IDT Marks
S. No. Name Status
at SATC at SATC
1 PARVEEN DUTT SHARMA (AIR 3) 67 - NOW CMA
2 MOHIT GARG (AIR 7) 51 - NOW CMA
3 ARUN SHEKHAR (AIR 22) 57 - NOW CMA
4 SACHIN ARORA (AIR 22) 42 - NOW CMA
5 ANURAG PANT (AIR 25) 61 56 NOW CMA
6 VARUN KHATTAR (AIR 30) 40 66 NOW CMA
7 SONU KUMAR (AIR 38) 51 - NOW CMA
8 PARAS JAIN (AIR 42) 40 84 NOW CMA
9 BHARAT BHUSAN (AIR 45) 54 - NOW CMA
10 RAHUL YADAV - 60 NOW CMA
11 DIVYA KHANDELWAL 74 - NOW CMA
12 RUCHI GOEL 72 - NOW CMA
13 SANJAY 66 - NOW CMA
14 JAVED AKHTAR 65 63 NOW CMA
15 HIMANSHU JAIN 65 54 NOW CMA
16 AVISH BAJAJ 65 - NOW CMA
17 BHARTI BHATIA 65 - NOW CMA
18 LAVI KUMBUJ 65 - NOW CMA
19 MOHD. ADIL 65 61 NOW CMA
20 SANDEEP KUMAR 65 - NOW CMA
21 SANDEEP MOHOR 65 - NOW CMA
22 SIMAN SARKAR 65 - NOW CMA
23 SUDHANSHU MITTAL 65 - NOW CMA
24 NITU 64 - NOW CMA
25 AQIB NAZAR 63 - NOW CMA
26 HIMANSHU SHARMA 62 - NOW CMA
27 LALIT SINGH JEENA 62 - NOW CMA
28 RAHUL GARG 61 - NOW CMA
29 SURAJ NATHANI 61 - NOW CMA
30 ANIL SHARMA 60 - NOW CMA
31 RICHA AGARAWAL 60 - NOW CMA
32 RITU BHATT 60 - NOW CMA
33 Pooja Negi 59 49 NOW CMA
34 ANITA SHARMA 59 - NOW CMA
35 DIVYA SAINI 59 - NOW CMA
36 SANKET GUPTA 59 - NOW CMA
37 Rohit Saini 58 60 NOW CMA
38 SHREY GUPTA 57 77 NOW CMA
39 ANJALI RANA 57 - NOW CMA
CONGRATULATIONS
40 AMARDEEP 57 79 NOW CMA
41 ANKITA NAGPURKAR 56 58 NOW CMA
42 MEGHA SHARMA 56 - NOW CMA
43 SHUBHAM GUPTA 56 - NOW CMA
44 SHWETA KUMARI 56 - NOW CMA
45 SUMEET KUMAR 56 - NOW CMA
46 KETAN JAIN 55 64 NOW CMA
47 EKTA BATRA 55 - NOW IN GROUP 4
48 GAURAV JINDAL 55 - NOW CMA
49 KAPIL DHINGRA 55 - NOW CMA
50 PRABHAKAR JOSHI 55 - NOW CMA
51 SHALINI KAMBOJ 55 - NOW CMA
52 SHEKAR KUMAR 55 - NOW CMA
53 SURBHI PATHANIA 55 - NOW CMA
54 Rinku Kumar Bind 54 - NOW IN GROUP 4
55 Apoorv Jaiswal 54 55 NOW CMA
56 GAYATRI VAISHYA 54 - NOW CMA
57 INDU SHARMA 54 - NOW CMA
58 PRANSHU SINGHAL 53 72 NOW CMA
59 AJAY KAUSHIK 53 - NOW CMA
60 MOHD. SHAHNAWAZ HUSSAIN 53 - NOW CMA
61 Shivam Garg 52 49 NOW CMA
62 ABHISHEK GUPTA 52 - NOW CMA
63 ABHISHEK KUMAR SINGH 52 - NOW CMA
64 ABHISHEK VERMA 51 - NOW CMA
65 UJJWAL JAIN 51 - NOW CMA
66 VARUN GERA 51 - NOW CMA
67 SYED SHABAD ALAM 50 60 NOW CMA
68 ANSHIKA TYAGI 50 - NOW CMA
69 JYOTI GUPTA 50 - NOW CMA
70 KAPIL 50 - NOW CMA
71 KHUSHBOO MISHRA 50 - NOW CMA
72 ROHAN KR SHARMA 50 - NOW CMA
73 SUBHASH BAJAJ 50 - NOW CMA
74 VISHAL CHAUHAN 49 57 NOW CMA
75 GARIMA 49 68 NOW CMA
76 AFROZ ALAM 49 - NOW CMA
77 MUKUL BANSAL 49 - NOW CMA
78 RAHUL KUMAR 49 - NOW IN GR-4
79 SHUBHAM GUPTA 48 64 NOW CMA
80 NISHTHA AGRAWAL 48 55 NOW CMA
CONGRATULATIONS
81 ABHISHEK YADAV 48 - NOW CMA
82 SADAN KUMAR 48 - NOW CMA
83 SHIVAM KESHARI 48 - NOW CMA
84 VIKAS KUMAR JHA 47 53 NOW CMA
85 POONAM KHEMKA 47 68 NOW CMA
86 SHIVAM KAUSHAL 47 - NOW CMA
87 MOHD. SAIF 46 63 NOW CMA
88 MANISHA BHATIA 46 61 NOW CMA
89 SAVITA 46 - NOW CMA
90 VASUDEVAN 45 75 NOW CMA
91 AMIT KUMAR KASHYAP 45 52 NOW CMA
92 AKANSHA TYAGI 45 - NOW CMA
93 ARCHANA SHAH 45 - NOW CMA
94 BABITA 45 - NOW CMA
95 LALIT SHARMA 45 - NOW CMA
96 SONAM VERMA 45 - NOW CMA
97 SUNIL 45 - NOW CMA
98 NIKHIL 44 58 NOW CMA
99 ANUBHAV 44 - NOW CMA
100 KUNJIT JAIN 44 - NOW CMA
101 VINOD ARORA 44 - NOW CMA
102 TUSHAR KHATTAR 43 63 NOW CMA
103 KAPIL SHARMA 43 63 NOW CMA
104 ANANT 43 - NOW CMA
105 CHINU ARORA 43 - NOW CMA
106 DEEPAK KR CHAUBEY 43 - NOW CMA
107 PUSKAR SINGH 43 - NOW CMA
108 V VARSHA 42 - NOW CMA
109 SANJEEV 41 - NOW CMA
110 HIMANSHU TYAGI 41 55 NOW CMA
111 SURAJ KANOJIA 41 - NOW CMA
112 AVINASH RAJBHAR 41 - NOW CMA
113 ROHAN KUMAR VAISHY 41 - NOW CMA
114 PANKAJ KR TRIVEDI 40 68 NOW CMA
115 SHILPA AGGARWAL 40 54 NOW CMA
116 SALONI GOEL 40 - NOW CMA
117 SHILPA SINGHAL 40 - NOW CMA
118 VIKAS AHLAWAT 40 - NOW CMA
YOUTUBE CHANNEL NAME - "CA SURAJ AGRAWAL - SATC"

CONGRATULATIONS
CMA INTER DT RESULT AT SATC
JUNE 2018 to DEC 2019 EXAM (LAST 4 EXAMs)
40+ Students have scored exemptions in DT Subjects (60+ marks)
S.NO NAME REG. NO DT MATKS
1 MOHAMMAD ZOHAIB `04181033459 77
2 VAISHALI CHAUHAN `04171009980 72
3 SONALI `04151008330 67
4 SIMRAN SINHA `04171006940 67
5 RIDHI SINGH `01452001869 67
6 DEEPAK KR PANDEY `04131001662 67
7 DEEPAK KUMAR PANDEY `04131001662 67
8 GURPREET SINGH `01142000864 65
9 AYUSH DHOUNDIYAL `04172018516 65
10 MOHD. SHAHBAZ `04161000406 65
11 VIDYA P - 65
12 VIKALP KUMAR `04161000373 65
13 MOHAMMAD MOMIN `04142002305 65
14 EKTA SINGH `04171006108 65
15 RISHABH GOYAL `04182641048 65
16 VARSHA `04141006563 65
17 NISHITHA JAIN `04181030186 65
18 ADARSH KUMAR UPADHYAY `04152003297 65
19 ROHIT KUMAR `04191050156 65
20 SIMPI GARG `04151004924 64
21 RAHUL `04151000891 64
22 SHIVAM SINGH `04171006774 64
23 BHARTI `04171014248 64
24 NEELABH SRIVASTAVA `04151002871 64
25 MD. ZAYAUL HAQUE `03151008179 64
26 MD. ZEYAUL HAQUE `03151008179 64
27 SUNNY `04191055669 64
28 MIHIR KUMAR `04172020200 63
29 DEEPANJALI `04181035932 62
30 NEHA RANA `0418131694 62
31 PUNEET TIWARI `04162005106 62
32 GAGAN CHAUHAN `04112021154 62
33 SURAJ BISHT `04181025181 62
34 RAM SHARMA `04151007483 62
35 SHEENA `03152003100 61
36 PRAPTI BANSAL `04151004685 61
37 MOHIT ARYA `04172018239 61
38 PUNIT KUMAR `14092007508 61
39 SHASHIKANT - 61
40 DEEPAK KATHAYAT `04152002482 61
41 KAVITA RAWAT `04171006492 60
42 PURUSHOTAM KUMAR `03152004176 60
43 MOHIT BATRA `04182040268 60
44 AMIT GUPTA `04152005292 59
45 KIRAN `041562006169 59
46 VISHAL KESARWANI `04171014398 59
47 ANKIT SHARMA `04152003376 59
48 HIMANSHU SINGH BASNAL `04181023904 59
49 NANCY JAIN `04171012943 59
50 SAMARJEET SINGH `04181027869 58
51 SHALENDER SEMWAL `04142005213 58
52 ABHISHEK PARASHAR `04171008310 58
53 ANURAG `04171013969 58
54 OMKAR SINGH `04112018993 57
55 ANURADHA MISHRA `03162004159 57
56 NEHA SHARMA `04162003239 57
57 PANKAJ `04162002704 57
58 DEEPAK KR KAMAT `04142006457 57
59 RAHUL NEGI `04142001226 57
60 AMANDEEP `04191056094 57
61 RAVINDRA KUMAR SHAKYA `04191048134 57
62 VISHAL AGRAWAL `04171010078 56
63 KARAN PANESHAR `04171013462 56
64 OMKAR SINGH `04151007144 56
65 RAHUL MAITHANI `04151000047 56
66 RAHUL MAITHANI `04151000047 56
67 NISHI RAWAT `04191050973 56
68 AVINASH KUMAR `04132003466 55
69 GARGI LATWAL `04171012717 55
70 LAVKUSH MAURYA `04191052370 55
71 KANCHAN JHA `04191057402 55
73 KARAN PANESHAR `04171013462 54
74 MANISH KR. MISHRA `04182039272 54
75 TAUSIF ANSARI `04152003211 53
76 KAVITA `04151000769 53
77 NEHA KASHYAP `04161002757 53
78 SAMPANN SALUJA `04181025328 53
79 SHIVAM BHADALA `04152005828 53
80 SUNAINA `04171008399 53
81 VARUN MOR `01172016485 52
82 VARUN MOR `01172016485 52
83 SHIVAM CHAUHAN `04181033342 52
84 DEEPANSHU SAINI `04182041338 52
85 ANANT TYAGI `04181023907 52
86 DEEPAK KUMAR RAWAT `04142006457 51
87 PRIYA RAHI `04162003080 51
88 BUNTI/VINAY `04171007024 51
89 AKASH BHARDWAJ `04181030641 51
90 SAURABH JAIN `04151006110 50
91 ANKIT PARASHAR `04152000664 50
92 AKSHAY VERMA `04152000529 51
93 VINAY SHARMA `04162000208 50
94 ISHIKA KHANDELWAL `04181033400 50
95 DHARMESH SHARMA `04152004215 50
96 MADHURI KUMARI `04162000460 50
97 RAMAN KUMAR `04182040490 50
98 SHUBHAM CHAUHAN `04182045127 50
99 KISHAN KASHYAP `04181023519 50
100 VIVEK GUPTA `04151005101 49
101 AMRITA VIDWAN `04161001976 49
102 VINAY PATHNEJA `04191052148 49
103 ANKIT SINGH `04131000362 48
104 GUNDEEP SINGH GILL `04161006711 48
105 VARSHA `04141006563 48
106 VIPUL KR. TIWARI `04162003793 48
107 LOKESH KUMAR `04161001512 48
108 KAJAL NEGI `04161002549 47
109 PANKAJ RAWAT `04162002704 45
110 PRIYA AGRAWAL `04152002867 45
111 ARVIND KR. MAURYA `04181023520 45
112 RAJIV KUMAR `04151008445 44
113 BHARTI `04171014248 42
114 MAYANK BATRA `04171010401 42
115 KRISHNA HARI `04152006557 41
116 SHIVANI RAWAT `04161000302 40
117 SHUBHAM `04182037106 40
118 SAMARTH SOOD `04172019235 40
119 KOMAL PAL `04151007518 40

CONGRATULATIONS
CMA INTER IDT RESULT AT SATC
JUNE 2018 to DEC 2019 EXAM (LAST 4 EXAMs)
85+ Students have scored exemptions in GST/IDT Subjects (60+ marks)
S.NO NAME REG. NO IDT MATKS
1 PREETI RAWAT `04171007477 79
2 ASHISH SHIYANI `04151005102 76
3 CHANDA `04161002144 75
4 RAJNESH GUPTA `04151004925 74
5 NEHA VASHISHT (AIR 43) `04191056393 74
6 GAURANG RAJPAL `04152005198 73
7 MAYANK BATRA `04171010401 73
8 ATUL JAYANT `04132002741 71
9 MD.SHAHBAZ IDDRISI `04161000406 71
10 AMIT SHARMA `04161001090 70
11 ROHAN HEERA `04152006198 70
12 PRADEEP SINGH KANDARI `04171006214 69
13 ABHINAV PANNU `04152006249 69
14 SOUVAGYA GERU `04162003079 69
15 DEEPANJALI `04181035932 69
16 GAURAV SINGH `04161002697 69
17 VARUN GIRI `04151000294 69
18 RAHUL `04142005518 69
19 YASHODA RAWAT `04181025326 69
20 MAHIMA THREJA `04171007005 68
21 HITESHEE SHARMA `04162000658 68
22 VIABHAV SRIVASTAVA `04152003904 68
23 RAHUL KR. SONI `04171006939 68
24 KARAN KHANDELWAL `04171008770 68
25 PRIYA AGRAWAL `04152002867 67
26 ANKUSH GUPTA `04162003134 67
27 SHUBHAM `04131000312 67
28 MINAKSHI SINGH `04181031103 67
29 SNEHA `04152003288 66
30 NEELABH SRIVASTAVA `04151002871 66
31 RAJESH SHAH `04171015785 66
32 SUMMI `04121013160 66
33 YATIN BISHT `04181023861 66
34 MOHIT UPADHYAY `04171011775 65
35 NANCY JAIN `04171012943 65
36 SANJOLI JAIN `04151004777 65
37 MOHIT UPADHYAY - 65
38 DHARMESH SHARMA `04152004215 65
39 MD. ZEYAUL HAQUE `03151008179 65
40 NANCY JAIN `04171012943 65
41 NIKHIL SOLANKI `04152004440 65
42 VAISHALI CHAUHAN `04171009980 65
43 RAHUL RANJAN SINGH `04162004494 65
44 RAHUL NEGI `04142001226 64
45 AVINASH KUMAR `04132003466 64
46 KARTIK BHATT `04162003301 64
47 HIMANI AGGARWAL `04171009548 64
48 SHIVAM SINGH `04171006774 64
49 SWADHA CHITRANSH `04162000395 64
50 KARAN PANESHAR `04171013462 64
51 ANAMIKA DIXIT `04171006352 64
52 AMRITA VIDWAN `04161001976 63
53 ANKIT SINGH `04131000362 63
54 PANKAJ RAWAT `04162002704 63
55 AMAN GUPTA `04171011461 63
56 ANURAG `04171013969 63
57 SALONI MITTAL `04171007814 63
58 ANKIT SINGH `04131000362 63
59 PANKAJ `04162002704 63
60 ABHISHEK PARASHAR `04171008310 63
61 DEEPIKA KIROULA - 63
62 NEHA SHARMA `04162003239 62
63 KULDEEP RAWAT `04152004253 62
64 ROHIT SATI `04141004707 62
65 SHOBHIT KR. YADAV `04162002512 62
66 DINESH SINGH `04152004116 62
67 SAURABH JAIN `04151006110 62
68 IRSHAD `04161002726 62
69 RAVINDRA KUMAR SHAKYA `04191048134 62
70 MOHD. IRASHAD `04161002726 62
71 VAISHALI `04181036455 62
72 FAHREEN NAAZ `04171015009 61
73 OMKAR SINGH `04112018993 61
74 NANDINI ANAND `04171015462 61
75 FARHEEN NAAZ `04171015009 61
76 KRATIKA KIRAR `01142009362 61
77 RAM SHARMA `04151007483 61
78 DIVYANSH VERMA `04172017078 61
79 NEHA SINGH `04151007353 61
80 KOMAL PAL `04151007518 61
81 VINAY SHARMA `04162000208 60
82 PARVEJ ALAM `04162000312 60
83 VIVEK UPADHYAY `04171006249 60
84 BHARTI `04171014248 60
85 ANAND VALLABH OLI `04161004350 60
86 DEEPAK KUMAR PANDEY `04131001662 60
87 LOKESH KUMAR `04161001512 60
88 NEHA SURATIYA `04142001231 59
89 VIKALP KUMAR `04161000373 59
90 PRINCE GOYAL `04152006085 59
91 TAUSIF ANSARI `04152003211 59
92 SHWETA RANI `04181035559 59
94 NISHA KUMARI `04142001150 58
95 KISHAN KASHYAP `04181023519 58
96 KAMINI `04161000149 57
97 ROHIT `04181024640 57
98 APOORV GHILDIYAL `04151004798 56
99 KRISHNA HARI `04152006557 56
100 MOHAMMAD MOMIN `04142002305 56
101 DEEPAK KR KAMAT `04142006457 55
102 SIMRAN SINHA `04171006940 54
103 VIVEK PRASAD `04171009533 54
104 MOHINI AGRAWAL `04152005687 53
105 SONALI `04151008330 53
106 SAMPANN SALUJA `04181025328 53
107 REETU `04181028730 53
108 MOHIT ARYA `04172018239 52
109 BUNTI/VINAY `04171007024 52
110 VIKRANT JHA `04162002126 52
111 KAVITA RAWAT `04171006492 52
112 VIPUL KR. TIWARI `04162003793 52
113 PUNEET TIWARI `04162005106 51
114 SAURAV KUMAR `04161001645 51
115 KAVITA `04151000769 51
116 VISHAL KESARWANI `04171014398 51
117 GARGI LATWAL `04171012717 51
118 VARUN MOR `01172016485 50
119 SHALENDER SEMWAL `04142005213 49
120 ROHIT `04181024640 49
121 PRIYA RAHI `04162003080 48
122 NEHA KASHYAP `04161002757 48
123 YOGESH `04172018166 48
124 UJWAL CHAND RAMOLA `04171007621 48
125 JAYED SAIFI `04171011777 47
126 GUNDEEP SINGH GILL `04161006711 46
127 RAHUL `04151000891 45
128 RAMAN KUMAR `04182040490 44
129 ANKIT KUMAR RAJPUT `04182039949 43
130 NISHTHA JAIN `04181030186 42
131 SHIVANGI BISHT `04171008407 41
132 ARVIND KR. MAURYA `04181023520 40
THANKS ALL FOR SUCH WONDERFUL PERFORMANCE

WHATSAPP/CALL - 8527230445
SURAJ AGRAWAL TAX CLASSES
ADMISSION/INQUIRY - 8527230445
CA/CMA - NOV/DEC 2019 EXAM RESULT (ONE EXAM RESULT)
EXEMPTION HI EXEMPTION (FROM REGISTERED STUDENTS BATCH)
S.NO NAME REGISTRATION NO MARKS SUBJECT COURSE
1 KUNAL AGGARWAL 623158 81 TAX CA INTER
2 DEEPESH HOIYANI `01171005959 80 IDT CMA FINAL
3 YATIN BISHT `04181023861 76 OM & SM CMA INTER
4 NEHA VASHISHT (AIR 43) `04191056393 74 IDT CMA INTER
5 SATISH JANGRA `04142010658 72 IDT CMA FINAL
6 PRANSHU SINGAL `01171007386 72 IDT CMA FINAL
7 JAI PRAKASH GUPTA 523034 70 TAX CA INTER
8 RAHUL `04142005518 69 IDT CMA INTER
9 YASHODA RAWAT `04181025326 69 IDT CMA INTER
10 KISHAN KASHYAP `04181023519 69 OM & SM CMA INTER
11 RAMAN KUMAR `04182040490 68 OM & SM CMA INTER
12 REETU `04181028730 68 OM & SM CMA INTER
13 POONAM KHEMKA `04161003969 68 IDT CMA FINAL
14 GARIMA `14101014557 68 IDT CMA FINAL
15 MINAKSHI SINGH `04181031103 67 IDT CMA INTER
16 ATUL VISHVAKARMA 522810 67 TAX CA INTER
17 YATIN BISHT `04181023861 66 IDT CMA INTER
18 VARUN KHATTAR (AIR 30) `04141003976 66 IDT CMA FINAL
19 ADARSH KUMAR UPADHYAY `04152003297 65 DT CMA INTER
20 NISHITHA JAIN `04181030186 65 DT CMA INTER

21 ROHIT KUMAR `04191050156 65 DT CMA INTER
22 RAHUL RANJAN SINGH `04162004494 65 IDT CMA INTER
23 MINAKSHI SINGH `04181031103 65 OM & SM CMA INTER
24 NEHA VASHISHT `04191056393 65 OM & SM CMA INTER
25 ANAMIKA DIXIT `04171006352 65 OM & SM CMA INTER
26 SUNNY `04191055669 64 DT CMA INTER
27 ANAMIKA DIXIT `04171006352 64 IDT CMA INTER
28 TUSHAR KHATTAR `04131000398 63 IDT CMA FINAL
29 RITIKA 63 TAX CA INTER
30 RAVINDRA KUMAR SHAKYA `04191048134 62 IDT CMA INTER
31 VAISHALI `04181036455 62 IDT CMA INTER
32 MOHD. IRSHAD `04161002726 62 IDT CMA INTER
33 RAHUL KUMAR OJHA `03122001946 62 IDT CMA FINAL
34 RAJAN KUMAR PANDEY 624360 62 TAX CA INTER
35 MEENAKSHI JAIN 624144 62 TAX CA INTER
36 KISHAN SHARMA 626257 62 TAX CA INTER
37 DEEPAK KATHAYAT `04152002482 61 DT CMA INTER
38 KOMAL PAL `04151007518 61 IDT CMA INTER
39 LOKESH KUMAR `04161001512 61 OM & SM CMA INTER
40 KHUSHBOO BANSAL 620832 61 TAX CA INTER
41 MOHIT BATRA `04182040268 60 DT CMA INTER
42 LOKESH KUMAR `04161001512 60 IDT CMA INTER
43 AMITA NEGI `04142011566 60 IDT CMA FINAL
44 ROHIT SAINI `04171006308 60 IDT CMA FINAL

INDEX
S. No. Particulars Page No.
1 Tax Rates 1.1 – 1.22
2 Agriculture Income 2.1 – 2.2

2A.1 – 2A.2
3 Clubbing of Income 3.1 – 3.18

3A.1 – 3A.2
3B.1 – 3B.4
3C.1 – 3C.6
4 Set off of losses 4.1 – 4.22

4A.1 – 4A.10
4B.1 – 4B.4
4C.1 – 4C.4
5 TDS & TCS 5.1 – 5.32

5A.1 – 5A.12
6 TRUST 6.1 – 6.08

6A.1 – 6A.08
6B.1 – 6B.12
7 Deduction [80C to 80U] including Section 10AA & Income 7.1 – 7.44
Based Deduction [80-IA to 80RRB] 7A.1 – 7A.4
7B.1 – 7B.8
7C.1 – 7C.8
FINAL DT SATC 1.1
APPLICABLE RATE OF TAX – AY 2020-21

(A) Individuals [except (B) & (C)], HUF, AOP’s & BOI’s & every Artificial Judicial Person:
TOTAL INCOME AMOUNT OF TAX
Up to ` 2,50,000 NIL
On next ` 2,50,001 - 500,000 5%
On next ` 5,00,001 – 10,00,000 20%
On the balance amount [Above ` 10,00,000] 30%
(B) For a Resident individual, being a Sr. Citizen, Age  60 yrs (but less than 80 years)
at any time during the PY.
Up to ` 3,00,000 NIL
On next ` 300,001 - 500,000 5%
On next ` 500,001 - 10,00,000 20%
On the balance amount [Above ` 10,00,000] 30%
(C) For a resident individual, being a Very Sr. Citizen, Age  80 yrs at any time during
the PY.
Up to ` 5,00,000 NIL
On next ` 500,001 – 10,00,000 20%
On the balance amount ` 10,00,001 & above 30%
Surcharge on Individual / HUF / AOP / BOI / Artificial Juridical Person
Total Income Surcharge Rate
Total Income (including the income under the provisions of Section 10% of income-tax
111A & 112A)** exceeds ` 50 Lakhs but not exceeding ` 1 crores
Total Income (including the income under the provisions of Section 15% of income-tax
111A & 112A) exceeds ` 1 crores but not exceeding ` 2 crores
Or Total Income (including the income under the provisions of

Section 111A & 112A) exceeds ` 2 crores but not covered below
Total Income* (excluding the income under the provisions of Section 25% of income-tax
111A & 112A)** exceeds ` 2 crores but not exceeding `5 crores
***(15% of income
tax related to
Income covered
u/s 111A & 112A)
Total Income* (excluding the income under the provisions of Section 37% of income-tax
111A & 112A)** exceeds ` 5 crores
***above applicable
* Inserted by Finance (No. 2) Act 2019 for PY 2019-20

** Inserted by the Taxation Laws (Amendment) Act, 2019 for PY 2019-20
SURAJ AGRAWAL TAX CLASS, LAXMINAGAR I 01147542530 I 8527230445 I
FINAL DT SATC 1.2
Health and Education Cess
From AY 19-20, in all above cases, Income Tax (including surcharge, if any) shall be further
increased by Health and Education Cess @ 4% (Amended by Finance Act 2018)
Clarification regarding attaining prescribed age of 60 years/80 years on 31st March itself, in case
of senior/very senior citizens whose date of birth falls on 1st April [Circular No. 28/2016, dated
27-07-2016]
An individual who is resident in India and of the age of 60 years or more (senior citizen) and 80 years or
more (very senior citizen) is eligible for a higher basic exemption limit of ` 3,00,000 and ` 5,00,000,
respectively.
The CBDT has, vide this Circular, clarified that a person born on 1st April would be considered to have
attained a particular age on 31st March, the day preceding the anniversary of his birthday. In particular,
the question of attainment of age of eligibility for being considered a senior/very senior citizen would be
decided on the basis of above criteria.
Therefore, a resident individual whose 60th birthday falls on 1st April, 2020, would be treated as having
attained the age of 60 years in the P.Y. 2019-20, and would be eligible for higher basic exemption limit
of ` 3 lakh in computing his tax liability for A.Y. 2020-21.
Likewise, a resident individual whose 80th birthday falls on 1st April, 2020, would be treated as having
attained the age of 80 years in the P.Y. 2019-20, and would be eligible for higher basic exemption limit
of ` 5 lakh in computing his tax liability for A.Y. 2020-21.

FINAL DT SATC 1.3
CONCEPT OF MARGINAL RELIEF – Applicable in case of all assessee
The additional amount of Income tax payable with surcharge in excess of income over
` 1 Crore should not be more than the amount in excess of ` 1 Crore.
Calculation of Marginal Relief:
Marginal Relief = Tax on Total Income including Surcharge

Less: (Total Income - ` 1 Crore) + (Tax on ` 1 Crore including
surcharge if applicable)
Tax Payable = Tax on Total Income including Surcharge

Less: Marginal Relief as computed above
Add: H&EC
Note: Marginal Relief is available at all levels – ` 50 Lakhs / ` 1 Crores / ` 2 Crores / ` 5 Crores /
` 10 Crores
Rounding-off of Income [Section 288A]

The Total Income computed under this Act, shall be rounded off to the nearest multiple of ` 10.
Rounding-off of Tax [Section 288B]

The amount of tax including Tax Deducted at Source (TDS) and advance tax, interest, penalty, fine or
any other sum payable, and the amount of refund due under the Income Tax Act, shall be rounded off
to the nearest multiple of ` 10.
Rebate of ` 12,500 for resident individuals having total income up to

` 5 lakh [Sec. 87A] – FOR AY 2020-21
As amended by Finance Act 2019
With a view to providing tax relief to the individual taxpayers who are in lower income bracket, a rebate is provided
for under section 87A.
Conditions - This rebate will be available if the following two conditions are satisfied -
a) Taxpayer is a Resident Individual (he may be ordinarily resident or not ordinarily resident).
b) His total income or net income or taxable income (Le., GTI minus deduction under sections 80C
to 80U) is ` 3,50,000 ` 5,00,000 or less
Amount of Rebate: If the above two conditions are satisfied, the resident individual can claim rebate under
section 87A. The amount of rebate is 100 per cent of income-tax payable on total income or ` 12,500 ` 2,500,
whichever is less. This rebate will be available from income-tax (before adding Health & Education Cess).

FINAL DT SATC 1.4
In case of other category of Persons: AY 20-21
OTHERS AMOUNT OF TAX SURCHARGE

FIRM & LLP @30% @ 12% of Tax Payable if TOTAL
INCOME > ` 1 Crore
Local Authority @30% @ 12 % of Tax Payable if TOTAL
INCOME > ` 1 Crore
Co-operative On first ` 10,000 @10% @ 12 % of Tax Payable if TOTAL
Societies On next ` 10,000 @20% INCOME > ` 1 Crore
For the Balance @30%
Companies Domestic Co.: @30% @ 7 % of Tax Payable if TOTAL

(If Total Turnover / Gross INCOME > ` 1 Crore
receipts during PY 17-18
PY 16-17 does not exceeds @ 12 % of Tax Payable if TOTAL
` 400 Crore ` 250 Cr then Tax INCOME > ` 10 Crore
rate is 25%)
Foreign Co.: @40% @ 2 % of Tax Payable if TOTAL

INCOME > ` 1 Crore
@ 5 % of Tax Payable if TOTAL

INCOME > ` 10 Crore
For AY 19-20, in all above cases, Income Tax (including surcharge, if any) shall be further
increased by Health and Education Cess @ 4% (Amended by Finance Act 2018)
Note: Tax rates related to company as given in Section 115BA (25%), 115BAA (22%) &
115BAB (15%) will be discussed separately.
Section 115BAA & Section 115BAB are inserted by the Taxation Laws (Amendment)
Ordinance 2019 dated 20/09/2019.
The Taxation Laws (Amendment) Act, 2019 is introduced & passed in Parliament to replace
above ordinance. This Act shall be deemed to have come into force on 20.09.2019.
The above rates are prescribed by the annual Finance Acts. However, in respect of
certain types of income, as mentioned below, the Act has prescribed specific rates –
Section Income Income—tax

111A STCGs on Transfer of Listed Securities (being equity shares) etc and subject 15%
to Securities Transaction Tax (STT)
112 Long Term Capital Gain [Other than LTCG Taxable u/s 112A] 20%
112A Long Term Capital Gain from sale of equity shares etc. (STT paid) 10%
115BB Income in respect of winnings from lotteries, cross word puzzles, races and 30%
horse races, card games, gambling or betting - all assesses.
[Causal Income]
Note: Tax rates given above are subject to Surcharge (if applicable) and Health & Education Cess.

FINAL DT SATC 1.5
Definition of “Assessee”
As per Section 2(7), “assessee” means a person by whom any tax or any other sum of money is payable
under the Income-tax Act, 1961. In addition, the term includes –
 Every person in respect of whom any proceeding under the Income-tax Act, 1961 has been taken for the
assessment of –
 his income; or
 the income of any other person in respect of which he is assessable; or
 the loss sustained by him or by such other person; or
 the amount of refund due to him or to such other person.
 Every person who is deemed to be an assessee under any provision of the Income-tax Act, 1961;
 Every person who is deemed to be an assessee-in-default under any provision of the Income-tax Act,
1961.
PERSON [Section 2(31)]

Section 2(31) - The definition is inclusive i.e. a person includes,
(A) An Individual
(B) A Hindu Undivided family [HUF]
(C) A Company
(D) A Firm (including LLP)
(E) An AOP or a BOI, whether incorporated or not
(F) A local authority
(G) Every artificial juridical person, not covered above, but which are separate entities in the eye of law

FINAL DT SATC 1.6
Class Notes

FINAL DT SATC 1.7
Tax on income of certain Domestic Companies [Section 115BA]
(1) Notwithstanding anything contained in this Act but subject to the other provisions of this
Chapter (Chapter XII – Section 111A to Section 115BBG), other than those mentioned under
section 115BAA and section 115BAB the income-tax payable in respect of the total income of a
person, being a domestic company, for any previous year relevant to the assessment year beginning on
or after the 1st day of April, 2017, shall, at the option of such person, be computed at the rate of 25%, if
the conditions contained in sub-section (2) are satisfied.
(2) For the purposes of sub-section (1), the following conditions shall apply, namely:-
a. the company has been set-up and registered on or after the 1st day of March, 2016;
b. the company is not engaged in any business other than the business of manufacture or production of
any article or thing and research in relation to, or distribution of, such article or thing manufactured or
produced by it; and
c. the total income of the company has been computed,-

i. without any deduction under
 Section 10AA;
 Section 32(1)(iia);
 Section 32AC;
 Section 32AD;
 Section 33AB;
 Section 33ABA;
 Section 35(1)(ii)/(iia)/(iii) / Section 35(2AA) / Section 35(2AB);
 Section 35AC;
 Section 35AD;
 Section 35CCC;
 Section 35CCD; or
 Chapter VI-A under the heading "C.—Deductions in respect of certain incomes" i.e. “80-IA to
80QQB” other than the provisions of section 80JJAA;
ii. without set off of any loss carried forward from any earlier assessment year if such loss is
attributable to any of the deductions referred to in sub-clause (i); and
iii. Depreciation under section 32, other than clause (iia) of sub-section (1) of the said section, is
determined in the manner as may be prescribed.
(3) The loss referred to in sub-clause (ii) of clause (c) of sub-section (2) shall be deemed to have been already
given full effect to and no further deduction for such loss shall be allowed for any subsequent year.
(4) Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed
manner on or before the due date specified in Section 139(1) for furnishing the first of the returns of
income which the person is required to furnish under the provisions of this Act:
Provided that once the option has been exercised for any previous year, it cannot be subsequently
withdrawn for the same or any other previous year.
Provided further that where the person exercises option under Section 115BAA, the option
under this section may be withdrawn.
[Inserted by Taxation Laws (Amendment) Act, 2019, w.e.f. 1-4-2020 i.e AY 2020-21]

FINAL DT SATC 1.8
Class Notes

FINAL DT SATC 1.9
Tax on income of certain Domestic Companies [Section 115BAA]

(Effective from AY 2020-21) - NEW
1. Notwithstanding anything contained in this Act but subject to the provisions of this Chapter (Chapter XII –
Section 111A to Section 115BBG), other than those mentioned under section 115BA and
section 115BAB, the income-tax payable in respect of the total income of a person, being a domestic
company, for any previous year relevant to the assessment year beginning on or after the 1st day of April,
2020, shall, at the option of such person, be computed at the rate of 22% (+ Surcharge 10% + H&EC 4%),
if the conditions contained in sub-section (2) are satisfied:
Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any previous
year, the option shall become invalid in respect of the assessment year relevant to that previous year and
subsequent assessment years and other provisions of the Act shall apply, as if the option had not been
exercised for the assessment year relevant to that previous year and subsequent assessment years.
2. For the purposes of sub-section (1), the total income of the company shall be computed,—
i. without any deduction under the provisions of
a. section 10AA or
b. clause (iia) of sub-section (1) of section 32 or
c. section 32AD or
d. section 33AB or section 33ABA or
e. sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) or
sub-section (2AB) of section 35 or
f. section 35AD or
g. section 35CCC or section 35CCD or
h. under any provisions of Chapter VI-A under the heading "C.—Deductions in respect of certain
incomes" other than the provisions of section 80JJAA;
ii. without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss
or depreciation is attributable to any of the deductions referred to in clause (i);
iii. without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A, if
such loss or depreciation is attributable to any of the deductions referred to in clause (i); and
iv. by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-
section (1) of the said section, determined in such manner as may be prescribed.
3. The loss and depreciation referred to in clause (ii) and clause (iii) of sub-section (2) shall be deemed to have
been given full effect to and no further deduction for such loss or depreciation shall be allowed for any
subsequent year:
Provided that where there is a depreciation allowance in respect of a block of asset which has not been
given full effect to prior to the assessment year beginning on the 1st day of April, 2020, corresponding
adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2019 in
the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to
the assessment year beginning on the 1st day of April, 2020.

FINAL DT SATC 1.10
[For example, in case of an asset acquired and put to use for less than 180 days in P.Y. 2018-19, the effect
of balance additional depreciation to be allowed in P.Y. 2019-20 will be made in the WDV of the block as on
1.4.2019, if option for section 115BAA is exercised for P.Y. 2019-20 relevant to A.Y.2020-21]
4. In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section
(1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in sub-
section (2) shall be modified to the extent that the deduction under section 80LA shall be available to such
Unit subject to fulfilment of the conditions contained in the said section.
5. Nothing contained in this section shall apply unless the option is exercised by the person in the
prescribed manner on or before the due date specified under sub-section (1) of section 139 for
furnishing the returns of income for any previous year relevant to the assessment year commencing on or
after the 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years:
Provided that in case of a person, where the option exercised by it under section 115BAB has been
rendered invalid due to violation of conditions contained in sub-clause (ii) or sub-clause (iii) of clause
(a), or clause (b) of sub-section (2) of said section, such person may exercise option under this
section:
Provided further that once the option has been exercised for any previous year, it cannot be
subsequently withdrawn for the same or any other previous year.
NOTE:
The beneficial provisions of this section would apply if option is exercised in the prescribed manner on or
before the due date u/s 139(1) for furnishing the return of income for any previous year relevant to A.Y. 2020-
21 or any subsequent A.Y. Such option, once exercised, would apply to subsequent assessment years.
Further, once the option has been exercised for any previous year, it cannot be subsequently withdrawn
for the same or any other previous year.
The option can be exercised even in a later year, but once exercised, cannot be withdrawn
subsequently.
Further, where the person exercises option under section 115BAA, the option under section 115BA
may be withdrawn.

FINAL DT SATC 1.11
Class Notes

FINAL DT SATC 1.12
Class Notes

FINAL DT SATC 1.13
Tax on income of new manufacturing domestic companies - NEW
SECTION – 115BAB (Effective from AY 2020-21)
1. Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, other
than those mentioned under section 115BA and section 115BAA, the income-tax payable in respect of the
total income of a person, being a domestic company, for any previous year relevant to the assessment
year beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the
rate of 15% (+ Surcharge 10% + H&EC 4%), if the conditions contained in sub-section (2) are satisfied:
Provided that where the total income of the person, includes any income, which has neither been derived
from nor is incidental to manufacturing or production of an article or thing and in respect of which no
specific rate of tax has been provided separately under this Chapter, such income shall be taxed at the
rate of 22% and no deduction or allowance in respect of any expenditure or allowance shall be
allowed in computing such income:
Provided further that the income-tax payable in respect of the income of the person deemed so under
second proviso to sub-section (6) shall be computed at the rate of 30%:
Provided also that the income-tax payable in respect of income being short term capital gains derived
from transfer of a capital asset on which no depreciation is allowable under the Act shall be computed
at the rate of 22%:
Provided also that where the person fails to satisfy the conditions contained in sub-section (2) in any
previous year, the option shall become invalid in respect of the assessment year relevant to that previous
year and subsequent assessment years and other provisions of the Act shall apply to the person as if the
option had not been exercised for the assessment year relevant to that previous year and subsequent
assessment years.
2. For the purposes of sub-section (1), the following conditions shall apply, namely:—
a. the company has been set-up and registered on or after the 1st day of October, 2019, and has
commenced manufacturing or production of an article or thing on or before the 31st day of
March, 2023 and,—
i. the business is not formed by splitting up, or the reconstruction, of a business already in
existence:
Provided that this condition shall not apply in respect of a company, business of which is formed
as a result of the re-establishment, reconstruction or revival by the person of the business of any
such undertaking as is referred to in section 33B, in the circumstances and within the period
specified in the said section;
ii. does not use any machinery or plant previously used for any purpose.
Explanation 1: For the purposes of sub-clause (ii), any machinery or plant which was used
outside India by any other person shall not be regarded as machinery or plant previously used for
any purpose, if the following conditions are fulfilled, namely:—

FINAL DT SATC 1.14
A. such machinery or plant was not, at any time previous to the date of the installation used in
India;
B. such machinery or plant is imported into India from any country outside India; and
C. no deduction on account of depreciation in respect of such machinery or plant has been

allowed or is allowable under the provisions of this Act in computing the total income of any
person for any period prior to the date of the installation of machinery or plant by the person.
Explanation 2: Where in the case of a person, any machinery or plant or any part thereof
previously used for any purpose is put to use by the company and the total value of such
machinery or plant or part thereof does not exceed 20% of the total value of the machinery or
plant used by the company, then, for the purposes of sub-clause (ii) of this clause, the condition
specified therein shall be deemed to have been complied with;
iii. does not use any building previously used as a hotel or a convention centre, as the case
may be, in respect of which deduction under section 80-ID has been claimed and allowed.
b. the company is not engaged in any business other than the business of manufacture or production
of any article or thing and research in relation to, or distribution of, such article or thing
manufactured or produced by it.
Explanation: For the removal of doubts, it is hereby clarified that the business of manufacture or
production of any article or thing referred to in clause (b) shall not include business of,—
i. development of computer software in any form or in any media;
ii. mining;
iii. conversion of marble blocks or similar items into slabs;
iv. bottling of gas into cylinder;
v. printing of books or production of cinematograph film; or
vi. any other business as may be notified by the Central Government in this behalf; and
c. the total income of the company has been computed,—
i. without any deduction under the provisions of
 section 10AA or
 clause (iia) of sub-section (1) of section 32 or
 section 32AD or
 section 33AB or section 33ABA or
 sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA)
or sub-section (2AB) of section 35 or
 section 35AD or
 section 35CCC or section 35CCD or
 under any provisions of Chapter VI-A under the heading "C.—Deductions in respect of
certain incomes" other than the provisions of section 80JJAA;

FINAL DT SATC 1.15
ii. without set-off of any loss or allowance for unabsorbed depreciation deemed so under section
72A where such loss or depreciation is attributable to any of the deductions referred to in sub-
clause (i);
Explanation: For the removal of doubts, it is hereby clarified that in case of an amalgamation, the
option under sub-section (7) shall remain valid in case of the amalgamated company only and if
the conditions contained in sub-section (2) are continued to be satisfied by such company; and
iii. by claiming the depreciation under the provision of section 32, except clause (iia) of sub-
section (1) of the said section, determined in such manner as may be prescribed.
3. The loss referred to in sub-clause (ii) of clause (c) of sub-section (2) shall be deemed to have been given full
effect to and no further deduction for such loss shall be allowed for any subsequent year.
4. If any difficulty arises regarding fulfilment of the conditions contained in sub-clause (ii) or sub-clause (iii) of
clause (a) of sub-section (2) or clause (b) of said sub-section, as the case may be, the Board may, with
the approval of the Central Government, issue guidelines for the purpose of removing the difficulty and to
promote manufacturing or production of article or thing using new plant and machinery.
5. Every guideline issued by the Board under sub-section (4) shall be laid before each House of Parliament,
and shall be binding on the person, and the income-tax authorities subordinate to it.
6. Where it appears to the Assessing Officer that, owing to the close connection between the person to which
this section applies and any other person, or for any other reason, the course of business between them is so
arranged that the business transacted between them produces to the person more than the ordinary profits
which might be expected to arise in such business, the Assessing Officer shall, in computing the profits and
gains of such business for the purposes of this section, take the amount of profits as may be reasonably
deemed to have been derived therefrom:
Provided that in case the aforesaid arrangement involves a specified domestic transaction referred to in
section 92BA, the amount of profits from such transaction shall be determined having regard to arm's length
price as defined in clause (ii) of section 92F:
Provided further that the amount, being profits in excess of the amount of the profits determined by the
Assessing Officer, shall be deemed to be the income of the person.
7. Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed
manner on or before the due date specified under sub-section (1) of section 139 for furnishing the first of
the returns of income for any previous year relevant to the assessment year commencing on or after 1st
day of April, 2020 and such option once exercised shall apply to subsequent assessment years:
Provided that once the option has been exercised for any previous year, it cannot be subsequently
withdrawn for the same or any other previous year.

FINAL DT SATC 1.16
Class Notes

FINAL DT SATC 1.17
Tax on Income from Patent [Section 115BBF]

(1) Where the total income of an eligible assessee includes any income by way of royalty in respect of a
patent developed and registered in India, the income-tax payable shall be the aggregate of—
a) the amount of income-tax calculated on the income by way of royalty in respect of the patent at the
rate of ten per cent; and
b) the amount of income-tax with which the assessee would have been chargeable had his total income
been reduced by the income referred to in clause (a).
(2) No deduction in respect of any expenditure or allowance shall be allowed to the eligible assessee under
any provision of this Act in computing his income referred to in clause (a) of sub-section (1).
(3) The eligible assessee may exercise the option for taxation of income by way of royalty in respect of a
patent developed and registered in India in accordance with the provisions of this section, in the prescribed
manner, on or before the due date specified under sub-section (1) of section 139 for furnishing the return of
income for the relevant previous year.
(4) Where an eligible assessee opts for taxation of income by way of royalty under this section and the assessee
offers the income for taxation for any of the five assessment years relevant to the previous year succeeding
the previous year not in accordance with the provisions of sub-section (1), then, the assessee shall not be
eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the
assessment year relevant to the previous year in which such income has not been offered to tax in
accordance with the provisions of sub-section (1).
Other Points:
(a) "Developed" means at least 75% of the expenditure incurred in India by the eligible assessee for any
invention in respect of which patent is granted under the Patents Act, 1970
(b) "Eligible assessee" means a person resident in India and who is a patentee;
(c) "Patentee" means the person, being the true and first inventor of the invention, whose name is entered
on the patent register as the patentee, in accordance with the Patents Act, and includes every such
person, being the true and first inventor of the invention, where more than one person is registered as
patentee under that Act in respect of that patent;
(d) "Royalty", in respect of a patent, means consideration (including any lump sum consideration but
excluding any consideration which would be the income of the recipient chargeable under the head "Capital
gains" or consideration for sale of product manufactured with the use of patented process or the patented
article for commercial use) for the-
i. transfer of all or any rights (including the granting of a licence) in respect of a patent; or
ii. imparting of any information concerning the working of, or the use of, a patent; or
iii. use of any patent; or
iv. rendering of any services in connection with the activities referred to in sub-clauses (i) to (iii);

FINAL DT SATC 1.18
Tax on Income from Transfer of Carbon Credits
[Section 115BBG]
1. Where the Total Income of an assessee includes any income by way of transfer of carbon credits, the
income-tax payable shall be the aggregate of-
a) the amount of income-tax calculated on the income by way of transfer of carbon credits, at the rate of
10%; and
b)the amount of income-tax with which the assessee would have been chargeable had his total income
been reduced by the amount of income referred to in clause (a).
2. Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance
shall be allowed to the assessee under any provision of this Act in computing his income referred to
in clause (a) of sub-section (1).
Explanation:
For the purposes of this section, "Carbon Credit" in respect of one unit shall mean reduction of one tonne of
carbon dioxide emissions or emissions of its equivalent gases which is validated by the United Nations
Framework on Climate Change and which can be traded in market at its prevailing market price.

FINAL DT SATC 1.19
VARIOUS TAX RATES & INCOME %

[ASSESSMENT YEAR 2020-21]
TAX RATES
Section Tax Rates (%) Description Page No.
& Vol. No.
111A 15% STCGs from Listed Equity 15.30 (2)

shares etc
112A 10% LTCGs from Listed Equity 15.31 (2)
shares etc in excess of
` 100,000
112 20% LTCG other than covered in 15.30 (2)

Section 112A
Proviso to 10% LTCG from Listed Securities 15.30 (2)

Sec. 112 (STT not paid)
115A Dividend (if not 20%
exempt)
Interest Income in the 5%
nature u/s 194LB,
194LC, 194LD, Various Income to Non-
A.26 (4)
194LBA Residents
Other Interest Income 20%
Royalty/FTS 10%
115AB Income from Units
Income to Overseas Financial A.31 (4)
10% Organisations
LTCG from Units
115AC Interest/Dividend
10% Income from Bonds/GDRs to A.32 (4)
Income
NR
LTCG from
10%
Bonds/GDR
115ACA Dividend Income (if
Income from GDR to Resident A.33 (4)
not exempt) 10% Employee
LTCG from GDR
115AD Interest Income 20%
A.34 (4)
(5% if covered u/s
194LD)
STCG(15% if covered 30% Foreign Institutional Investor
u/s 111A)
LTCG (112A is also 10%
applicable)
115BA 25% Specified Domestic Company 1.7 (1)
115BAA 22%+Surcharge@10%+HEC@4% Any Domestic Company 1.9 (1)
115BAB 15% / 22% / 30% Specified Domestic Company 1.13 (1)

+Surcharge@10%+HEC@4%
FINAL DT SATC 1.20
115BB 30% Casual Income 8.2 (2)
115BBA 20% Non-Resident Sportsmen A.16 (4)
115BBC 30% Anonymous Donation (Trust) 6.5 (1)
115BBD 15% Dividend from Specified 8.15 (2)

Foreign Company to Indian
Company
115BBDA 10% Dividend in excess of 8.14 (2)
` 10,00,000
115BBE 60%+Surcharge@25%+HEC@4% Undisclosed Source of Income 8.18 (2)
115BBF 10% Resident Patentee (Royalty 1.17 (1)

Income)
115BBG 10% Income by way of Transfer of 1.18 (1)

Carbon Credit (Any Assessee)
115E Interest Income 20% A.36 (4)

Non-Resident Indian
LTCG 10%
30% (No grossing up) + On Deemed Dividend u/s 8.13 (2)

Surcharge (12%) + H&EC (4%) 2(22)(e)
115-O
(DDT)
15% (Grossing up is required) + On other dividends [Section 8.13 (2)
Surcharge (12%) + H&EC (4%) 2(22)(a) to (d)]
15% (MAT) Company Assessee 24.1 (3)

115JB
9% (MAT) Company being a unit located 24.11 (3)
in IFSC
18.5% (AMT) Any Person Other Than 20.1 (2)

Company
115JC
9% (AMT) Units located in IFSC 20.1 (2)
Chapter 6% Consideration for Online 13.3 (2)

VIII of Advertisement payable to
Finance Non-resident
Act 2016
[Equalization Levy]
Agriculture Income & Business Income

Particulars Rule AI BI
TEA Grown and Manufactured Rule 8 60% 40%

RUBBER plants Grown & Manf. Rule 7A 65% 35%
COFFEE Grown and Cured Rule 7B 75% 25%
COFFEE Grown, Cured, Roasted and Grounded Rule 7B 60% 40%

FINAL DT SATC 1.21
PRESUMPTIVE INCOME
Section Deemed Income Description Page No. &
Vol. No.
172 7.5% of Gross Receipts NR in Shipping Business A.17 (4)
44AD 8%/6% of Gross Receipts Res. Ind., HUF, Firm into Business 22.33 (3)
44ADA 50% of Gross Receipts Notified Professionals 22.35 (3)
` 1,000 per ton of gross

vehicle weight (Heavy
Goods Vehicle – GVW > Any assessee in business of plying,
44AE 22.33 (3)
12,000 kg) – per month hiring, leasing of goods carriage
Others - ` 7,500 p.m. per
Truck
44B 7.5% of Gross Receipts NR in Shipping Business A.18 (4)
44BB 10% of Gross Receipts NR providing services in Minerals Oils A.18 (4)
44BBA 5% of Gross Receipts NR in Airlines Business A.18 (4)
44BBB 10% of Gross Receipts NR in Power projects related activities A.18 (4)

FINAL DT SATC 1.22
Class Notes

FINAL DT - AGRI INCOME SATC 2.1
AGRICULTURAL INCOME
AGRICULTURE INCOME - Exempt u/s Section 10(1)
Section 10(1) provides that agricultural income is not to be included in the total income of the
assessee.
CONCEPT OF TAXATION OF THE AGRICULTURE INCOME

Agriculture Income is totally exempt under the Act, but shall be included in the total income in case
of certain assessee for the purpose of determining the rate of tax on the non-agriculture income
known as partial integration of taxes. It is applicable to Individuals, HUF, AOP, BOI and
Artificial Judicial Persons.
Two conditions which need to satisfied for partial integration are:

1. The Net Agricultural Income should exceed ` 5,000 p.a., AND
2. Non-Agricultural Income / Total Income / Taxable Income should exceed the maximum
amount not chargeable to tax (i.e. ` 500,000 for Very Senior Citizen, ` 3,00,000 for Senior
Citizens, ` 2,50,000 for all other individuals).
Tax calculation in such cases is as follows:

Step 1: Add non-agricultural income with net agricultural income. Compute tax on the aggregate
amount.
Step 2: Add net agricultural income and the maximum exemption limit available to the assessee
(i.e. ` 2,50,000 / ` 3,00,000 / ` 500,000). Compute tax on the aggregate amount.
Step 3: Deduct the amount of income tax calculated in step 2 from the income tax calculated in step 1
i.e. Step 1 – Step 2.
Step 4: The sum so arrived at shall be increased by Health & Education Cess @4% [Deduct Rebate
u/s 87A before cess if applicable]
[Note: In case TOTAL INCOME excluding LTCG/STCG(111A)/Casual Income etc does not
exceeds the maximum exemption limit, partial integration of tax will not be applicable.
DEFINITION OF AGRICULTURAL INCOME [Section 2(1A)]

Agricultural income may arise in any one of the following three ways:-
(1) It may be Rent or Revenue derived from land situated in India and used for agricultural
purposes.
(2) It may be income derived from such land

a. through agriculture or
b. through the performance of a process ordinarily employed by a cultivator or receiver of rent
in kind to render the produce fit to be taken to the market or
c. through the sale of such agricultural produce in the market.
(3) It may be derived from any farm building required for agricultural operations
Further, Income derived from saplings or seedlings grown in a nursery would be deemed to be
agricultural income, whether or not the basic operations were carried out on land.

FINAL DT - AGRI INCOME SATC 2.2
INCOME FROM COMPOSITE ACTIVITY OF AGRICULTURE & BUSINESS
Amount of Non-agricultural
Nature of Income Agricultural Income i.e.
Income business income
1. Income from sale of TEA Grown and
Manufactured by the assessee in India [Rule 8]
60% 40%
2. Income from RUBBER plants Grown by the seller
in India [Rule 7A]
65% 35%
3. Income derived from the sale of COFFEE Grown
and Cured by the seller in India [Rule 7B]
75% 25%
4. Income derived from the sale of COFFEE Grown,
Cured, Roasted and Grounded by the seller in 60% 40%
India [Rule 7B]
Rule 7 - Agricultural produce other than Tea, rubber etc.

used as Raw Material in a Manufacturing Concern
Where income is partially agricultural income and partially income chargeable to income-tax under the
head ‘profits and gains of business’, the market value of any agricultural produce which has been
raised by the assessee or received by him as rent in kind and which has been utilised as raw material in
such business or the sale receipts of which are included in the accounts of the business shall be
deducted. No further deduction shall be made in respect of any expenditure incurred by the
assessee as a cultivator or receiver of rent in kind.
KEY POINTS
1. Agriculture Income from outside India & Residential Status
2. Rent from Agriculture Land
3. Capital Gain from Transfer of Agriculture Land
4. Basic Operation including Subsequent Operations & change in form
5. Agriculture Income to Firm & taxability in the hands of Partners
6. Transfer into NABARD Account etc u/s 33AB – 40% of profit
7. Depreciation & Block Value in case of Tea, Rubber, Coffee Businesses
8. Tax Planning to avoid taxability under Partial Integration of Tax method
9. Agriculture Income to the Company & Applicability of MAT on agriculture Income

FINAL DT - AGRI INCOME SATC 2A.1
AGRICULTURAL INCOME
1. B Ltd. grows sugarcane to manufacture sugar. The data for the financial year 2019-20 is as follows :
Cost of cultivation of sugarcane ` 6,50,000
Market value of sugarcane when transferred to factory ` 10,50,000
Other manufacturing cost ` 6,50,000
Sales of sugar ` 28,00,000
Salary of Managing Director who looks after all operations of the Company ` 4,00,000
Determine its Business Income and Agricultural Income.
Solution:
(1) Business Income:
Sales of Sugar ` 28,00,000
Less: Market value of sugarcane when transferred to factory ` 10,50,000
Other manufacturing cost ` 6,50,000
Salary of Managing Director ` 4,00,000 ` 21,00,000
` 7,00,000
(2) Agricultural Income:

Market value of sugarcane when transferred to factory ` 10,50,000
Less: Cost of cultivation ` 6,50,000
` 4,00,000
2. For the assessment year 2020-21, net agricultural income of an assessee is ` 95,000 and non- agricultural
income is ` 14,85,000. The taxpayer contributes ` 80,000 towards Public Provident Fund. Finds out the tax
if the taxpayer is (i) A, an individual (27 years), (ii) B, a HUF, (iii) C, a firm assessed as such, (iv) D Ltd. an
Indian company.
Solution:
Computation of tax in the case of A (Individual) and B (HUF) as follows:
Particulars Amount (`
Gross Total Income 14,85,000
Less: deduction under section 80C 80,000
Total Income 14,05,000
Income- tax on ` 15,00,000 (i.e., agricultural income: ` 95,000 + non- agricultural 2,62,500
income: ` 14,05,000) [a]
Income-tax on agricultural income: ` 95,000 + exempted slab of income ` 2,50,000 [b] 4,750
Income-tax computed at [a] minus income-tax computed at [b] 2,57,750
Add: surcharge Nil
Tax and surcharge 2,57,750
Add: Health & Education Cess @ 4% 10,310
Tax payable 2,68,060
In the case of C (a firm) and D Ltd. tax liability will be as follows:
Particulars Amount (`)

Tax on non-agricultural income of ` 14,85,000 @30% [agricultural income is not 4,45,500
considered in the case of firm and companies]
Add: Surcharge Nil
Tax and surcharge 4,45,500
Tax liability 4,63,320

FINAL DT - AGRI INCOME SATC 2A.2
3. Miss Vivitha, a resident and ordinarily resident in India, has derived the following income from various
operations (relating to plantations and estates owned by her) during the year ended 31-3-2020 (amounts in
`) :
(i) Income from sale of centrifuged latex processed from rubber plants grown in Darjeeling.3,00,000
(ii) Income from sale of coffee grown and cured in Tamil Nadu. 1,00,000
(iii) Income from sale of coffee grown, cured, roasted and grounded, in Colombo.
(Sale consideration was received at Chennai.) 2,50,000
(iv) Income from sale of tea grown and manufactured in Simla. 4,00,000
(v) Income from sapling and seedling grown in a nursery at Cochin. 80,000
(Basic operations were not carried out by her on land)
You are required to compute the business income and agricultural income of Miss Vivitha for the AY
2020-21.
Answer: Computation of taxable income of Miss Vivitha (amounts in `)
Particulars Business Agricultural

income income
Income from growing & manufacturing rubber in India (Rule 7A)-35% : 65% 105,000 195,000
Income from growing and curing coffee in India (Rule 7B) -25% :75% 25,000 75,000
Income from growing/curing/roasting etc. coffee out of India in Columbo 250,000 0
(Sri Lanka) - Since the operations have taken place outside India, hence, no
part of such income can be regarded as agricultural income (Rule 7B will not
apply). Since Miss Vivitha is resident in India, hence, this income will be taxed
in India.
Income from growing and manufacturing tea in India (Rule 8) - 40% : 60% 160,000 240,000
Sale of plants from nursery (It is deemed agricultural income even if no 0 80,000
basic operations have been carried out as per explanation)
TOTAL (Amount in `) 540,000 590,000
4. Mr. Q has estates in Rubber, Tea and Coffee. He has also a nursery wherein he grows plants and sells. For
the Previous Year ending 31.3.2020, he furnishes the following particulars of his sources of income from
estates and sale of Plants. You are requested to compute the taxable income for the Assessment Year
2020-21:
Manufacture of Rubber ` 7,00,000
Manufacture of Coffee grown and cured ` 4,50,000
Manufacture of Tea ` 8,00,000
Sale of Plants from Nursery ` 2,00,000
Solution:
Computation of Taxable Income for the Assessment Year 2020-21
Rule Nature of Business Agl Inc. Non-Agl. Inc.
(`) (`)
7A Sale of centrifuged latex or cenex manufactured from rubber 4,55,000 2,45,000
[65% is Agricultural Income]
7B Sale of grown and cured coffee by seller in India 3,37,500 1,12,500

[75% is Agricultural Income]
8 Growing and Manufacturing Tea [60% is Agricultural Income] 4,80,000 3,20,000
Sale of plants from nursery 2,00,000 —

Total (Amount in `) 14,72,500 6,77,500

FINAL DT SATC 3.1
CLUBBING OF INCOME
TRANSFER OF INCOME WITHOUT TRANSFER OF THE ASSET [SEC 60]
If any person transfers the income from any asset without transferring the asset itself, such income is to
be included in the total income of the transferor.
Such transfer may be revocable or irrevocable. The provision applies irrespective of the time when the transfer
has been made i.e. it may be before or after the commencement of the Income-tax Act.
INCOME ARISING FROM REVOCABLE TRANSFER OF ASSETS [SECTION 61]

(i) All income arising to any person by virtue of a revocable transfer of assets is to be included in the total
income of the transferor.
(ii) As per section 63, the transfer is deemed to be revocable if whole or any part of income or assets is re-
transferred to the transferor or transferor gets the right over such income or assets.
Note: This clubbing provision will operate even if only part of income of the transferred asset had been applied
for the benefit of the transferor. Once the transfer is revocable, the entire income from the transferred asset is
includible in the total income of the transferor.
EXCEPTIONS WHERE CLUBBING PROVISIONS ARE NOT ATTRACTED EVEN IN CASE OF

REVOCABLE TRANSFER [SECTION 62]: Section 61 will not apply in the following 2 cases -
1. Transfer not revocable during the life time of the Beneficiary or the Transferee:
If there is a transfer of asset which is not revocable during the life time of the Transferee (Direct Transfer) or
Beneficiary (in case of transfer by way of Trust), the income from the transferred asset is not includible in
the total income of the transferor provided the transferor derives no direct or indirect benefit from such
income.
Note: In the above case, as and when the power to revoke the transfer arises, the income arising by virtue of
such transfer will be included in the total income of the transferor.
2. Transfer is made before 01.04.1961 & transfer is not revocable for a period exceeding 6 years.
CLUBBING OF INCOME ARISING TO SPOUSE FROM A CONCERN [SECTION 64(1)(ii)]

Any remuneration derived by a spouse from a concern in which the other spouse has a substantial interest,
shall be clubbed in the hands of the spouse who has a substantial interest in that concern.
No clubbing if remuneration is due to technical or professional qualifications of spouse.
If the husband and wife both have substantial interest in the concern and
- both are in receipt of remuneration from the concern,
- then the remuneration of both shall be clubbed in the hands of that spouse
- whose total income, before including such remuneration, is greater.

Where any such income is once included in the total income of either spouse, income arising in the
succeeding year shall not be included in the total income of the other spouse unless the Assessing
Officer is satisfied, after giving that spouse an opportunity of being heard, that it is necessary to do so.
Meaning of substantial interest:

An individual shall be deemed to have a substantial interest in the concern:
(i) For company - at least 20% equity shares of such company at any time during the PY are held
by Individual along with his relatives.
(ii) For any other case- at least 20% of the profits of such concern at any time during the PY is
held by individual along with his relatives.
“Relative” means the spouse, brother or sister or any lineal ascendant or descendant of the individual.
FINAL DT SATC 3.2
Question 1: Mr. Raman is a Chartered Accountant in practice. He engages his wife Mrs. Seetha as an
employee for audit works and pays a sum of ` 20,000/ – p.m. towards salary. Mrs. Seetha before marriage
has completed her C.A. articleship training and is presently awaiting result of the final examination.
Examine the tax implication in respect of the above transaction.
Ans: Where the spouse of the assessee has qualification and experience, the remuneration obtained by virtue of
the exercise or application of such qualification, experience and skill will not be subjected to clubbing because of
the proviso to Sec. 64(1). Therefore, the income of Mrs. Seetha should not be clubbed with that of Mr. Raman.
However, the Assessing Officer has power under section 40A(2) (refer PGBP Class) to examine the
reasonableness of the salary paid to a relative and disallow to the extent it is excessive or unreasonable.
Question 2: Mr B holds 5% shares in A Ltd., where his brother and nephew hold 11% and 6% shares,
respectively. Mrs B gets commission of ` 1,00,000 from A Ltd. for canvassing orders. She holds no
technical/professional qualification. Mr B earns income of ` 5,00,000 from sugar business. Compute their
total income for the AY 2020-21
Solution : Computation of Total Income for the AY 2020-21

Particulars of income Mr. B Mrs. B
` `
Income from sugar business 5,00,000
Commission for canvassing orders from Z Ltd. . 100,000
Total Income 5,00,000 100,000
Note: In the instant case, Mr B holds 5% and his brother holds only 11% shares in A Ltd. The total of their
shareholding is less than 20%. They have no substantial interest. Therefore, commission income is assessable as
income of Mrs B. [Nephew is not a relative fo clubbing purpose]
Question 3:
Mr. J and Mrs. J holds 15% and 10% shares in A Ltd. and both are employed by A Ltd. getting salary
income (computed) of ` 2,40,000 respectively. Their remuneration does not match their technical or
professional knowledge or experience. Apart from the salary income Mr. J has business income of
` 300,000 & Mrs. J has earned ` 3,00,000 as rent of the house property. Mr. J has invested ` 120,000 in PPF
account and another ` 60,000 in NSC. While Mrs. J has invested ` 1,10,000 in NSC and has donated
` 10,000 to PMNRF. Calculate the Total Income of Mr. J and Mrs. J.
Solution:
When both, husband and wife, have substantial interest in a concern and both are drawing remuneration from that
concern without possessing any specific qualification, remuneration from such concern will be included in the total
income of husband or wife, whose total income excluding such remuneration, is higher.
In given case, both has a substantial interest [shareholding with relative is 25%] & therefore remuneration will be
clubbed in the hands of spouse whose total income [Excluding salary from A Ltd.] is higher.
Calculation to check higher total income (ignoring salary income)

Mr. J Mrs. J
Income under the head Salary Ignore Ignore
Income under the head house property NIL
GAV 3,00,000
Less: Municipal Taxes NIL
NAV 3,00,000
Less: Statutory deduction 90,000 2,10,000
Income under the head PGBP 3,00,000 NIL
Gross Total Income 3,00,000 2,10,000
Less: Deduction u/s 80C 1,50,000 1,10,000
Deduction u/s 80G NIL 10,000
Taxable Income 1,50,000 90,000

FINAL DT SATC 3.3
Calculation of total income
Mr. J Mrs. J
Income under the head Salary 4,80,000 NIL
Mr. J’s own 2,40,000
Mrs. J’s 2,40,000 clubbed u/s 64(1)(ii)
Income under the head house property NIL 2,10,000
Income under the head PGBP 3,00,000 NIL
Less: Deduction u/s 80C 1,50,000 1,10,000
Deduction u/s 80G 10,000
Taxable Income 6,30,000 90,000
CASE STUDY: When other spouse is not beneficially holding Substantial Interest in the Concern
The HUF is a partner in the firm ABC through its Karta “Mr. X” and has 25% shares in the profits of the firm. Wife
of Mr. X is employed by firm ABC. In this case, clubbing shall not apply because Mr. X is partner in representative
capacity and not in individual capacity. Clubbing applies where an individual is a partner in his individual capacity
and has substantial interest in the firm and his spouse get remuneration from the firm.
INCOME ARISING TO THE SPOUSE FROM AN ASSET TRANSFERRED WITHOUT ADEQUATE

CONSIDERATION [SECTION 64(1)(iv)]
If an individual transfers directly or indirectly any asset other than house property to his/her spouse, the income
from such an asset shall be included in the total income of the transferor.
The income from the transferred assets shall not be clubbed in the following cases:
(i) if the transfer is for adequate consideration;
(ii) the transfer is under an agreement to live apart;
Note:
1. If an individual transfers a house property to his spouse, without adequate consideration or otherwise
than in connection with an agreement to live apart, the transferor shall be deemed to be the owner of the
house property and its annual value will be taxed in his hands. [Section 27]
2. It is also to be noted that natural love and affection do not constitute adequate consideration.
INCOME ARISING TO SON’S WIFE FROM THE ASSETS TRANSFERRED WITHOUT ADEQUATE
CONSIDERATION BY THE FATHER-IN-LAW OR MOTHER-IN-LAW [SECTION 64(1)(vi)]
Where an asset is transferred, directly or indirectly, by an individual to his or her son’s wife without adequate
consideration, the income from such asset is to be included in the total income of the transferor.
For the purpose of Clause (iv) & (vi) [Asset transferred to Spouse or Son’s wife] above,
following points must be noted:
1) The relationship must exist on the date of transfer as well as at the time of accrual of income during the
P.Y.
2) Clubbing is not applicable on any income which arises on accretion of the transferred asset.
3) Section 64(1)(iv) will not be applicable if the property is acquired by the spouse out of Pin Money.
4) Where the transferred assets is invested by the transferee in any business by way of capital
contribution then, the following proportionate income shall be clubbed with the income of the
individual:
Investment made by transferee out of transferred asset

As on the first day of Previous Year X Total income from such business
Total Investment in the business as on the

first day of Previous Year

FINAL DT SATC 3.4
Question No. 4 :
Mr A gifts ` 4,00,000 to Mrs A 1st February 2020. Mrs A starts crockery business and invests ` 1,00,000
from her account also. She earns profit of ` 60,000 during the period ending on 31 March 2020. How would
you tax the business profits?
Answer:
Proportionate profits, in proportion the gifted amount from the spouse on the first day of the previous year bears to
the total investment in the business on the first day of the previous year, will be taxable in the income of the
transferor spouse.
As Mrs A has started the new business, the first previous year will begin on the date of setting up and will end on
31 March, immediately following. Thus, the first previous year will consist a period of 2 months from 1 February
2020, to 31 March 2020.
Therefore, proportionate profit of ` 48,000, computed as below, will be included in the income of Mr. A:
Question No. 5 :
Mr A gifts ` 3,00,000 to Mrs A on 1st February 2020. Mrs A invests the same in the existing crockery
business where she has already invested ` 5,00,000. Mrs A earns ` 3,00,000 from the business during the
year 2019-20 ending on 31 March 2020 How would you assess the profits?
Answer: The previous year of the existing business is April to March. On the first day of the previous year (i.e. 1
April 2019), total investment has come from Mrs A account. As the proportion of the gifted amount from spouse on
1 April 2019 to the total investment in business on the same day is NIL, the whole of the profits of ` 3,00,000 for
the year 2019-20 will be included in the total income of Mrs A.
Question No. 6 : [INCOME ARISING FROM INCOME EARNED IS NOT TO BE CLUBBED]

Mr Goutam, out of his own funds, had taken a FDR for ` 1,00,000 bearing interest @ 10% p.a. payable half-
yearly in the name of his wife Latika. The interest earned for the year 2019-20 of ` 10,000, was invested by
Mrs Latika in the business of packed spices which resulted in a net profit of ` 55,000 for the year ended
31st March 2020. How shall the interest on FDR and income from business be taxed for the AY 2020-21?
Answer: Where an individual transfers an asset (excluding house property), directly or indirectly to his/her
spouse, otherwise than for adequate consideration, or in connection with an agreement to live apart, income from
such asset is included in the total income of such individual [Sec. 64(1)(iv)]. Accordingly, interest on FDR,
accruing to wife, is included in the total income of her husband.
However, business profits cannot be clubbed with total income of husband. Clubbing applies only to the income
from assets transferred without adequate consideration. It does not apply to the income from accretion of the
transferred assets. Hence, business profit is taxable as the income of wife.
TRANSFER OF ASSETS FOR THE BENEFIT OF THE SPOUSE [SECTION 64(1)(vii)]
Where any asset is transferred by an individual, without adequate consideration, to any person for the benefit of
Spouse, then any income arising from such transferred asset, is liable to be taxed in the hands of the transferor,
to the extent such income is used for the immediate / deferred benefit of such spouse.
IMP: Where any asset is transferred by any person to any person without consideration or for inadequate
consideration, the provisions of 56(2)(x) would get attracted in the hands of transferee, if conditions specified
thereunder are satisfied.
TRANSFER OF ASSETS FOR THE BENEFIT OF SON’S WIFE [SECTION 64(1)(viii)]
Where any asset is transferred by an individual, without adequate consideration, to any person for the benefit of
Son’s wife, then any income arising from such transferred asset, is liable to be taxed in the hands of the
transferor, to the extent such income is used for the immediate / deferred benefit of the Son’s wife

FINAL DT SATC 3.5
IMP: Where any asset is transferred by any person to any person without consideration or for inadequate
consideration, the provisions of 56(2)(x) would get attracted in the hands of transferee, if conditions specified
Question No.: NEW QUESTION ADDED

Mrs. Kasturi transferred her immovable property to ABC Co. Ltd. subject to a condition that out of the
rental income, a sum of ` 36,000 per annum shall be utilized for the benefit of her son’s wife.
Mrs. Kasturi claims that the amount of `36,000 (utilized by her son’s wife) should not be included in her
total income as she no longer owned the property. Examine with reasons whether the contention of Mrs.
Kasturi is valid in law.
Answer:
The clubbing provisions under section 64(1)(viii) are attracted in case of transfer of any asset, directly or indirectly,
otherwise than for adequate consideration, to any person to the extent to which the income from such asset is for
the immediate or deferred benefit of son’s wife. Such income shall be included in computing the total income of
the transferor-individual.
Therefore, income of ` 36,000 meant for the benefit of daughter-in-law is chargeable to tax in the hands of
transferor i.e., Mrs. Kasturi in this case. The contention of Mrs. Kasturi is, hence, not valid in law.
Note - In order to attract the clubbing provisions under section 64(1)(viii), the transfer should be otherwise than for
adequate consideration. In this case, it is presumed that the transfer is otherwise than for adequate consideration
and therefore, the clubbing provisions are attracted. Moreover, the provisions of section 56(2)(x) will also get
attract in the hands of ABC Co Ltd. if stamp duty value exceeds ` 50,000. and if the conditions specified
If it is presumed that the transfer was for adequate consideration, the provisions of section 64(1)(viii) would not be
attracted.
CLUBBING OF MINOR’S INCOME [SECTION 64(1A)]

The income of the minor child [including minor married daughter] is liable to be taxed in the hands of that parent,
whose total income, excluding income of minor child, is Greater.
Exception: No clubbing shall apply in case of following incomes:

1) Where a minor child is suffering from disability of the nature specified in Sec. 80U.
2) Where such income as arises / accrues to the minor child on account of any manual work done by him or
activity involving application of his skill, talent or specialized knowledge and experience.
Notes:
1. Section 10(32) provides that where the income of an individual includes the income of his minor child due to
the operation of Section 64(1A), the individual shall be entitled to exemption of such income subject to a
maximum of ` 1,500 per child. [Not applicable in case of Section 27 – Deemed Owner]
2. Once clubbing of minor’s income is done with that of one parent, it will continue to be clubbed with that
parent only, in subsequent years. The Assessing Officer, may, however, club the minor’s income with that of
the other parent, if, after giving the other parent an opportunity to be heard, he is satisfied that it is necessary
to do so.
3. Where the marriage of his parents does not subsist, income of the minor shall be clubbed in the income
of that parent who maintains the minor child in the relevant previous year.
4. If the income by way of manual work or activity involving application or skill, etc. which was not clubbed, in
invested, and income is earned thereon, such investment income shall be clubbed.
5. If the minor child becomes major during the P.Y., then the incomes till the date he remained minor in that
P.Y. shall be clubbed with the parent.
6. Minor Child includes step or adopted child.

FINAL DT SATC 3.6
CROSS TRANSFER
In the case of cross transfers also (e.g., A making gift of ` 50,000 to the wife of his brother B for the purchase of a
house by her and a simultaneous gift by B to A’s minor son of shares in a foreign company worth ` 50,000 owned
by him), the income from the assets transferred would be assessed in the hands of the deemed transferor if the
transfers are so intimately connected as to form part of a single transaction, and each transfer constitutes
consideration for the other by being mutual or otherwise.
Thus, in the instant case, the transfers have been made by A and B to persons who are not their spouse or minor
child so as to circumvent the provisions of this section, showing that such transfers constituted consideration for
each other.
Accordingly, the income arising to Mrs. B from the house property should be included in the total income of B and
the dividend from shares transferred to A’s minor son would be taxable in the hands of A. This is because A and B
are the indirect transferors to their minor child and spouse, respectively, of income-yielding assets, so as to
reduce their burden of taxation.
[Q7(a) – 8 Marks/CMA FINAL June 2017 Exam]
Past Question – CMA FINAL: Mr. Ram gave cash gift of ` 10 lakhs to his younger brother Mr. Bharat's wife
Smt. Mandavi. On the same date Mr. Bharat gave gift to wife of Mr. Ram viz, Smt. Sita a vacant land
measuring 2000 sq.ft. The stamp duty valuation of the land on the date of gift was 8 lakhs. Smt. Mandavi
invested 8 lakhs in bank fixed deposit fetching interest at 7 % per annum and commenced a business
with the balance of 2 lakhs along with her own capital of 3 lakhs. The profit for the year from the business
amounts to 1,50,000.
Determine the tax implication of the above transaction in the hands of all the parties.
Would your answer be different if all of them are non-relatives?

CMA FINAL - June 2017 Exam
Solution:
The amount gifted by Mr. Ram and Mr. Bharat would fall in the exceptions to section 56(2)(x) as they are
'relatives'. The amount gifted hence would not be liable to tax as income.
The relationship from donee's perspective it would be brother of spouse. The gift up to ` 8 lakhs is covered by
cross-transfer. Hence, the income arising therefrom is liable for clubbing in the hands of spouse of the person
deriving such income.
In the case of Smt. Sita, who received vacant site there is no income. Hence, the clubbing provision will not
operate.
As regards Smt. Mandavi, the interest income of 56,000 (`

` 8 lakhs × 7%) is liable for clubbing in the hands of Mr.
Bharat.
As regards income from business which includes the extra gift of ` 2 lakhs by Mr. Ram (brother of her spouse) is
not liable for clubbing. Hence the business income will have no tax implication.
In case they are not relatives:
The principles relating to cross-transfer will not apply when they are not relatives. The amount received by Smt.
Mandavi from Mr. Ram would be assessed as income under section 56(2)(x).
The business income of Smt. Mandavi and interest income will not be liable for any clubbing and hence would be
taxed in her hands. The stamp duty value of land received by Smt. Sita is assessable to tax as income under the
head 'other sources'.

FINAL DT SATC 3.7
CONVERSION OF SELF-ACQUIRED PROPERTY INTO THE PROPERTY OF A HUF [SEC 64(2)]
Where an individual, who is a member of the Hindu Undivided Family transfers his individual property to the
family, otherwise than for adequate consideration, then the income from such property shall continue to be
included in the total income of the individual.
Implication in the case of subsequent partition:

Where the converted property has been the subject matter of partition (whether partial or total) amongst the
members of the family, the income derived from such, converted property as is received by the spouse, on
partition, shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the
spouse and the income from the portion, received by the spouse, shall be clubbed in the hands
of the transferor.
DISTINCTION BETWEEN SECTION 61 AND SECTION 64
It may be noted that the main distinction between the two sections is that Section 61 applies only to a revocable
transfer made by any person while Section 64 applies to revocable as well as irrevocable transfers made
only by individuals.
LIABILITY OF THE TRANSFREE IN RESPECT OF CLUBBED INCOME [SECTION 65]
Sections 61 to 64 provide for clubbing of income of one person in the hands of the other in circumstances
specified therein. However, service of notice of demand (in respect of tax on such income) may be made upon the
person to whom such asset is transferred (i.e. the transferee). In such a case, the transferee is liable to pay that
portion of tax levied on the transferor which is attributable to the income so clubbed.
INCOME INCLUDES LOSS [CLUBBING OF NEGATIVE INCOME]
‘Income’ would include ‘loss’. Accordingly, where the specified income to be included in the total income of the
individual is a loss, such loss will be taken into account while computing the total income of the individual.
Example: Consider the following cases:

a) X transfers ` 1,00,000 to Mrs. X. By investing ` 1,00,000, Mrs. X sets up a business (total investment only
` 1,00,000). For the previous year, income from business is ( – ) ` 40,000. The loss of ` 40,000 will be
included in the income of X.
b) Minor son of Y has a business. For the previous year 2019-20, loss from business is ` 20,000. The loss of
` 20,000 will be included in the income of Y or Mrs. Y whosoever has higher income.

FINAL DT SATC 3.8
IMPORTANT POINTS
1) LOAN Vs TRANSFER: Giving a loan / Interest free Loan is not a transfer of assets. Therefore, if interest
free loan is given by husband to wife/individual to son’s wife/individual to his HUF, and the person to whom
the loan is given purchases an asset out of the loan, then income from such asset shall not be clubbed in the
hands of the person who has given the loan.
2) CONVERSION OF TRANSFERRED PROPERTY: The clubbing shall continue to apply even if the transferee
has converted the transferred assets to some other form. For example, a house property is transferred to
son's wife and she sells the house property and buys debentures, then income from debentures shall be
clubbed with the income of transferor.
3) CLUBBING OF CAPITAL GAIN INCOME: If the transferee sells the transferred assets, then capital gains
shall also be clubbed with the income of the transferor.
4) INCOME ON INCOME/ACCRETIONS TO THE ASSETS TRANSFERRED: Income arising out of income

earned on transferred assets has not to be clubbed. Therefore, if debentures are transferred to son's wife
without consideration and she receives debenture interest which is invested in bank FDR, then debenture
interest shall be clubbed with the income of the transferor but interest on shall bank FDRs shall not be
clubbed.
Similarly income arising from accretions to assets transferred has not to be clubbed. Therefore, capital
gains on bonus shares will not be clubbed with income of transferor where shares have been transferred and
the transferee receives bonus shares
5) INADEQUATE TRANSFER: If property has been transferred to spouse or son’s wife directly or indirectly for a
consideration which is inadequate, then only the part of income which is related to transfer of inadequate,
shall be clubbed.
6) The clubbing provisions of section 64(1)(iv) is not applicable if the property is transferred by a Karta of HUF,
gifting the coparcenary property to his wife.

FINAL DT SATC 3.9
CASE STUDY
[Adopted in CMA Study Material]
Issue addressed
Writ of declaration may be issued declaring the impugned amendment, viz., sub-section (1A) of section 64 of the
Income-tax Act as illegal and unconstitutional since it is violative of Articles 14, 19 and 165 of the Constitution.
[Section 64(1A) is inserted w.e.f. AY 1993-94 by FA 1992]
Facts of the instant case

K.M. Vijayan and Others vs Union Of India and Others on 28 March, 1995
Decision given by Madras High Court Writ Petition No. 16425 of 1992
The petitioner herein is an advocate. He is an income-tax assessee. His wife, Mrs. B. Vasanthakumari, and his
minor daughter, V. Suchitra, are also assessees with regard to their independent source of income. In so far as
the daughter of the petitioner is concerned, the source of her income is traceable to the property which she
obtained by a will from her maternal grandfather while she was five months old. She receives rental income
from such property, which she reinvests and gets income by way of interest.
Since the minor daughter's income is not traceable to the fictitious income covered under the unamended section
64 of the Income-tax Act, 1961, she got herself assessed under the Income-tax Act, 1961, from the date she used
to get assessable income. For the past several years, she was an assessee under the Income-tax Act in her
individual capacity.
Until the assessment year 1992-93, her income was not clubbed with the petitioner's income as her source of
income was not derived from any one of the ways mentioned in section 64 of the Act, as it was then prevailing.
But after the amendment, her income is clubbed with her father's income, who was hitherto assessed
independently.
The grievance of the petitioner is, as per the amended Act, by clubbing the income of his minor daughter who was
hitherto assessed independently, the tax burden at his hands became higher for no fault of his. The petitioner has
no proximate or even remote connection with his minor daughter's income, besides the actual assessment. He
has difficulty to pay the advance tax on the clubbed income of his minor daughter, and failure to do so will have
penal consequences on him.
Therefore, the impugned amendment causes grave prejudice to his right to be assessed on his own income
without clubbing the income of his minor daughter on which she was assessed hitherto by separate assessment.
It was, therefore, prayed that a writ of declaration may be issued declaring the impugned amendment, viz.,
subsection (1A) of section 64 of the Income-tax Act as illegal and unconstitutional since it is violative of
articles 14, 19 and 165 of the Constitution.
Key Aspects Considered
The question in these writ petitions is whether section 64(1A) of the Income-tax Act, 1961 (hereinafter
referred to as "the Act"), is constitutionally valid. The said sub-section (1A), which was introduced in Section
64 by the Finance Act, 1992, with effect from April 1, 1993, enacts that in computing the total income of any
individual (for the purpose of levying the tax on such total income under the Act), there shall be included "all" such
income as arises or accrues to his minor child.
Division Bench of the Madras High Court, while upholding the constitutional validity of the abovesaid section
64(1A) of the Act, has not only held that the above said section 64(1A) is not violative of Article 14 of the
Constitution of India, but has also held that Parliament had the legislative competency to enact the said provision
under the abovesaid entry 82 itself. No doubt, the reasoning of the High Court for coming to the said conclusion is
that the said provision under section 64(1A) was enacted only for the purpose of checking the tendency to evade
tax and would, therefore, squarely fall under entry 82 itself.

FINAL DT SATC 3.10
Class Notes

FINAL DT SATC 3.11
EXAMPLES
1. Mrs. G holds 7% equity shares in B Ltd., where her married sister, Mrs. N also holds 14% equity
shares. Mr. G is employed with B Ltd., without holding technical professional qualification. The
particulars of their income for the Previous Year 2019-20 are given as follows:
[CMA Module]
Income Mr. G (`
`) Mrs. G (`
`)
(a) Gross Salary from B Ltd. 1,12,000 —
(b) Dividend from B Ltd. — 6,000
(c) Income from House Property 90,000 —
Solution :
Computation of Total Income of Mr. G & Mrs. G for the A.Y. 2020-21
Particulars Mr. G ` Mrs. G `
Taxable Salary to be included in the total income of Mrs G [Sec. 64(1)(ii)] — 62,000
[Gross Salary (``1,12,000) less Deduction u/s 16(ia) ` 50,000]
Add: Income from House Property 90,000 —
Add: Income from Other Sources : Dividends to Mrs G, but exempt under — Nil
Sec. 10(34)
Total Income 90,000 62,000
Note:
(a) In the instant case, Mrs. G along with his sister, holds substantial interest in B Ltd. and Mr. G does not
hold professional qualification. Accordingly, remuneration of Mr. G has been included in the total income
of Mrs. G.
(b) If the requisite conditions of clubbing are satisfied, clubbing provision will apply even if their application
results into lower incidence of tax.
2. Mr. B holds 5% shares in A Ltd., where his brother and nephew hold 11% and 6% shares, respectively.
Mrs. B gets commission of ` 1,00,000 from A Ltd. for canvassing orders. She holds no
technical/professional qualification. Mr. B earns income of ` 5,00,000 from sugar business. Compute
their Total Income for the Assessment Year 2020-21. [CMA Module]
Solution :
Computation of Total Income for the AY 2020-21
Particulars of income Mr. B (`
`) Mrs. B (`
`)
Income from sugar business 5,00,000 —
Commission for canvassing orders from A Ltd. — 1,00,000
Total Income 5,00,000 1,00,000
Note: In the instant case, Mr. B holds 5% and his brother holds only 11% shares in A Ltd. The total of their
shareholding is less than 20%. They have no substantial interest.
Therefore, commission income is assessable as income of Mrs. B.
3. The shareholding of Mr. K and Mrs. K in S Ltd, is given as follows:

(a) Shareholding of K 7%
(b) Shareholding of Mrs. K 9%
(c) Shareholding of M, brother of K 8%
(d) Shareholding of F, father of Mrs. K 5%
Mr. K and Mrs. K are employed with S Ltd. None of them hold technical qualification. Mr. K gets salary
@ ` 10,000 p.m and Mrs. K gets @ ` 12,000 p.m.
Income from Other Sources: `

Mr. K 80,000
Mrs. K 1,00,000
Compute total income for the Assessment Year 2020-21 [CMA Module]

FINAL DT SATC 3.12
Solution : Computation of Total Income for the AY 2020-21
Particulars Mr. K (`
`) Mrs. K (`
`)
1. Salary Income (1,44,000 – 50,000) 94,000
Salary income of Mr. K (120,000 – 50,000) to be included in the 70,000
total income of Mrs. K as her Income from Other Sources is greater
and both of them have substantial interest along with their relative
in S Ltd. 80,000 1,00,000
2. Income from Other Sources
Total Income 80,000 2,64,000
4. Mrs. Z is the owner of the business units A and B. A unit has been started with capital contribution
from Mr. Z and B unit has been started out of capital contribution from Mrs. Z. The particulars of their
income for the Previous Year 2019-20 are as follows:
Particulars Mrs. Z Mr. Z
(a) Income from A unit (–) 6,00,000 —
(b) Income from B unit 4,00,000 _
(c) Income from House Property — 2,50,000
How would you assess them for the Assessment Year 2020-21? [CMA Module]
Solution :
(a) Mrs. Z is assessable on the profits from B unit. She cannot set-off the loss from A unit against the profits
of B unit. Thus, she would be assessed on ` 4,00,000.
(b) The loss from A unit will be included in the total income of Mr Z in view of Sec. 64(1)(iv). “Income”
includes “loss” also. Mr Z is entitled to set-off business loss of A’s unit against Income from House
Property. Thus, loss of ` 3,50,000 would be carried forward but could be set-off only against business
profits.
5. Sawant is a fashion designer having lucrative business. His wife is a model. Sawant pays her a
monthly salary of ` 20,000. The Assessing Officer, while admitting that the salary is an admissible
deduction, in computing the total income of Sawant, had applied the provisions of Sec. 64(1) and had
clubbed the income (salary) of his wife in Sawant’s hands. Discuss the correctness of the action of
the Assessing Officer. [CMA Module]
Solution:
Where an individual has got substantial interest in a concern and his spouse derives any income from such
concern by way of salary, commission, fees or by any other mode, such income is clubbed with the total
income of such individual [Sec. 64(1)(ii)].
However, clubbing provision does not apply if the earning spouse holds technical or professional qualification
and the income is solely attributable to the application of such knowledge and experience. Salary earned by
wife as model from the concern where her husband holds substantial interest is assessable as her income.
6. Discuss whether the loss could be set-off in the following case:

Smt. Vatika carried on business with the gifted funds of her husband Mr. Dabbu. For the Previous
Year ending 31.3.2020, Vatika incurred loss of ` 5 lakh which Dabbu wants to set-off from his taxable
income. [CMA Module]
Solution: Funds for business were gifted by husband to wife. Accordingly, income from business should be
clubbed with the income of husband [Sec. 64(1)(iv)].
“Income” includes “loss” also. Hence, husband is entitled to set-off the business loss of wife against his
taxable income.
7. Is Section 64(1)(vii) applicable, if one individual gifts assets to wife and children of his brother who
similarly gifts to the wife and children of the former individual? [CMA Module]
Solution: A mutual agreement between the two brothers is inferable, so that it could be treated as indirect
transfer as one’s own wife and children as decided by the Supreme Court in CIT vs. C.M. Kothari (1963) 49
ITR 107 (SC). [Cross Transfer]

FINAL DT SATC 3.13
8. Mr. Rose, out of his own funds, had taken an FDR for ` 10,00,000 bearing interest @ 10% p.a. payable
half-yearly in the name of his wife Lilly. The interest earned during the financial year 2019-20 of
` 1,00,000 was invested by Mrs. Lilly in the business of packed spices which resulted in a net profit of
` 55,000 for the year ended 31.03.2020. How shall the interest on FDR and income from business be
taxed for the Assessment Year 2020-21? [CA - FINAL]
Answer
Section 64(1)(iv) of the Act specifies that the income derived by the spouse of an assessee from the assets
transferred directly or indirectly without adequate consideration or intention to live apart shall be clubbed with
the income of the transferor. Therefore, the interest income of `1 lac on the FDR of `10 lacs for the F.Y. 2019-
20 shall be clubbed with the income of Mr. Rose.
When Mrs. Lilly invested the interest income in a business and earned profits therefrom, such profits shall not
be clubbed with the income of her husband but shall be taxable in her individual capacity. This is so because
the income from the accretion of the transferred assets is not to be clubbed with the income of the
transferor [CIT v. M.S.S.Rajan (2001) 252 ITR 126 (Mad)].
9. Mr. Vasudevan gifted a sum of ` 6 lakhs to his brother's wife on 14-6-2019. On 12-7-2019, his brother
gifted a sum of ` 5 lakhs to Mr. Vasudevan's wife. The gifted amounts were invested as fixed deposits
in banks by Mrs. Vasudevan and wife of Mr. Vasudevan's brother on 01-8-2019 at 9% interest. Discuss
the consequences of the above under the provisions of the Income-tax Act, 1961 in the hands of Mr.
Vasudevan and his brother. [CA - FINAL]
Answer
In the given case, Mr. Vasudevan gifted a sum of ` 6 lakhs to his brother’s wife on 14.06.2019 and
simultaneously, his brother gifted a sum of ` 5 lakhs to Mr. Vasudevan’s wife on 12.07.2019. The gifted
amounts were invested as fixed deposits in banks by Mrs. Vasudevan and his brother’s wife. These transfers
are in the nature of cross transfers. Accordingly, the income from the assets transferred would be assessed in
the hands of the deemed transferor because the transfers are so intimately connected to form part of a single
transaction and each transfer constitutes consideration for the other by being mutual or otherwise.
If two transactions are inter-connected and are part of the same transaction in such a way that it can
be said that the circuitous method was adopted as a device to evade tax, the implication of clubbing
provisions would be attracted. It was so held by the Apex Court in CIT vs. Keshavji Morarji (1967) 66
ITR 142.
Accordingly, the interest income arising to Mrs. Vasudevan in the form of interest on fixed deposits would be
included in the total income of Mr. Vasudevan and interest income arising in the hands of his brother’s wife
would be taxable in the hands of Mr. Vasudevan’s brother as per section 64(1), to the extent of amount of
cross transfers i.e. ` 5 lakhs.
This is because both Mr. Vasudevan and his brother are the indirect transferors of the income to their
respective spouses with an intention to reduce their burden of taxation.
Therefore, the interest income earned by his spouse on fixed deposit of ` 5 lakhs alone would be included In
the hands of Mr. Vasudevan’s brother and not the interest income on the entire fixed deposit of ` 6 lakhs,
since the cross transfer is only to the extent of ` 5 lakhs.
10. In the following cases discuss whether the loss could be set off:
(i) Smt. Shanti carried on business with gifted funds of her husband Mahesh. For the financial year
2019-20, Shanti incurred loss of ` 2 Lacs which loss Mahesh wants to setoff from his taxable
income.
(ii) Smt. Bhanu succeeded to the business of her husband Sri. Bhavesh who died on 10th September
2019. She carried on the business as proprietor. The business of Bhavesh upto the date of his
death resulted in a loss. Smt. Bhanu earned profit in business for the period ending 31.03.2020.
Bhanu wants to set off the loss of her husband for the period ending 10th September, 2019
against her income. [CA - FINAL]

FINAL DT SATC 3.14
Answer
(i) Under section 64(1)(iv), where any asset is transferred directly or indirectly to the spouse by an individual,
otherwise than for adequate consideration or in connection with an agreement to live apart, the income
arising therefrom is included in the hands of the transferor. The term “income” in this context includes
“loss” as well. Therefore, the loss sustained by Shanti in the business carried on by her with funds gifted
by her husband can be set off by her husband.
(ii) Section 78(2) says that where any person carrying on any business or profession is succeeded in such
capacity by another person otherwise than by inheritance, no person other than the person incurring the
loss is entitled to carry forward the loss and set it off against his income.
The facts of the case seem to indicate that Smt. Bhanu has succeeded to the business by inheritance and
is not affected by the provisions of section 78(2). Therefore she is eligible to carry forward and set off the
loss of her husband against her own income. Succession by inheritance is an exception to the general bar
contained in section 78(2) against carry forward and set off of losses of predecessor.
11. Mr. Siddharth was a partner in a firm, representing his HUF, holding 25% of the share in the firm. His
wife Vineeta, a house lady, was admitted in her individual capacity in the firm for 25% share. She was
paid remuneration which has been proposed by the Assessing Officer to be clubbed in the hands of
Siddharth-HUF by invoking section 64 of the Act. [CA - FINAL]
Answer
As per section 64(1)(ii), in computing the total income of any "individual", the remuneration paid to spouse by
a firm in which the individual has substantial interest shall be liable for clubbing. In the present case, Mr.
Siddharth is not a partner in his individual capacity, but a partner in representative capacity.
The Supreme Court has, in the case of CIT vs. Om Prakash (1996) 217 ITR 785, held that an individual can
be a partner in a partnership firm in his individual capacity or in the capacity of the Karta of a Hindu undivided
family or, for that matter, in any other capacity, e.g., as a trustee. Where a person is a partner as the Karta of
a Hindu undivided family, the capacity in which he is a partner in the partnership firm is relevant as between
him and the other members of the Hindu undivided family. The income the Karta receives as a partner is not
his individual income; it is the income of the Hindu undivided family and he receives it on behalf of the Hindu
undivided family.
It is for this reason that the income of the wife arising from her membership of the partnership firm, is held not
includible in the income of the Hindu undivided family since the total income of the Hindu undivided family is
not the total income of the individual (husband). For section 64(1) to get attracted, it is necessary that the
spouse should be a partner in a partnership firm in his individual capacity. It is not attracted where he
is a partner as the Karta of the Hindu undivided family to which his wife belongs. The action of the
Assessing Officer in this case is, therefore, not correct.
12. Dinesh, an individual engaged in the business of finance, advances ` 5 lacs to his HUF on interest at
12% p.a., which is the prevailing market rate. The HUF invests the amount in its business and earns
profit of ` 2 lacs from this money. Can the Assessing Officer add a sum of ` 1,40,000 (i.e. ` 2,00,000 -
` 60,000) as income of Dinesh under section 64(2) of the I.Tax Act, 1961? [CA - FINAL]
Answer
Section 64(2) shall be applicable only where an individual member of HUF converts his property into the
property of HUF or throws it into the common stock of the HUF without adequate consideration.
In this case, Dinesh does not transfer money to his HUF but only lends an amount of ` 5 Lacs to his HUF at
an interest of 12%, which is the prevailing market rate. This is a transaction of loan, which pre-supposes,
repayment. Dinesh continues to be the owner of the amount lent. Thus, there is no transfer of property from
Dinesh to the HUF. Therefore, the Assessing Officer cannot add the profit arising to HUF in the total income
of Dinesh by invoking section 64(2).

FINAL DT SATC 3.15
SUMMARY OF CLUBBING CHAPTER
Section Important Provisions
60 If any person transfers the income from any asset without transferring the asset itself, such income is
to be included in the total income of the transferor.
61 1. All income arising to any person by virtue of a revocable transfer of assets is to be included in the
total income of the transferor.
2. The transfer is deemed to be revocable if whole or any part of income or assets is re-transferred to
the transferor or transferor gets the right over such income or assets.
3. Exception: If there is a transfer of asset which is not revocable during the life time of the
transferee, the income from the transferred asset is not includible in the total income of the
transferor
64(1)(ii) Remuneration of spouse from a concern in which another spouse has substantial interest
1. Any remuneration derived by a spouse from a concern in which the other spouse has a substantial
interest, shall be clubbed in the hands of the spouse who has a substantial interest in that concern.
2. No clubbing if remuneration is due to technical or professional qualifications of spouse.
3. If the husband and wife both have substantial interest in the concern and both are in receipt of
remuneration from the concern, then the remuneration of both shall be clubbed in the hands of that
spouse whose total income, before including such remuneration, is greater.
4. Meaning of substantial interest:
Ownership of atleast 20% equity shares / 20% of the profits of such concern at any time during the
PY is held by individual along with his relatives.
[“Relative” means the spouse, brother or sister or any lineal ascendant or descendant of the
individual]
64(1)(iv) Income from assets transferred to the spouse for without adequate consideration
If an individual transfers (otherwise than as a consideration to live apart) directly or indirectly any asset
other than house property to his/her spouse, the income from such an asset shall be included in the
total income of the transferor.
64(1)(vi) Income from assets transferred to son's wife for without adequate consideration
Where an asset is transferred, directly or indirectly, by an individual to his or her son’s wife without
adequate consideration, the income from such asset is to be included in the total income of the
transferor.
Common points:
1) The relationship must exist on the date of transfer as well as at the time of accrual of income
during the P.Y.
2) Clubbing is not applicable on any income which arises on accretion of the transferred asset. [Say
bonus shares allotted after transfer of shares]
3) Where the transferred assets is invested by the transferee in any business by way of capital
contribution then, the following proportionate income shall be clubbed with the income of the
individual:
Investment made by transferee out of transferred asset
as on the first day of Previous Year X Total income from such business
Total Investment in the business as on the

first day of Previous Year

FINAL DT SATC 3.16
64(1)(vii) Where any asset is transferred by an individual, without adequate consideration, to any person for the
benefit of Spouse, then any income arising from such transferred asset, is liable to be taxed in the hands
of the transferor, to the extent such income is used for the immediate / deferred benefit of such
spouse.
64(1)(viii) Where any asset is transferred by an individual, without adequate consideration, to any person for the
benefit of Son’s wife, then any income arising from such transferred asset, is liable to be taxed in the
hands of the transferor, to the extent such income is used for the immediate / deferred benefit of the
Son’s wife
64(1A) Clubbing of income of a minor child The income of the minor child [including minor married
daughter] is liable to be taxed in the hands of that parent,
whose Total Income, excluding income of minor child, is
Greater.
Exception: No clubbing shall apply in case of following incomes:
1. Where a minor child is suffering from disability of the nature specified in Sec. 80U.
2. Where such income as arises / accrues to the minor child on account of any manual work done by
him or activity invoking application or his skill, talent or specialized knowledge and experience.
1. Exemption u/s Section 10(32): Maximum exemption of ` 1,500 per annum per child.
2. Marriage of his parents does not subsist : Clubbing to that parent who maintains the minor child
3. If the income by way of manual work or activity involving application or skill, etc. which was not
clubbed, in invested, and income is earned thereon, such investment income shall be clubbed.
4. If the minor child becomes major during the P.Y., then the incomes till the date he remained minor
in that P.Y. shall be clubbed with the parent.
64(2) Income from self acquired property converted to joint family property for inadequate consideration
1. Where an individual, who is a member of the HUF converts, his separate property as the property
of the HUF otherwise than for adequate consideration, then the income from such property shall
continue to be included in the total income of the individual.
2. Implication in the case of subsequent partition:

Where the above converted property has been distributed on partition among members of the family,
the income derived from such, converted property as is received by the spouse, after partition, shall
be deemed to arise to the spouse from assets transferred indirectly by the individual to the
spouse and the income from the portion, received by the spouse, shall be clubbed in the
hands of the transferor.
65 Liability of transferee: The transferee is always liable to pay that portion of tax levied on the transferor
which is attributable to the income so clubbed.
Other 1. Loan is not a transfer, so clubbing will not apply on Loan amount (even if it given interest free to
Common spouse, son’s wife etc.)
Points 2. The clubbing provisions of section 64(1)(iv) is not applicable if the property is transferred by a Karta
of HUF, gifting the coparcenary property to his wife.
3. Income accruing or arising from transferred assets only will be clubbed. Any income earned out of
such income [accreted assets] should not be clubbed [Dividend/CG from Bonus Shares allotted to
transferee]
4. The clubbing shall continue to apply even if the transferee has converted the transferred assets to
some other form.
5. If property has been transferred to spouse or son’s wife directly or indirectly for a consideration
which is inadequate, then only the part of income which is related to transfer of inadequate, shall
be clubbed

FINAL DT SATC 3.17
Class Notes

FINAL DT SATC 3.18
Class Notes

FINAL - DT SATC 3A.1
PRACTICAL QUESTION - CLUBBING

1) X holds 20 per cent equity share capital in Y Ltd. Mrs. X is employed by Y Ltd. (salary being ` 40,000 per
month) as general manager (finance). She does not have any professional qualification to justify
remuneration. Ascertain in whose hands salary income is chargeable to tax. Does it make any
difference if Mrs. X was employed by Y Ltd. even prior to her marriage?
2) Shankar has transferred a house property to Uma on 1st April 2012. Uma married Shekar, who is the son of
Shankar on 1st April 2019. The income from the property received by Uma during the previous year 2019-20
is ` 1,20,000. The assessing officer has clubbed the above income in the hands of Shankar. Is the action of
assessing officer tenable under the law?
3) Mr. Vaibhav started a proprietary business on 01.04.2018 with a capital of ` 5,00,000. He incurred a loss of
` 2,00,000 during the year 2018-19. To overcome the financial position, his wife Mrs. Vaishaly, a software
Engineer, gave a gift of ` 5,00,000 on 01.04.2019, which was immediately invested in the business by Mr.
Vaibhav. He earned a profit of ` 4,00,000 during the year 2019-20. Compute the amount to be clubbed in
the hands of Mrs. Vaishaly for the Assessment Year 2020-21.
If Mrs. Vaishaly gave the said amount as loan, what would be the amount to be clubbed?
4) Mr. B is the Karta of a HUF, whose members derive income as given below:
Particulars `
(a) Income from B' s profession 45,000
(b) Mrs. B' s salary (computed) as fashion designer 76,000
(c) Minor son D (interest on fixed deposits with a bank which were gifted to him 10,000
by his uncle)
(d) Minor daughter P's earnings from sports 95,000
(e) D's winnings from lottery (gross) 1,95,000
Discuss the tax implications in the hands of Mr. and Mrs. B.
5) The following details are furnished in respect of Mr. X and his family members. Determine the gross
total income:
Particulars Mr. X Mrs. X Minor Child
` ` `
Income as a child artist in films — — 60,000
Business Income (Own) (40,000)
Salary income (computed) from X Ltd. in
which Mr. X holds 25% voting power — 30,000 —
Share of profit from Firm AB & Co. (40%) 80,000 — (10%) 20,000
Commission from AB & Co. — 20,000 —
Interest income 8,000 5,000 4,000
Note:
a) Mrs. X possesses B.Com degree and works as accountant of X Ltd.,
b) Mrs. X does not render any services to M/s. AB & Co.,
c) Interest income received by Mrs. X is from an investment of ` 40,000 gifted by Mr. X and ` 40,000
invested from her own resource.

FINAL - DT SATC 3A.2
6) Determine the GTI of R and his wife from the following particulars for the year ending 31.3.2020:
i) R and his wife are partners in a firm carrying on garments business, their respective shares of profit
being ` 35,000 and ` 40,000.
ii) Their 17 year old son has been admitted to the benefits of another firm, from which he received
` 25,000 as his share of profit in the firm and ` 24,000 as interest on capital. The capital, was invested
out of the minor's own funds amounting to ` 1,50,000.
iii) A house property in the name of R was transferred to his wife on 1.12.2019 for adequate
consideration. The property has been let at a rent of ` 5,000 p.m.
iv) Debentures of a company of ` 2,00,000 and ` 1,00,000 purchased two years ago are in the names of
R and his wife respectively, on which interest is receivable at 14% p.a. His wife had in the past
transferred ` 1,00,000 out of her income to R for the purchase of the debentures in R's name.
v) R had transferred ` 60,000 to his wife in the year 1990 without any consideration which was given as a
loan by her to G. She earned ` 15,000 as interest during the earlier previous years which was also
given on loan to G. During the financial year 2019-20, she received interest at 10% p.a. on ` 75,000.
vi) R transferred ` 60,000 to a trust, the income accruing from its investment as interest amounted to `
9,000, out of which ` 6,000 shall be utilised for the benefit of his son's wife and ` 3,000 for the benefit
of his son's minor child.
7) During the previous year 2019-20, the following transactions occurred in respect of Mr. A.
(a) Mr. A had a fixed deposit of ` 5,00,000 in Bank of India. He instructed the bank to credit the interest on
the deposit @ 9% from 1-4-2019 to 31-3-2020 to the savings bank account of Mr. B, son of his brother, to
help him in his education.
(b) Mr. A holds 75% share in a partnership firm. Mrs. A received a commission of ` 25,000 from the firm for
promoting the sales of the firm. Mrs. A possesses no technical or professional qualification.
(c) Mr. A gifted a flat to Mrs. A on April 1, 2019. During the previous year 2019-20, Mrs. A’s “Income from
house property” (computed) was ` 52,000.
(d) Mr. A gifted ` 2,00,000 to his minor son who invested the same in a business and he derived income of
` 20,000 from the investment.
(e) Mr. A’s minor son derived an income of ` 20,000 through a business activity involving application of his
skill and talent.
During the year, Mr. A got a pension of ` 120,000. He had no other income. Mrs. A has salary income of `
240,000 (computed) from a part time job.
Discuss the tax implications of each transaction and compute the total income of Mr. A, Mrs. A and
their minor child.
8) Discuss the tax implications of income arising from revocable transfer of assets. When will the clubbing
provisions not apply at present, even where there is revocable transfer of assets?
9) Explain the provisions of the Income-tax Act, 1961, with regard to clubbing of income of spouse u/s 64.
10) Mrs. Kasturi transferred her immovable property to ABC Co. Ltd. subject to a condition that out of the rental
income, a sum of ` 36,000 per annum shall be utilized for the benefit of her son’s wife. Mrs. Kasturi claims
that the amount of ` 36,000 (utilized by her son’s wife) should not be included in her total income as she no
longer owned the property.
State with reasons whether the contention of Mrs. Kasturi is valid in law.

FINAL DT SATC 3B.1
SOLUTION - CLUBBING
Solution 1: In this case, X has substantial interest in Y Ltd. where Mrs. X is employed. Mrs. X does not have any
professional qualification to justify the remuneration of ` 40,000 per month. Her salary income of ` 4,30,000 (i.e.,
` 40,000 X 12 less deduction u/s 16(ia) – 50,000) will be taxable in the hands of X. It does not make any
difference even if Mrs. X was employed by Y Ltd. prior to her marriage.
Solution 2: Income arising out of asset transferred without adequate consideration to son's wife is liable to
clubbed in the hands of the assessee, if the said relationship exists both at the time of transfer of property and at
the time of accrual of income. Since, in this case, the said relationship didn't exist between Uma and Shankar at
the time of transfer of house property, the income of ` 1,20,000 arising to Uma cannot be clubbed with the income
of Shankar. Hence, the action of the assessing officer is untenable in law.
Solution 3: Section 64(1)(iv) of the Income-tax Act, 1961 provides for the clubbing of income in the hands of the
individual, if the income earned is from the assets (other than house property) transferred directly or indirectly to
the spouse of the individual, otherwise than for adequate consideration or in connection with an agreement to live
apart.
In this case, Mr. Vaibhav received a gift of Rs 5,00,000 on 1.4.2019 from his wife Mrs. Vaishaly, which he
invested in his business immediately. The income to be clubbed in the hands of Mrs. Vaishaly for the A.Y.
2020-21 is computed as under:
Particulars Mr. Vaibhav’s capital Capital contribution Total (`)
contribution (`) out of gift from Mrs.
Vaishaly (`)
Capital as on 1.4.2019 3,00,000 5,00,000 8,00,000
(5,00,000 - 2,00,000)
Profit for F.Y. 2019-20 to be apportioned 1,50,000 2,50,000 4,00,000

on the basis of capital employed on the
first day of the previous year i.e. as on 4,00,000×3 4,00,000x5
1.4.2019 (3:5) 8 8
Therefore, the income to be clubbed in the hands of Mrs. Vaishaly for the A.Y. 2020-21 is ` 2,50,000.
In case Mrs. Vaishaly gave the said amount of ` 5,00,000 as a bona fide loan, then, clubbing provisions would
not be attracted.
Solution 4: Clubbing of income and other tax implications
As per the provisions of section 64(1A), in case the marriage of the parents subsist, the income of a minor
child shall be clubbed in the hands of the parent whose total income, excluding the income of the minor child
to be clubbed, is greater. In this problem, it has been assumed that the marriage of Mr. B and Mrs. B subsists.
Further, in case the income arises to the minor child on account of any manual work done by the child or as a
result of any activity involving application of skill, talent, specialized knowledge or experience of the child,
then, the same shall not be clubbed in the hands of the parent.
Tax implications:
(i) Income of ` 45,000 from Mr. B’s profession shall be taxable in the hands of Mr. B under the head “Profits
and gains of business or profession”.
(ii) Salary of ` 76,000 received by Mrs. B as a fashion designer shall be taxable as “Salaries” in the hands of
Mrs. B.
(iii) Income from fixed deposit of ` 10,000 arising to the minor son D, shall be clubbed in the hands of the
mother, Mrs. B as “Income from other sources”, since her income is greater than income of Mr. B before
including the income of the minor child.
As per section 10(32), income of a minor child which is includible in the income of the parent shall be
exempt to the extent of ` 1,500 per child. The balance income would be clubbed in the hands of the
parent as “Income from other sources”.
(iv) Income of ` 95,000 arising to the minor daughter P from sports shall not be included in the hands of the
parent, since such income has arisen to the minor daughter on account of an activity involving application
of her skill.
(v) Income of ` 1,95,000 arising to minor son D from lottery shall be included in the hands of Mrs. B as
“Income from other sources”, since her income is greater than the income of Mr. B before including the
income of minor child.
Note – Mrs. B can reduce the tax deducted at source from such lottery income while computing her net
tax liability.

FINAL DT SATC 3B.2
Solution 5: Computation of gross total income
Particulars Mr. X Mrs. X Minor
` ` Child
`
I. Salaries :
Salary from X Ltd 30,000
II. Profits and gains from business/profession :
Income / (Loss) (40,000) — 60,000
III. Income from other sources :
Interest income Own (Mr. X) 8,000
Add : Spouse -Sec.64(1) 2,500 10,500 — ----
Interest income own (Mrs. X) 2,500

Interest income of minor child 4,000
Less : Exempt u/s. 10(32) (1500) — 5,000 —
Commission income of spouse u/s.64(1) 20,000
Gross Total Income (9,500) 35,000 60,000
Note: Share of profit from firm is exempt from tax u/s. 10(2A). It is assumed that the expenditure attributable to
exempt income have not been claimed as deduction.
Solution 6:
Computation of Gross Total Income of R
(For the assessment year 2020-21)
` `
1. Income from House Property:
Rental value for 8 months (i.e., before transfer) (8 x 5,000) 40,000
Less: Statutory deduction @ 30% 12,000 28,000
2. Profit from Business:
(i) Share from firm (Exempt) Nil
(ii) Minor Son's share in another firm (Exempt) Nil
(iii) Interest on minor's capital with firm
(Rs. 24,000 - Exemption u/s 10(32) ` 1,500) 22,500 22,500
3. Income from other Sources:
(i) Interest @ 14% on ` 1,00,000 Debentures (only one-half of ` 2,00,000
were bought by own funds) 14,000
(ii) Interest received by his wife @ 10% on ` 60,000
(being transferred without any consideration) 6,000
(iii) Interest on ` 6,000 from his trust 6,000 26,000
(Interest income utilised for the benefit of son's wife)
Gross Total Income 76,500
Computation of Gross Total Income of Mrs. R

(For the assessment year 2020-21)
` `
Income from House Property:
Rental value for 4 months (i.e., after transfer) (` 5,000 x 4) 20,000
Less : Statutory deduction @ 30% 6,000 14,000
Income from business :
Share from firm (Exempt) Nil
Income from Other Sources :
(i) Interest on ` 1,00,000 14% Debentures 14,000
(ii) interest on ` 1,00,000 14% Debentures in husband's name but funds invested by her 14,000
(iii) Interest on ` 15,000 @10% 1,500 29,500
(This interest is on accrued income of Rs. 60,000, which have been transferred
to her by the husband and interest on such accrued income is treated as the
income of the transferee, although the income on the transferred amounts is
treated as the income of the transferor as it was transferred without any consideration.)

FINAL DT SATC 3B.3
Solution 7: Computation of total income of Mr. A, Mrs. A and their minor son for the A.Y. 2020-21
Particulars Mr. A Mrs. A Minor
(`) (`) Son
(`)
Salary income (of Mrs. A) - 2,40,000 -

Pension income (of Mr. A) 1,20,000
Income from House Property [See Note (3) below) 52,000 - -
-
Income from other sources - -
Interest on Mr. A’s fixed deposit with Bank of India
(` 5,00,000 × 9%) [See Note (1) below] 45,000 -
Commission received by Mrs. A from a partnership firm,

in which Mr. A has substantial interest
[See Note (2) below] 25,000 70,000
Income before including income of minor son under 2,42,000 2,40,000

section 64(1A)
Income of the minor son from the investment made in the 18,500 - -
business out of the amount gifted by Mr. A
[See Note (4) below]
Income of the minor son through a business activity - - 20,000

involving application of his skill and talent
[See Note (5) below]
Total Income 2,60,500 2,40,000 20,000
Notes:
(1) As per section 60, in case there is a transfer of income without transfer of asset from which such income
is derived, such income shall be treated as income of the transferor.
Therefore, the fixed deposit interest of ` 45,000 transferred by Mr. A to Mr. B shall be included in the total
income of Mr. A.
(2) As per section 64(1)(ii), in case the spouse of the individual receives any amount by way of income from
any concern in which the individual has substantial interest (i.e. holding shares carrying at least 20%
voting power or entitled to at least 20% of the profits of the concern), then, such income shall be included
in the total income of the individual. The only exception is in a case where the spouse possesses any
technical or professional qualifications and the income earned is solely attributable to the application of
her technical or professional knowledge and experience, in which case, the clubbing provisions would not
apply.
In this case, the commission income of ` 25,000 received by Mrs. A from the partnership firm has to be
included in the total income of Mr. A, as Mrs. A does not possess any technical or professional
qualification for earning such commission and Mr. A has substantial interest in the partnership firm as he
holds 75% share in the firm.
(3) According to section 27(i), an individual who transfers any house property to his or her spouse otherwise
than for adequate consideration or in connection with an agreement to live apart, shall be deemed to be
the owner of the house property so transferred. Hence, Mr. A shall be deemed to be the owner of the flat
gifted to Mrs. A and hence, the income arising from the same shall be computed in the hands of Mr. A.
Note: The provisions of section 56(2)(x) would not be attracted in the hands of Mrs. A, since she has
received immovable property without consideration from a relative i.e., her husband.
(4) As per section 64(1A), the income of the minor child is to be included in the total income of the parent
whose total income (excluding the income of minor child to be so clubbed) is greater. Further, as per
section 10(32), income of a minor child which is includible in the income of the parent shall be exempt to
the extent of ` 1,500 per child.
Therefore, the income of ` 20,000 received by minor son from the investment made out of the sum gifted
by Mr. A shall, after providing for exemption of ` 1,500 under section 10(32), be included in the income of
Mr. A, since Mr. A’s income of ` 2,42,000 (before including the income of the minor child) is greater than
Mrs. A’s income of ` 2,40,000. Therefore, ` 18,500 (i.e., ` 20,000 – ` 1,500) shall be included in Mr. A’s
income. It is assumed that this is the first year in which clubbing provisions are attracted.
Note – The provisions of section 56(2)(x) would not be attracted in the hands of the minor son, since he
has received a sum of money exceeding ` 50,000 without consideration from a relative i.e., his father.

FINAL DT SATC 3B.4
(5) In case the income earned by the minor child is on account of any activity involving application of any skill
or talent, then, such income of the minor child shall not be included in the income of the parent, but shall
be taxable in the hands of the minor child.
Therefore, the income of ` 20,000 derived by Mr. A’s minor son through a business activity involving
application of his skill and talent shall not be clubbed in the hands of the parent. Such income shall be
taxable in the hands of the minor son.
Solution 8: Income arising from revocable transfer of assets [Sections 61 & 63]
(i) All income arising to any person by virtue of a revocable transfer of assets is to be included in the total
income of the transferor.
(ii) A transfer is deemed to be revocable if:
(a) it contains any provision for the re-transfer, directly or indirectly, of the whole or any part of the
income or assets to the transferor, or
(b) it gives, in any way, the transferor, a right to re-assume power, directly or indirectly, over the whole or
any part of the income or the assets.
Transfer not revocable during the life time of the beneficiary or the transferee [Section 62] If there is a
transfer of asset which is not revocable during the life time of the beneficiary or transferee, the income from
the transferred asset is not includible in the total income of the transferor provided the transferor derives no
direct or indirect benefit from such income. If the transferor receives direct or indirect benefit from such
income, such income is to be included in his total income even though the transfer may not be revocable
during the life time of the beneficiary or transferee.
Solution 9: As per section 64(1)(ii), any income arising directly or indirectly to the spouse of an individual by way
of salary, commission, fees or any other form of remuneration, whether in cash or in kind, from a concern in which
such individual has a substantial interest, would be clubbed. However, such rule does not apply where the spouse
possesses technical or professional qualification and the income of the spouse is solely attributable to the
application of his or her technical or professional knowledge and experience.
Where both husband and wife have substantial interest in a concern and both are in receipt of salary etc. from
the said concern, such income will be clubbed with the income of the spouse whose total income, excluding
such income, is greater.
An individual shall be deemed to have substantial interest in a concern under the following
circumstances:
(a) If the concern is a company, equity shares carrying not less than 20% of the voting power are, at any time
during the previous year, owned beneficially by such person or partly by such person and partly by one or
more of his relatives.
(b) In any other case, if such person is entitled, or such person and one or more of his relatives are entitled in
the aggregate, at any time during the previous year, to not less than 20% of the profits of such concern.
As per section 64(1)(iv), where there is a transfer of an asset other than house property, directly or indirectly
from one spouse to another, otherwise than for adequate consideration or in connection with an agreement to
live apart, any income that arises either directly or indirectly to the transferee from the transfer of the asset
shall be included in the total income of the transferor.
However, any income from the accretion of transferred asset is not liable to be clubbed. It may be noted that
natural love and affection will not constitute adequate consideration for the purpose of section 64(1).
Solution 10:
The clubbing provisions under section 64(1)(viii) are attracted in case of transfer of any asset, directly or
indirectly, otherwise than for adequate consideration, to any person to the extent to which the income from
such asset is for the immediate or deferred benefit of son’s wife. Such income shall be included in computing
the total income of the transferor-individual.
Therefore, income of ` 36,000 meant for the benefit of daughter-in-law is chargeable to tax in the hands of
transferor i.e., Mrs. Kasturi in this case. The contention of Mrs. Kasturi is, hence, not valid in law.
Note - In order to attract the clubbing provisions under section 64(1)(viii), the transfer should be otherwise
than for adequate consideration. In this case, it is presumed that the transfer is otherwise than for adequate
consideration and therefore, the clubbing provisions are attracted.
If it is presumed that the transfer was for adequate consideration, the provisions of section 64(1)(viii) would
not be attracted.

FINAL - DT SATC 3C.1
ADDITIONAL QUESTION - CLUBBING

1. IMP: Mrs. E, wife of Mr. F, is a partner in a firm. Her capital contribution to the firm as on 01-04-2019
was ` 5 lacs, out of which ` 3 lacs was contributed out of her own sources and ` 2 lacs was
contributed out of gift from her husband.
As further capital was needed by the firm, she further invested ` 2 lacs on 01.05.2019 out of the funds
gifted by her husband. The firm paid interest on capital of ` 80,000 and share of profit of ` 60,000 for
the financial year 2019-20.
Advise Mr. F as to the applicability of the provisions of section 64(1)(iv) and the manner thereof in
respect of the above referred transactions.
Answer:
As per section 64(1)(iv), in computing the total income of any individual, there shall be included all such
income as arises, directly or indirectly, to the spouse of such individual from assets transferred directly or
indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an
agreement to live apart.
In this instant case, Mr. F has gifted money to his wife, Mrs. E. Mrs. E, in turn, invested such gifted money in
the capital of a partnership firm, of which she is a partner. Mrs. E has also contributed a sum of ` 3 lacs out of
her own resources to the capital of the firm.
As per Explanation 3 to Section 64(1), for the purpose of clubbing under section 64(1)(iv),where the assets
transferred, directly or indirectly, by an individual to his spouse are invested by the transferee in the nature of
contribution of capital as a partner in a firm, proportionate interest on capital will be clubbed with the income of
the transferor.
Such proportion has to be computed by taking into account the value of the aforesaid investment as on the
first day of the previous year to the total investment by way of capital contribution as a partner in the firm as
on that day.
In view of the above provision, interest received by Mrs. E from the firm shall be included in total income of
Mr. F to the extent of ` 32,000 i.e., ` 80,000 x ` 2,00,000/ ` 5,00,000.
Share of profit amounting to ` 60,000 is exempt from income-tax under the provisions of section 10(2A). The
provisions of section 64 will not apply, if the income from the transferred asset itself is exempt from tax.
Note: It is assumed that rate of interest on capital contributed by Mrs. E does not exceed 12% p.a.
2. Mr. A has gifted a house property valued at ` 50 lakhs to his wife, Mrs. B, who in turn has gifted the
same to Mrs. C, their daughter-in-law. The house was let out at ` 25,000 per month throughout the
year. Compute the total income of Mr. A and Mrs. C.
Will your answer be different if the said property was gifted to his son, husband of Mrs. C?
Answer:
Gift of house property by Mr. A to Mrs. C, via Mrs. B, can be viewed as an indirect transfer by Mr. A to
Mrs. C.
As per section 64(1)(vi), income arising to the son’s wife from assets transferred, directly or indirectly, to her
by an individual otherwise than for adequate consideration would be included in the total income of such
individual.
Since section 64(1)(vi) speaks of clubbing of income arising to son’s wife from indirect transfer of
assets to her by her husband’s parent, without consideration, Income from House property arising to
Mrs. C can be clubbed & taxable in the hands of Mr. A.
Income from let-out property is ` 2,10,000 [i.e., ` 3,00,000, being the actual rent calculated at ` 25,000 per
month less ` 90,000, being deduction under section 24@30% of ` 3,00,000].

In this case, income of ` 2,10,000 from let-out property arising to Mrs. C, being Mr. A’s son’s wife, would be
included in the income of Mr. A, applying the provisions of Section64(1)(vi). Such income would, therefore, not
be taxable in the hands of Mrs. C.
In case the property was gifted to Mr. A’s son, the clubbing provisions under section 64 would not apply, since
the son is not a minor child. Therefore, the income of ` 2,10,000 from letting out of property gifted to the son
would be taxable in the hands of the son.
It may be noted that the provisions of section 56(2)(x) would not be attracted in the hands of the recipient of
house property, since the receipt of property in each case was from a “relative” of such individual. Therefore,
the stamp duty value of house property would not be chargeable to tax in the hands of the recipient of
immovable property, even though the house property was received by her or him without consideration.
3. Mr. Korani transferred 2,000 debentures of ` 100 each of Wild Fox Ltd. to his wife Mrs. Rekha Korani
on 3.10.2017 without consideration. The company paid interest of ` 30,000 in September, 2019 which
was deposited by Mrs. Korani with Kartar Finance Co. in October, 2019. Kartar Finance Co. paid
interest of ` 3,000 upto March, 2020. How would both the interest income be charged to tax in A.Y.
2020-21?
Answer
As per section 64(1)(iv), income arising from assets transferred without adequate consideration by an
individual to his spouse is liable to be clubbed in the hands of the individual. It may be noted that income on
the asset transferred has to be clubbed but if there is accretion to the asset, any further income derived on
such accretion should not be clubbed.
Therefore, applying the provisions of section 64(1)(iv), ` 30,000, being the interest on debentures received by
Mrs. Rekha Korani in September, 2019 will be clubbed with the income of Mr. Korani, since he had
transferred the debentures of the company without consideration to her in October, 2017.
However, the interest of ` 3,000 upto March 2020 earned by Mrs. Rekha Korani on the interest on the
debentures deposited by her with Kartar Finance Company shall be taxable in her individual capacity and will
not be clubbed with the income of Mr. Korani.
4. Naresh is a fashion designer having lucrative business. His wife is a model. Naresh pays her monthly
salary of ` 10,000. The Assessing Officer while admitting that the salary is an admissible deduction, in
computing the total income of Naresh had applied the provisions of section 64(1), and had clubbed
the income (salary) of his wife in Naresh hands. Discuss the correctness of the action of the
Assessing Officer.
Answer
This question is based on the principles laid down by Madras High Court in the case of CIT v. Smt. R. Bharati
(1999) 240 ITR 697 where the interpretation of the terms “professional qualifications” and “knowledge” came
up for consideration as per proviso to section 64(1).
These words do not necessarily connote a qualification conferred by a recognized university after
examining the candidate who has undergone a course of study in a technical subject or course of
study preparing him for a profession of law, accountancy etc.
Accordingly, the term “qualification” must be given a wide meaning as referring to the qualities which are
required to be possessed by a person performing the work that he does, so long as that work is capable of
being regarded as technical or professional.
The word “professional” is a term capable of very broad meaning and would encompass a variety of
occupations. A large number of occupations are being practiced which form a source of livelihood and are
capable of being regarded, as professions as long as they require certain degree of skill. A person having
skill, experience and competence in a line of work can be regarded as professionally qualified for the
purpose of section 64(1)(ii).
Applying the rationale of the Madras High Court ruling, a model, having skill, competence and experience in
her line can be considered as a professional. Hence, the action of the Assessing Officer is not correct.

5. Mayur gifted amount of ` 5,00,000 to the wife of his brother which was used by her for the purchase of
a house and simultaneously, on the same day, Mayur’s brother gifted shares owned by him in a
foreign company worth ` 5,00,000 to the minor son of Mayur. What will be the impact of such transfers
in the hands of both the transferors and the transferees?
Answer
In the given case, Mayur is making a gift of ` 5,00,000 to the wife of his brother for the purchase of a house by
her and simultaneously, his brother is making a gift to the minor son of Mayur, shares owned by him in a
foreign company worth ` 5,00,000. These transfers are in the nature of cross transfers.
Accordingly, the income from the assets transferred would be assessed in the hands of the deemed transferor
because the transfers are so intimately connected to form part of a single transaction and each transfer
constitutes consideration for the other by being mutual or otherwise.
The Supreme Court has, in CIT vs. Keshavji Morarji (1967) 66 ITR 142, held that if two transactions are inter-
connected and are part of the same transaction in such a way that it can be said that the circuitous method
was adopted as a device to evade tax, the implication of clubbing provisions would be attracted.
Accordingly, the income arising to the wife of Mayur's brother from the house property would be included in
the total income of his brother and the dividend from shares transferred to Mayur's minor son would be
taxable in the hands of Mayur. This is because both Mayur and his brother are the indirect transferors of the
income yielding assets to their minor child and spouse, respectively, with an intention to reduce their burden
of taxation.
However, since husband’s brother and father’s brother fall within the definition of “relative” under Section
56(2)(x), hence , the sum of money and property, respectively, received from them would be exempt in the
hands of the concerned transferee.
6. Explain in brief about the treatment to be given in the following case under the Income-tax Act, 1961,
for A.Y. 2020-21:
Interest of ` 20,000 on bank FDRs received by minor son of Rajesh. These FDRs were made by the
minor son out of his earnings from stage acting.
Answer
According to section 64(1A), all income accruing or arising to a minor is to be included in the income of his
parent, whose total income [excluding the income includible under section64(1A)] is higher. The income
derived by the minor from manual work or from any activity involving his skill, talent or specialised knowledge
or experience will not be included in the income of his parent.
Since, interest of ` 20,000 on bank FDRs received by minor son of Rajesh does not arise to minor on account
of his manual work or on account of an activity involving his skill, talent or specialized knowledge or
experience, therefore, such interest should be included in income of Mr. Rajesh or Mrs. Rajesh, whosoever
total income (before including minor’s income) is higher. However, exemption of ` 1,500 under section 10(32)
shall be provided from interest of ` 20,000 to be clubbed.
7. IMP: Antaryami settled 1/4th share of his property under a trust for the education and maintenance of
his minor daughter, Poulomi. Under the terms of the trust deed, the income accruing to the trust, after
meeting the expenses of maintenance and education of Poulomi, was to be accumulated and paid
over to her on her attaining majority. The Assessing Officer assessed the income arising from 1/4th
share of the property, settled for the benefit of Poulomi, in the hands of Antaryami. Examine the
correctness of the assessment.
Answer
As per section 64(1A), the income of a minor child should be included in the total income of that parent,
whose total income before such inclusion is higher.
The Supreme Court, in CIT v. M.R. Doshi (1995) 211 ITR 1, held that where the income from the trust was to
be accumulated until the child attained majority, the clubbing provisions would not get attracted, since no
benefit accrues to the minor child during the period when such child is a minor.

However, in this case, the minor daughter Paulomi is eligible for the benefits during the period when she is a
minor, since income from the trust is being used for meeting her education and maintenance expenses. Only
the remaining income is to be accumulated and paid over to her on her attaining majority.
Therefore, since benefit under the terms of the trust deed is accruing, even though to a limited extent, to the
minor daughter Paulomi during the period when she is a minor, the ratio applicable in the Supreme Court
decision cited above cannot be applied in this case. Accordingly, the clubbing provisions under section
64(1A) will get attracted.
Therefore, the stand taken by the Assessing Officer to tax the income in the hands of Antaryami is correct.
However, only so much of income as is used for meeting the education and maintenance expenses of
Paulomi during the current year should be clubbed in the hands of Antaryami after providing for an exemption
of ` 1,500 under section 10(32) assuming that Antaryami’s total income is greater than his spouse’s total
income.
8. H, a mentally retarded minor, has a total income of ` 1,20,000 for the assessment year 2020-21. The
total income of his father L and of his mother R for the relevant assessment year is ` 3,40,000 and `
2,80,000, respectively. Discuss the treatment to be accorded to the total income of H for the relevant
assessment year.
Answer
Section 64(1A) provides that all income accruing or arising to a minor child has to be included in the income of
that parent, whose total income is greater. However, the income of a minor child suffering from any disability
of the nature specified in section 80U shall not be included in the income of the parents but shall be assessed
in the hands of the child.
Thus, the total income of H has to be assessed in his hands and cannot be included in the total income of
either his father or his mother.
9. Mr. Ghosh held 15% equity shares in ABC Ltd., a private limited company. He gifted all the shares
held by him in ABC Ltd., to his wife Mrs. Ghosh on 25/5/2019. The transfer was made without adequate
consideration. On 20/6/2019, Mrs. Ghosh obtained a loan of ` 80,000 from ABC Ltd., when the
company's accumulated profit was ` 50,000. What are the tax implications of the above transactions?
Answer
Under section 2(22)(e), any payment by a closely-held company by way of loan or advance to its shareholder,
being a person who is the beneficial owner of shares, holding not less than10% of the voting power, is
deemed as dividend to the extent to which the company possesses accumulated profits.
Accordingly, in this case, ` 50,000 (i.e., loan to the extent of accumulated profits of ABC Ltd.) would be
deemed as dividend in the hands of Mrs. Ghosh, who holds 15% equity shares in ABC Ltd., under section
2(22)(e).
Thereafter, the clubbing provisions under section 64(1)(iv) would be attracted, as per which, income as arises,
directly or indirectly, from asset transferred to spouse, otherwise than for adequate consideration, would be
included in the hands of the transferor.
If the assets so transferred are shares in a company, the loan taken from the company is deemed as dividend
income of the shareholder under section 2(22)(e) to the extent to which the company possesses accumulated
profits. Thus, on account of this deeming provision, such loan is treated as income arising from the shares.
Accordingly, as per section 64(1)(iv), such income arising in the hands of the shareholder, Mrs. Ghosh, by
virtue of section 2(22)(e) (i.e., deemed dividend of ` 50,000) would be included in the total income of Mr.
Ghosh, who had transferred the said shares to Mrs. Ghosh without consideration.
Note: Dividend Income u/s 2(22)(e) is now exempt u/s 10(34) in the hands of shareholders.

10. Mr. Ravi has gifted his only house property to his wife, Mrs. Ravi, and his married daughter, Mrs.
Divya. The Assessing Officer has served a notice of demand on Mr. Ravi for payment of tax for the
income derived from the said house property. Examine the validity of the Assessing Officer’s action.
Answer
As per section 27(i), an individual who transfers otherwise than for adequate consideration any house
property to his spouse, not being a transfer in connection with an agreement to live apart, or to a minor child
not being a married daughter shall be deemed to be the owner of the house property so transferred.
Mr. Ravi, in this case, would be the deemed owner only in respect of the share of house property transferred
to his wife Mrs. Ravi without consideration and not for the share of the house property transferred to his
married daughter Mrs. Divya, even if she is a minor.
Since Mr. Ravi is the deemed owner of the share of house property transferred to his wife without
consideration, the income derived from the house property, to the extent attributable to the share of property
transferred to his wife without consideration, would be taxable in his hands under the head “Income from
house property”.
As per section 65, the notice of demand can, however, be served on Mrs. Ravi for payment of that portion of
tax levied on Mr. Ravi attributable to the income derived [by virtue of section 27(i)], from the share of house
property transferred to Mrs. Ravi, and standing in her name. However, the income derived from house
property, attributable to the share of property transferred to his married daughter without consideration, would
be taxable in the hands of his daughter. Such income would not be taxable in the hands of Mr. Ravi. Mr. Ravi
will not be responsible for the payment of tax attributable to aforesaid share of income of daughter from house
property.
Thus, the action of the Assessing Officer in serving notice of demand on Mr. Ravi for payment of tax for the
entire income derived from the said house property is not valid.

Class Notes

FINAL DT SATC 4.1
SET OFF,CARRY FORWARD & SET OFF OF LOSSES

Section Particulars
Inter Source - Set off of loss from one source against income from another source under the
70 same head of income
Inter Head - Set off of loss from one head against income from another Head
71
Carry forward and set off of loss from house property
71B
Carry forward and set off of Business Losses [Non-Speculative]
72
Losses in Speculation Business
73
Carry forward and set off of Losses by Specified Business [u/s 35AD]
73A
Losses under the head “Capital gains”
74
Losses from certain specified sources falling under the head "income from other sources"
74A [Owning & Maintaining Race Horses]
Carry forward and set off of losses in case of change in constitution of firm or on succession
78
Carry forward and set off of losses in the case of certain companies [Closely Held Companies]
79
Submission of Return for Losses [Read with Section 139(3)]
80
INTER SOURCE ADJUSTMENT / SET OFF [INTRA HEAD or WITHIN HEAD]

[SECTION 70]
The LOSS in respect of any source of income under any head of income shall be set off against INCOME from
any other source under the same head.
However, Long term Capital Loss can only be set off against Long term Capital Gains. Short-term capital loss
is allowed to be set off against both short-term capital gain and long-term capital gain
Inter-source set-off, however, is not permissible in the following cases [Due to restrictions
provided in other part of the Act]
I. Loss from a source, the income from which is exempt, cannot be set off against any income.
II. A loss cannot be set off against winnings from lotteries, crossword puzzles, races including horse races,
card games and other games of any sort or from gambling or betting of any form or nature.
III. Loss from lottery, card games etc. cannot be set off against any income.
IV. Loss from activity of owning and maintaining race-horses can be set off only against income from
owning and maintaining race- horses.
V. Speculation business loss can be set off only against speculation business income. However, losses from
other business can be adjusted against profits from speculation business.
VI. Loss from a Specified Business [Referred to in Section 35AD] shall be set off only against profits and
gains, if any, of any other specified business.

FINAL DT SATC 4.2
INTER HEAD ADJUSTMENT [SECTION 71]

Loss under one head of income can be adjusted or set of against income under another head. However,
i) Loss under the head “PGBP” cannot be set off against income under the head “Salaries”.
ii) Loss under the head ‘Capital Gains’ cannot be set-off against income under any other head.
iii) Loss under the head House Property will be setoff with other head’s income to the extent of Only
` 200,000. Excess shall be allowed to carry forward under Section 71B.
Following points should be considered due to restrictions in other relevant Sections:
i) Speculation loss and Loss from the activity of owning and maintaining race horses cannot be set off
against income under any other head.
ii) Loss from a Specified Business [Referred to in Section 35AD] cannot be set off against any other
income.
iii) A loss cannot be set off against winnings from lotteries, crossword puzzles, races including horse races,
card games and other games of any sort or from gambling or betting of any form or nature.
Other Points:
1. Before adjusting the loss under section 71, one has to set off the loss under section 70.
2. No option is available to set off a loss or not to set off a loss
3. No order of priority is given to set off.
4. Carry forward of Loss under the head “Income from Other Sources” is not permissible in the Act:
MANDATORY FILLING OF RETURN [ITR] TO CARRY FORWARD

LOSSES: [Section 80]
As per section 80, the assessee must have filed a RETURN OF LOSS under section 139(3) in order to carry
forward and set off a loss. Such a return should be filed within the time allowed under section 139(1).
[31st July/30th September/30th November]
Following losses cannot be carried forward if Return of Loss is not filled within due date:
1. Loss from Non-Speculative Business under Section 72
2. Loss from Speculative Business under Section 73
3. Capital Loss under Section 74
4. Loss from the activity of owning and maintaining race horses under Section 74A.
5. Loss from the Specified Business (as referred in Section 35AD) under Section 73A.
However, this condition does not apply to carry forward of following losses: [means these losses can be c/f
even if no ROI has been filled on time]:
1. Loss from House Property carried forward under section 71B

2. Unabsorbed Depreciation
3. Capital Expenditure on Scientific Research
4. Capital Expenditure on Family Planning

FINAL DT SATC 4.3
Note:
1. Non-Filling of Return of Loss will not affect the Inter Source Adjustment u/s 70 or Inter-head
Adjustment u/s 71 or adjustment of brought forward losses of previous year with current year
Income.
2. Also, Loss of the earlier year can be carried forward to next year(s) if the return of loss of that year(s)
was submitted within due date.
CBDT has issued Circular vide No. 8 of 2001 dated 16.5.2001 clarifying that the power has been delegated
to Commissioner to condone delay in filing return and carry forward losses in cases where the claim for
loss does not exceed Rs 10,000 for each Assessment Year and to Chief Commissioner/ Director General
upto Rs 1 lakh and beyond such limit CBDT will exercise the power.
SET -OFF AND CARRY FORWARD OF LOSS FROM HOUSE PROPERTY

[SECTION 71B]
A Loss under the head house property, to the extent not set off u/s 70 & 71, shall be carried forward to the next 8
AYs to be set-off against income under the head ‘Income from house property’.
[Note: In any assessment year, if there is a loss under the head ‘Income from house property’ after Inter source
adjustment under section 70, such loss will first be set-off against income from any other head during the same
year as per Section 71]
NOTE:
1. Loss under this head can be carried forward even if ROI is filed after the due date of filing ROI u/s 139(1).
2. There is no condition that assessee should own the house for which the loss is to be carried forwarded.
3. Once a particular loss is carried forward, it can be set off only against the income from the same head in
the forthcoming assessment years.
CARRY FORWARD AND SET-OFF OF BUSINESS LOSSES [SECTIONS 72]

1. Business loss to the extent not set-off under section 70 & 71 shall be carried forward to the next
assessment year and set-off against the income under head PGBP of the next assessment year(s) up to
maximum for EIGHT ASSESSMENT YEARS [8 A.Y.’s] immediately succeeding the assessment
year in which loss was first computed.
2. The term Business Loss will not include:

a) Unabsorbed Depreciation
b) Capital Expenditure on Scientific Research
c) Capital Expenditure on Family Planning
d) Speculative Business Loss
e) Loss from Specified Business u/s 35AD
3. Business may or may not be continued for which the carry forward and set off is desired.
4. Loss from normal business can be set off from the speculation incomes or income from specified
business u/s 35AD in subsequent AYs but opposite is not permissible.
5. Loss of business shall be allowed to be carry forward only if ITR has been filed as per the time period
mentioned in section 139(1).
6. Loss of business can be carry forward and set off against income from professions being carried on by
the assessee.

FINAL DT SATC 4.4
Class Notes

FINAL DT SATC 4.5
CARRY FORWARD AND SET-OFF OF SPECULATION BUSINESS LOSSES
[Section 73]
SPECULATIVE TRANSACTIONS to mean a transaction in which a contract for purchase or sale of any
commodity, including stocks & shares is periodically or ultimately settled Otherwise than by actual delivery or
transfer of the commodity.
SPECULATION BUSINESS - Where the speculative transactions carried on by assessee are of such a nature as
to constitute a business, the business shall be deemed to be distinct and separate from any other business.
Note: If the assessee is maintaining same books of account for speculative and non- speculative transactions,
then the speculative transactions shall be segregated and treated as a separate business.
Deemed Speculative Business:

Where any part of the business of a Company consists of sale and purchase of shares, such company for the
purposes of section 73, be deemed to be carrying on a speculation business to the extent to which the business
consists of sale and purchase of shares.
This shall not apply to the following companies:

a) Investment Company i.e., the company whose total income mainly consists of income from house property,
capital gains and income from other sources.
b) Company whose principal business is Business of Trading in Shares OR Banking or Granting loans
and advances.
THE FOLLOWING SHALL NOT BE DEEMED TO SPECULATIVE TRANSACTIONS:
a. a contract in respect of raw materials or merchandise entered into by a person in the course of his
manufacturing or merchanting business to guard against loss through future price fluctuations in respect
of his contracts for actual delivery of goods manufactured by him or merchandise sold by him;
b. a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against
loss in his holdings of stocks and shares through price fluctuations;
c. a contract entered into by a member of a forward market or a stock exchange in the course of any
transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary
course of his business as such member;
d. an eligible transaction in respect of trading in derivatives carried out in a recognised stock exchange;
e. an eligible transaction in respect of trading in commodity derivatives carried out in a recognised

association, which is chargeable to commodities transaction tax.
Provided in respect of trading in agricultural commodity derivatives, the requirement of chargeability

of commodity transaction tax shall not apply (Added by Finance Act 2018).

FINAL DT SATC 4.6
IMPORTANT POINTS
1. The loss of a speculation business shall be set off only against the profits and gains of another speculation
business.
2. The loss to the extent not set –off shall be carried forward to the next assessment year and set-off against
the profits from speculation business of the next assessment year.
3. The loss from speculation business can be carried forward for FOUR ASSESSMENT YEARS.
4. Loss in a speculative transaction entered into on behalf of principle, is non-speculative loss of agent.
Class Notes

FINAL DT SATC 4.7
SET OFF AND CARRY FORWARD OF UNABSORBED DEPRECIATION
Set off and carry forward of unabsorbed depreciation shall be governed by Sec. 32(2) and not be Sec. 72
Meaning: Depreciation, which could not be fully absorbed in any previous year, owing to –
• There being no profits or gains chargeable for that previous year; or
• The profits or gains chargeable being less than the amount of depreciation.
Tax treatment:
Allowances or the part of the allowances of depreciation which remains unabsorbed shall be (Subject to Sec. 72
and Sec. 73) added to the amount of the depreciation for the following previous year and deemed to be the
depreciation allowances for that previous year, and so on for the succeeding previous years.
Tax point:
Unabsorbed depreciation shall be allowed to be carried forward for any number of years and such carried forward
unabsorbed depreciation may be set off against any income, other than –
- Income under the head “Salaries”
- Winning from lotteries, cross word puzzles, etc.
Note:
1. Continuation of business is not important: Unabsorbed depreciation can be carried forward even if the
business, in respect of which the loss was originally computed, is not carried on during the previous year.
2. Filling of return within due date is not mandatory: Unabsorbed depreciation can be carried forward even if
the return of income has not been filed within time.
ORDER OF SET-OFF OF LOSSES

As per the provisions of section 72(2), brought forward business loss is to be set-off before setting off
unabsorbed depreciation. Therefore, the order in which set-off will be effected is as follows –
a) Current year depreciation / Current year capital expenditure on scientific research and current year
expenditure on family planning, to the extent allowed.
b) Inter Source & Inter Head Adjustments [Section 70 & Section 71]
c) Brought forward loss from business/profession [Section 72(1)]
d) Unabsorbed depreciation [Section 32(2)]
e) Unabsorbed capital expenditure on scientific research [Section 35(4)].
f) Unabsorbed Capital expenditure on family planning [Section 36(1)(ix)]

FINAL DT SATC 4.8
CARRY FORWARD & SET OFF OF LOSSES BY SPECIFIED BUSINESS
[SECTION 73A]
i) Any loss computed in respect of the eligible specified business referred to in Section 35AD shall be set
off only against profits and gains, if any, of any other specified business whether eligible or not.
ii) No Inter Head Set off: The unabsorbed loss, if any, will be carried forward for set off against profits and
gains of any specified business in the following assessment year and so on.
iii) No Time Limit: There is no time limit specified for carry forward and set-off and therefore, such loss can
be carried forward indefinitely for set-off against income from specified business.
Specified Business u/s 35AD are:

(i) Setting up and operating a cold chain facility
(ii) Setting up and operating a warehousing facility for storage of agriculture produce;
(iii) Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for
distribution, including storage facilities being an integral part of such network
(iv) Building and operating, anywhere in India, a hotel of two-star or above category;
(v) Building and operating, anywhere in India, a hospital with atleast 100 beds for patients;
(vi) Developing and building a housing project under a scheme for slum redevelopment or rehabilitation;
(vii) Developing and building a housing project under a scheme for affordable housing
(viii) Production of fertilizer in India
(ix) Setting up and operating an inland container depot or a container freight station notified or approved
under the Customs Act, 1962
(x) Bee-keeping and production of honey and beeswax;
(xi) Setting up and operating a warehousing facility for storage of sugar
(xii) Laying & Operating a slurry pipeline for the transportation of iron ore
(xiii) Setting up and operating a semiconductor wafer fabrication manufacturing unit, if notified
(xiv) Developing or operating and maintaining or developing, operating and maintaining, any
infrastructure facility (AY 18-19)
LOSSES UNDER THE HEAD ‘CAPITAL GAINS’ [SECTION 74]

The loss under the head Capital Gain shall be carried forward to the following assessment year to be set
off in the following manner:
1. Net loss under the head capital gains cannot be set off against income under any other head during
the previous year.
2. Where the loss so carried forward is a STCL, it shall be set off against any capital gains, short term or
long term, arising in that year.
3. Where the loss so carried forward is a LTCL, it shall be set off only against long term capital gain arising
in that year.
4. Any unabsorbed loss shall be carried forward to the following assessment year up to a maximum of 8
assessment years immediately succeeding the assessment year for which the loss was first computed.
5. Here also, it is necessary that a return of loss is furnished before the due date.

FINAL DT SATC 4.9
Question: Compute the Gross total income of Mr. F for the AY 2020-21 from the information given below:
Particulars `
Net income from house property 1,25,000
Income from business (before providing for depreciation) 1,35,000
Short term capital gains on sale of shares 56,000
Long term capital loss from sale of property (brought forward from
AY 2019-20) (90,000)
Income from tea business 1,20,000
Dividends from Indian companies carrying on agricultural operations 80,000
Current year depreciation 26,000
Brought forward business loss (loss incurred six years ago) (45,000)
Solution
The gross total income of Mr. F for the AY 2020-21 is calculated as under:
Particulars ` `
Income from house property 1,25,000
Income from business
Profits before depreciation 1,35,000
Less: current year depreciation 26,000
Less: brought forward business loss 45,000
64,000
Income from tea business (40% is business income) 48,000 1,12,000
Income from the capital gains
Short term capital gains 56,000
Long term capital loss from property (cannot be set off) Nil 56,000
Note: Dividend from Indian companies is exempt from tax. 60% of the income from tea business is treated as
agricultural income and therefore, exempt from tax.
LOSSES FROM THE ACTIVITY OF OWNING AND MAINTAINING RACE

HORSES [SECTION 74A]
1. The losses incurred by an assessee from the activity of owning and maintaining race horses can only be
set-off against the income from the activity of owning and maintaining race horses.
2. Such loss can be carried forward for a maximum period of 4 assessment years immediately
succeeding the assessment year for which the loss was first computed for being set-off against the
income from the activity of owning and maintaining race horses.
3. The carry forward and set-off is permissible only if the activity of owning & maintaining race-horses is
carried on by Assessee in the previous year relevant to the assessment year in which such loss is carried
forward and set-off.
4. Filing of returns before the due date prescribed u/s 139(1) is necessary to carry forward the loss.

FINAL DT SATC 4.10
Class Notes

FINAL DT SATC 4.11
CARRY FORWARD AND SET OFF OF LOSSES IN CASE OF CHANGE IN CONSTITUTION
OF FIRM OR SUCCESSION [SECTION 78]
In case of Change in constitution of firm:
i) Where there is a change in the constitution of a firm, so much of the loss proportionate to the share of a
retired or deceased partner remaining unabsorbed, shall not be allowed to be carried forward by the firm.
[Proportionate Loss – Proportionate Profits]
ii) However, unabsorbed depreciation can be carried forward in full.
This section does not cover change in constitution of the firm due to change in the profit sharing ratio or admission
of new partners.
Note: Retiring partner is also not eligible to avail the benefit of such proportionate loss of the firm.
In case of Succession:
i) Where any person carrying on any business or profession has been succeeded in such capacity by another
person otherwise than by inheritance, such other person shall not be allowed to carry forward and set
off against his income, any loss incurred by the predecessor.
ii) Where there is a succession by inheritance, the legal heirs (assessable as BOI) are entitled to set-off the
business loss of the predecessor. [Only Business Loss]
Such carry forward and set-off is possible even if the legal heirs constitute themselves as a partnership firm.
In such a case, the firm can carry forward and set-off the business loss of the predecessor.
For Example, a father dies and his son succeeds to his business. The B/F losses of father will be carried forward
by the son for the balance number of years for which the father could have carried forward.
Note: Section 78(2) applies to loss and does not apply to depreciation. Therefore on inheritance, only the loss
can be carried forward by the legal heir and not the unabsorbed depreciation of the deceased.
Where the legal heirs of the deceased proprietor enters into partnership and carries on the same business in the
same premise under the same trade name, it was held that such loss of sole proprietary firm was allowed to be
carried forward by the firm of the legal heirs who have succeeded to the business of the deceased [CIT vs. Madhu
Kant M. Mehta (2001) 247 ITR 805 (SC.)]

FINAL DT SATC 4.12
Class Notes

FINAL DT SATC 4.13
CARRY FORWARD AND SET-OFF OF LOSSES IN CASE OF CLOSELY
HELD COMPANIES [SECTION 79]
Notwithstanding anything contained in this Chapter, where a change in shareholding has taken
place in a previous year,—
a. in the case of a company not being a company in which the public are substantially interested
and other than a company referred to in clause (b), no loss incurred in any year prior to the
previous year shall be carried forward and set off against the income of the previous year, unless
on the last day of the previous year, the shares of the company carrying not less than fifty-
one per cent of the voting power were beneficially held by persons who beneficially held shares
of the company carrying not less than fifty-one per cent of the voting power on the last day
of the year or years in which the loss was incurred [i.e. at-least 51% shareholders should
remain same]
b. in the case of a company, not being a company in which the public are substantially interested
but being an eligible start-up as referred to in section 80-IAC, the loss incurred in any year
prior to the previous year shall be carried forward and set off against the income of the previous
year, if, all the shareholders of such company who held shares carrying voting power on
the last day of the year or years in which the loss was incurred,—
i. continue to hold those shares on the last day of such previous year; and
ii. such loss has been incurred during the period of seven years beginning from the
year in which such company is incorporated:
Nothing contained in this section shall apply to a case where a change in the said voting power and
shareholding takes place in a previous year consequent upon the death of a shareholder or on
account of transfer of shares by way of gift to any relative of the shareholder making such gift.
Further, nothing contained in this section shall apply to any change in the shareholding of an Indian
company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a
foreign company subject to the condition that fifty-one per cent shareholders of the amalgamating
or demerged foreign company continue to be the shareholders of the amalgamated or the resulting
foreign company.
[Finance Act 18] Nothing contained in this section shall apply to a company where a change in
the shareholding takes place in a previous year pursuant to a resolution plan approved under
the Insolvency and Bankruptcy Code, 2016, after affording a reasonable opportunity of being
heard to the jurisdictional Principal Commissioner or Commissioner.

FINAL DT SATC 4.14
CARRY FORWARD AND SET-OFF OF LOSSES IN CASE OF CLOSELY
HELD COMPANIES [SECTION 79] – NEW [W.e.f. AY 2020-21]
Following section 79 shall be substituted for the existing Section 79 by the Act No. 23 of 2019,
w.e.f. 1-4-2020:
Carry forward and set-off of losses in case of closely held company not being an eligible start-
up referred to in section 80-IAC
In the case of a company in which the public are not substantially interested and not being an eligible
start-up referred to in section 80-IAC, no loss incurred in any year prior to the previous year shall be
carried forward and set-off against the income of the previous year, unless
on the last day of the previous year, the shares of the company carrying not less than 51% of
the voting power were beneficially held by persons
who beneficially held shares of the company carrying not less than 51% of the voting power on the
last day of the year or years in which the loss was incurred.
Carry forward and set-off of losses in case of closely held company being an eligible start-up
referred to in section 80-IAC
In case of a company in which the public are not substantially interested but being an eligible start-up
as referred to in section 80-IAC, any unabsorbed loss of the company shall be allowed to be carried
forward and set off against the income of the previous year if either of the conditions are satisfied –
a. on the last day of the previous year, the shares of the company carrying not less than 51% of
the voting power were beneficially held by persons who beneficially held shares of the
company carrying not less than 51% of the voting power on the last day of the year or years in
which the loss was incurred; or
b. all the shareholders of such company who held shares carrying voting power on the last day of
the previous year or years in which the loss was incurred continue to hold those shares on the
last day of such previous year in which the loss is to be set-off and such loss has been incurred
during the period of 7 years beginning from the year of incorporation of such company.
Non-applicability of restriction: This restriction shall, however, not apply :
a. where a change in the said voting power and shareholding takes place in a previous year
consequent upon the death of a shareholder or on account of transfer of shares by way of gift
to any relative of the shareholder making such gift;
b. where any change in the shareholding of an Indian company which is a subsidiary of a

foreign company as a result of amalgamation or demerger of a foreign company subject to
the condition that fifty-one per cent shareholders of amalgamating or demerged foreign
company continue to be the shareholders of the amalgamated or the resulting foreign
company;

FINAL DT SATC 4.15
c. where a change in the shareholding takes place in a previous year pursuant to a resolution
plan approved under the Insolvency and Bankruptcy Code, 2016 (31 of 2016), after
affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner
or Commissioner;
d. to a company, and its subsidiary and the subsidiary of such subsidiary, where,—
i. the Tribunal, on an application moved by the Central Government under section 241 of
the Companies Act, 2013 (18 of 2013), has suspended the Board of Directors of such
company and has appointed new directors nominated by the Central Government,
under section 242 of the said Act; and
ii. a change in shareholding of such company, and its subsidiary and the subsidiary of such
subsidiary, has taken place in a previous year pursuant to a resolution plan
approved by the Tribunal under section 242 of the Companies Act, 2013 (18 of
2013) after affording a reasonable opportunity of being heard to the jurisdictional
Principal Commissioner or Commissioner.
Note:
A. A company shall be a subsidiary of another company, if such other company holds more than half
in nominal value of the equity share capital of the company;
B. Meaning of eligible start-up:
“Eligible start-up” means a company engaged in eligible business which fulfils the following
conditions, namely:—
a. it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April,
2021;
b. the total turnover of its business does not exceed twenty-five crore rupees in the previous
year relevant to the assessment year for which deduction is claimed under Section 80-IAC;
and
c. it holds a certificate of eligible business from the Inter-Ministerial Board of Certification
as notified in the Official Gazette by the Central Government;
C. Meaning of eligible business:
A business carried out by an eligible start-up engaged in
 Innovation, development or improvement of products or processes or services or
 a scalable business model with a high potential of employment generation or wealth

creation
Note: The provisions of this section are applicable only in respect of carry forward of losses and not in
respect of carry forward of unabsorbed depreciation, which is covered by section 32(2).

FINAL DT SATC 4.16
Question:
XYZ Pvt. Ltd. has three shareholders i.e. X, Y and Z. All the three shareholders have equal shareholding of
the company. During the previous 2019-20 the company incurred a loss of ` 1,20,000. On 25-3-2020 X and
Y transferred shareholding to A. On 31-3-2020 the shareholders were:
rd
Z- 1/3 shareholding
A- 2/3rd shareholding
Will the company be able to carry forward and set off the loss of ` 1, 20,000 to the subsequent year?
Solution: As there has been a change in the shareholding to the extent of more than 49%, the company cannot
carry forward and set off the loss to the subsequent year.
CONDITION FOR CARRIED FORWARD & SET-OFF

Assessee must be the same i.e., the Assessee who incurred the loss and the Assessee who claims the carry
forward and set-off, must be the same.
Example: A HUF has brought forward the losses of ` 2,50,000 and depreciation of ` 2,00,000. The
business of the HUF on partition is taken over by an erstwhile member. The losses and depreciation of
HUF cannot be carried forward by such member since the Assessee has changed.
EXCEPTION:
Where any person carrying on any business or profession has been succeeded by another person by way of
inheritance, then losses incurred by the predecessor shall be allowed to be carried forward and set-off by such
another person (successor) ---Section 78(2).
More Cases of Exception:
Unabsorbed Business losses Unabsorbed Business Subject to conditions

and Depn Sustained by losses & Depn can be C/F given
Set-off by
1) Amalgamating company Amalgamated company Section 72A
2) Partnership firm Successor Company Section 47(xiii) read with 72A
3) Proprietorship concern Successor Company Section 47(xiv) read with 72A
4) Demerged company Resulting Company Section 72A
5) Amalgamating banking Amalgamated banking Section 72AA

Company Institution
6) Amalgamating co-operative Amalgamated Section 72AB

Bank Co-operative Bank
7) Demerged co-operative Resulting Section 72AB

Bank Co-operative Bank
8) Private & Unlisted Public Co. LLP Section 47(xiiib) read with 72A
FOLLOWING CASES WHERE LOSSES CANNOT BE CARRIED FORWARD

(i) Business of an HUF where the business of HUF is taken over by the Karta of HUF;
(ii) Proprietorship Business, where such business is taken over by a firm in which proprietor is one of the
partner;
(iii) A firm being succeeded by another firm;
(iv) A firm where the business of the firm is taken over by one of the partner of the firm.

FINAL DT SATC 4.17
EXCEPTIONS TO THE RULE THAT LOSSES CAN BE CARRIED FORWARD
FOR-8 A/Y s
1) The loss gets carried forward for more than 8 A/Ys in case of
Amalgamation u/s 72A ,
Succession u/s 47(xiii) / 47(xiiib) / 47(xiv) read with 72A and
Amalgamation u/s 72AA.
2) Section 41(5) - Where the business or profession is no longer in existence and

There is income chargeable to tax under section 41(1) or 41(3) or 41(4) in respect of that business or
profession , then any loss(other than speculation loss),
Which arose in that business or profession during the Previous Year in which it ceased to exist and
Which could not be set -off against any income of that Previous Year,
Shall be set –off against the incomes chargeable to tax under the aforesaid sections.
3) PROVISO TO SECTION 72(1): Where a business is discontinued in the circumstances referred to in Section
33B and
is re-established within the period of 3 years from the end of Previous Year of discontinuance,
then loss of such business including the brought forward losses
shall be allowed to be carried forward to the AY relevant to the Previous Year in which the
business is re- established and
(1) It shall be set-off against the profits and gains of that business or any other business
carried on by him in that assessment year and
(2) If the loss cannot be wholly set-off in such assessment year, be carried forward to the following
assessment year and so on for SEVEN assessment years.

FINAL DT SATC 4.18
SUMMARY
Set – Off Carry Forward Set – Off
Same Inter – Inter – For Assessment From

Nature of income Source Source Head Year
under under
same same
head head
Salary N.A

House property Max. 2 8 Years Same Head
Lakhs
Non – Speculation Except 8 Years Same Head

from
Salary
Speculation × × 4 Years Same Source
PGBP Specified Business u/s

× × Indefinite Same Source
35AD
Unabsorbed
Depreciation

Any Income
Cap Exp on Sci. Except
Indefinite Except from
Research from
Salary
Salary
Cap Exp on F. Plan by
Co
Short Term × 8 Years LTCG/STCG
CGs
Long Term × × 8 Years Only LTCG
Owing & Maintenance

× × 4 Years Same Source
race horses
Winning from Lottery

× × ×
etc.
IOS Carry forward of loss under the
head IOS is not permissible.
Interest etc.

FINAL DT SATC 4.19
NOTE:
i) Speculation business loss can be set off only against speculation business income. However,
losses from other business can be adjusted against profits from speculation business.
ii) Loss from the activity of trading in derivatives, however, is not to be treated as speculative
loss.
iii) Loss under the head “PGBP” cannot be set off against income under the head “Salaries”.
iv) Long term Capital Loss can be set off against Long term Capital Gains. Thus, short-term capital loss
is allowed to be set off against both short-term capital gain and long-term capital gain.
v) Loss under the head ‘Capital Gains’ cannot be set-off against income under any other head.
vi) Loss from activity of owning and maintaining race-horses can be set off only against income from
owning and maintaining race- horses.
vii) Loss from a Specified Business [Referred to in Section 35AD] can be set off against profits and
gains, if any, of any other specified business whether eligible or not. [14 Business]
viii) Loss from a source, the income from which is exempt, cannot be set off against any income. [Say
10(38)]
ix) Loss from lottery, card games etc. cannot be set off against any income.
x) A loss cannot be set off against winnings from lotteries, crossword puzzles, races including horse
races, card games and other games of any sort or from gambling or betting of any form or nature.
xi) In case the assessee is lower income group, It’s prefer to set off losses with LTCG first as the
same is taxed @ 20% and also deductions under chapter VIA against such loss is not available.
Important Notes:
A. Section 78: Losses in case of change in constitution of firm or on succession
1. Change in constitution of firm: Any Loss proportionate to the share of a retired or deceased partner as
exceeds his share of profits in firm, cannot be c/f by the firm. However, Unabsorbed Depreciation (in full)
can be carry forward by the firm without any restriction.
2. Succession by way of inheritance: Where any person carrying on any business or profession has been
succeeded by another person by way of inheritance, then losses incurred by the predecessor shall be
allowed to be carried forward and set-off by such another person (successor).
Note: Loss incurred in his business by a sole proprietor can be c/f and set off against profits if that business
carried on by his legal heirs forming a partnership firm.
B. Section 79: Carry forward and set off of losses in the case of certain companies [Closely Held
Companies]
C. Where the losses incurred are not set – off against the income of the immediately succeeding year, such
losses cannot be set – off at a later date. However, the benefit to be denied is limited to the loss which could
be set – off and not the entire loss which is being carried forward.
D. Order of Set-off:
Section 70 [Inter Source]; Section 71[Inter Head]; Adjustment of B/f Losses and then finally Carry forward of
losses

FINAL DT SATC 4.20
E. Section 80:
Following losses cannot be carried forward if Return of Loss is not filled within Due Date u/s 139(1):
1. Loss from Non-Speculative Business under Section 72
2. Loss from Speculative Business under Section 73
3. Loss from Specified Business u/s 73A
4. Capital Loss under Section 74
5. Loss from the activity of owning and maintaining race horses under Section 74A.
[Note: Non-Filling of Return of Loss will not affect the Inter Source Adjustment u/s 70 or Inter-head
Adjustment u/s 71 or adjustment of brought forward losses of previous year with current year
Income]

FINAL DT SATC 4.21
CASE STUDY
Case Study 1:
X carrying on a business as sole proprietor, died on 31st March, 2020. On his death, the same business
was continued by his legal heirs, by forming a firm. As on 31st March 2020, a determined business loss of
` 5 lacs is to be carried forward under the Income-tax Act, 1961.
Does the firm consisting of all legal heirs of Mr. X, get a right to have this loss adjusted against its current
income?
Answer
Section 78(2) provides that where a person carrying on any business or profession has been succeeded in such
capacity by another person, otherwise than by inheritance, then, the successor is not entitled to carry forward and
set-off the loss of the predecessor against his income. This implies that generally, set-off of business losses
should be claimed by the same person who suffered the loss and the only exception to this provision is when the
business passes on to another person by inheritance.
The facts of case given in the question are similar to the case CIT v. Madhukant M. Mehta (2001) 247 ITR 805,
where the Supreme Court has held that if the business is succeeded by inheritance, the legal heirs are entitled to
the benefit of carry forward of the loss of the predecessor. Even if the legal heirs constitute themselves as a
partnership firm, the benefit of carry forward and set off of the loss of the predecessor would be available to the
firm.
In this case, the business of X was continued by his legal heirs after his death by constituting a firm. Hence, the
exception contained in section 78(2) along with the decision of the Apex Court discussed above, would apply in
this case. Therefore, the firm is entitled to carry forward the business loss of ` 5 lacs of X.
Case Study 2:
Examine in brief about the treatment to be given in the following case under the Income-tax Act, 1961, for
A.Y. 2020-21:
A loss of ` 85,000 was sustained by Simran in the activity of owning and maintaining camels for races.
Answer
Section 74A(3) lays down the provisions for set-off and carry forward of loss from the activity of owning and
maintaining race horses. According to provisions of section 74A(3), the losses incurred by an assessee from the
activity of owning and maintaining race horses cannot be set-off against the income from any other source other
than the activity of owning and maintaining race horses.
Since the scope of this section is confined to the activity of owning and maintaining race horses only, therefore,
set-off and carry forward of loss from the activity of owning and maintaining camels is not covered under section
74A(3).
It is possible to take a view that the loss from the activity of owning and maintaining camels for races may be
governed by section 72 provided such activity amounts to business. Accordingly, the loss from the activity of
owning and maintaining of camels for races can be set-off against any income (other than income from salary) of
current year and unadjusted amount shall be carried forward for set off against any business income for a
maximum period of 8 assessment years immediately succeeding the assessment year in which the loss was
incurred.
Case Study 3:
Can the loss suffered by an erstwhile partnership firm, which was dissolved, be carried forward for set-off
by the individual partner who took over the business of the firm as a sole proprietor, considering the
succession as a succession by inheritance?

FINAL DT SATC 4.22
Pramod Mittal v. CIT (2013) 356 ITR 456 (Delhi)
Facts of the case: In the present case, the assessee was previously a partner in a firm. As per the dissolution
deed of the partnership firm, with effect from 18th September, 2004, he took over the entire business of the
partnership firm in his individual capacity including fixed assets, current assets and liabilities and the other partner
was paid his dues. He then ran the business as a sole proprietor with effect from that date.
The assessee, relying upon section 78(2) and the decisions of the Supreme Court in CIT v. Madhukant M. Mehta
(2001) 247 ITR 805 (SC), claimed the set-off of the losses suffered by the erstwhile partnership firm against his
income earned as an individual proprietor, considering the case as inheritance of business.
However, considering that only the person who has suffered the loss is entitled to carry forward and set-off the
same, the claim of the assessee was disallowed by the Assessing Officer. The Tribunal concurred with the
Assessing Officer’s view.
High Court’s Observations: The High Court observed that upon dissolution, the partnership firm ceased to exist.
Also, the partnership firm and the proprietorship concern are two separate and distinct units for the purpose of
assessment. As per section 170(1), the partnership firm shall be assessed as such from 1st April of the previous
th
year till the date of dissolution (i.e., 18 September, 2004). Thereafter, the income of the sole-proprietorship shall
be taxable in the hands of the assessee as an individual. Thus, section 170(1) provides as to who will be
assessable in respect of the income of the previous year from business, when there is a change in the person
carrying on business by succession.
Section 78(2), however, deals with carry forward of losses in case of succession of business. It provides that only
the person who has incurred the losses, and no one else, would be entitled to carry forward the same and set it
off. An exception provided thereunder is in the case of succession by inheritance.
Therefore, section 170(1) providing the person in whose hands income is assessable in case of succession and
section 78(2) providing for carry forward of losses in case of succession of business, deal with different situations
and resultantly, there is no contradiction between these sections.
The income earned by the sole proprietor would include his share of loss as an individual but not the loss suffered
by the erstwhile partnership firm in which he was a partner. The exception given in section 78(2), permitting carry
forward of losses by the successor in case of inheritance, is not applicable in the present case since the
partnership firm was dissolved and ceased to continue.
Taking over of business by a partner cannot be considered as a case of inheritance due to death as per the law of
succession. The High Court opined that the decision in Madhukant M. Mehta’s case cannot be applied since this
is not a case of succession by inheritance.
High Court’s Decision: Therefore, the loss suffered by the erstwhile partnership firm before dissolution of the
firm cannot be carried forward by the successor sole-proprietor, since it is not a case of succession by inheritance.
The assessee sole-proprietor is, therefore, not entitled to setoff the loss of the erstwhile partnership firm against
his income.
Note - In Madhukant M. Mehta’s case, the sole proprietor had expired and after his death the heirs succeeded the
business as a partnership concern. Therefore, the losses suffered by the deceased proprietor was allowed to be
set-off by the partnership firm since the case falls within the exception mentioned under section 78(2), i.e., a case
of succession by inheritance.
In the present case, however, the partnership firm was dissolved and the take over of the running business of the
firm by the erstwhile partner as a sole proprietor was not a case of succession by inheritance. Hence, the carry
forward of losses of the firm by the sole proprietor was not allowed in this case.

FINAL DT SATC 4A.1
Practical Questions – SET A

1. Following are the particulars of the income of Mr. Kapil for the PY 2019-20
`
1. Income from House Property
(a) Property R (+) 1,12,000
(b) Property J (-)1,20,000
2. Profits and Gains from Business:
(A) Non-speculation:
(i) Business X 2,40,000
(ii) Business Y (-)1,50,000
(B) Speculation:
(i) Silver 1,40,000
(ii) Bullion (-) 10,000
3. Capital Gains:
(i) Long-term Capital Gains (+) 2,30,000
(ii) Short-term Loss (-) 1,10,000
4. Income from Other Sources:
(i) Card games-loss (-)10,000
(ii) From the activity of owing and maintaining race horses:
(a) Loss at Mumbai (-) 50,000
(b) Profit at Kolkata (+) 40,000
(iii) Dividend from Indian companies 20,000
(iv) Income by letting out plant and machinery 2,22,000
The following losses have been carried forward:

(i) Long-term Capital Loss from the Assessment Year 2014-15 18,000
(ii) Loss from silver speculation from the Assessment Year 2017-18 and which was
discontinued in the Assessment Year 2018-19 25,000
Compute the Gross Total Income for the Assessment Year 2020-21. [MTP(2012) - D13/2]
Answer:
Computation of Gross Total Income for the Assessment Year 2020-21
Particulars ` `
1. Income from House Property (+1,12,000 – 1,20,000) (-) 8,000
2. Profits from speculation:
(i) Profit from Silver Business 1,40,000
Less: Current year loss from bullion (-) 10,000
1,30,000
Less: Carried forward silver speculative loss (-) 25,000
Surplus from Speculation Business 1,05,000
(ii) Add: Business profit from X business 2,40,000
(iii) Less: Business loss from Y business (-) 1,50,000 1,95,000
3. Capital Gains:
Long-term Capital Gains 2,30,000
Less : Short-term Capital Loss (-) 1,10,000
Less: Brought Forward LTCL (-)18,000 1,02,000
4. Income from Other Sources:
(i) Income by letting out plant and machinery 2,22,000
(ii) Card game-loss
(Neither it can be set-off nor it can be carried forward) 10,000
(iii) Profit from race horses at Kolkata (+)40,000

Less : Loss from race horses at Mumbai (-) 50,000
Less : to be carried forward for next four Assessment Year (-) 10,000
(iv) Dividend from Indian companies: Exempt under Sec. 10(34) Nil
GTI or total income as there is no deduction available from GTI 5,11,000
Unabsorbed business loss may be set-off against the income of any other head except ‘salaries’ and
‘winnings from lottery, card games, crossword puzzle, betting on race horses’, etc.

FINAL DT SATC 4A.2
2. A discloses the following incomes from business or profession for the PY 2019-20:
`
(i) Proft from A business 7,00,000
(ii) Loss from B business (-) 3,00,000
(iii) Loss from profession C (-) 3,50,000
(iv) Proft from speculation business – P 3,00,000
(v) Loss from speculation business – Q (-) 4,00,000
Determine the Income from Business or Profession for the AY 2020-21. [MTP(2012) - D13/2; RTP-D14]
Solution:
Income from Business or Profession for the AY 2020-21
Particulars `
(i) A 7,00,000
(ii) B (-) 3,00,000
(iii) C (-) 3,50,000
Total Income from Non Speculation Business and Profession 50,000
Income from Speculation Business
(i) P 3,00,000
(ii) Q (-) 4 ,00,000
Loss from Speculation Business (-) 1,00,000
Loss cannot be set-off against the income from business profit, though both of them fall under the same
head of income. Thus, taxable business profits for the AY 2020-21 is ` 50,000. The speculation loss will be
carried forward for future set-off for 4 AYs, immediately succeeding the Assessment Year for which it was first
computed [Sec. 73(4)]. The time-limit of 4 years is applicable from the AY 2021-22 and subsequent year.
3. Raja, an individual was carrying on a business as sole proprietor. On his death, his legal heirs decided to
continue the same business by forming a firm. At the time of death, Raja had a determined business loss
of ` 3 lakhs, under the provisions of the Income-tax Act, to be carried forward. Does the firm, consisting of
all the legal heirs of Raja, get a right to have this loss adjusted against its current income ? Discuss.
[RTP – J13(2008)]
Answer
Under section 78, on death of an individual, if the legal heirs carry on the business of the individual by forming a
Partnership, then the firm is entitled to carry forward the loss of individual. [Madhukant Mehta 247 ITR 805
(SC)].
In the instant case, the carry forward business loss in the hands of late Mr. Raja can be set off against the income
of the firm subject to the following conditions :
(i) The legal heirs are the only partners and no other outsiders are involved
(ii) The business carried on belongs to the deceased assessee.
In view of the Supreme Court decision given above, they are entitled to carry forward and set off Mr. Raja’s
business loss of ` 3 lakhs.
4. Mr. Dey furnishes the following particulars of his income for the Previous Year 2019-20:
Particulars `
Unit “A”: Business loss (-) 4,00,000
Unabsorbed depreciation (-) 2,00,000
Unit “B”: Business profit 10,00,000
Income from House Property 2,00,000
Apart from the above mentioned, the following are unabsorbed Carried forward
losses and allowance:
Unit “C” business was discontinued on 31-12-2013: (-) 3,00,000
1. Business loss (-) 2,00,000
2. Unabsorbed depreciation
These are occurred during the Previous Year 2013-14
Unit “D” business was discontinued on 1-3-2015:
1. Business loss (-) 3,00,000
2. Unabsorbed depreciation (-) 1,00,000
These are occurred during the Previous Year 2014-15
Compute his total income for the Assessment Year 2020-21 [CMA Module]

FINAL DT SATC 4A.3
Solution :
Computation of Total Income for the AY 2020-21
Particulars ` `
Income from House Property 2,00,000
Business - Profession
Profit of B Business (+) 10,00,000
Less: Business loss of A Business (Current Year) (-) 4,00,000
Depreciation of A Business (Current Year) (-) 2,00,000
(+) 4,00,000 4,00,000
Aggregated Income 6,00,000
Less: Carried forward business loss:
Loss of C Business to be set-off against business profits (-) 3,00,000
Loss of D Business to be set-off against business profits (-) 1,00,000
Unabsorbed depreciation to be setoff with HP Income (-) 2,00,000 (-) 6,00,000
Total Income Nil
Note: Where business loss and depreciation both are being carried forward, business loss has got priority, over
depreciation. Unabsorbed depreciation is carried forward without time-limit & it can be setoff with HP income also.
5. The business of Sia Ltd, an industrial undertaking was discontinued on 25th September, 2016 due to fire
and the company had incurred the following business losses:
Loss for Assessment Year 2017-18 - ` 4,00,000
Brought forward business loss of Assessment Years 2013-14 to 2016-17 – ` 6,00,000
The above business is re-established on 25th December, 2019. What will be the treatment of the losses if
the profit of assessment year 2020-21 is ` 5,00,000? [CMA Module]
Solution:
Since the business is re-established within three years from the end of the previous year in which it was
discontinued due to fire, the loss of ` 10,00,000 can be set off against ` 5,00,000 i.e. the income of the year in
which it was re-established. The balance loss of ` 5,00,000 can be carried forward for seven succeeding
Assessment Years.
6. A, B & C are three partners of firm sharing profit and loss equally. B retires from the firm on 30.9.2019.
From the following information furnished to you for the financial year ended 31st March, 2020, compute
loss and depreciation which the firm shall be allowed to carry forward. [CMA Module]
Particular `
Current Year business loss before allowing current year depreciation 3,00,000
Current year depreciation 2,10,000
Brought forward business loss of assessment year 2019-20 1,20,000
Brought forward unabsorbed depreciation of assessment year 2019-20 90,000
Solution:
Particular `
Proportionate share of loss of partner ‘B’ in the current year ( 3,00,000 x 1/3 x 6/12) 50,000
Proportionate share of brought forward business loss ( 1,20,000 x 1/3) 40,000
Loss not allowed to be carried forward in the hands of firm 90,000

Loss and depreciation allowed to be carried in the hands of firm
Particular `
Business loss of assessment year 2020-21 before depreciation 3,00,000
Less: Share of loss of ‘B’ the retiring partner of assessment year 2020-21 50,000
Business loss allowed to be carried forward (A) 2,50,000
Particular `
Brought forward business loss of assessment year 2019-20 1,20,000
Less: Share of loss of ‘B’ the retiring partner 40,000
Business loss of assessment year 2019-20 allowed to be carried forward (B) 80,000
Total unabsorbed Business Loss to be carried forward by firm (A+B) 3,30,000

FINAL DT SATC 4A.4
Depreciation allowed to be carried forward
Particular `
Current Year Depreciation 2,10,000
Add : Brought forward unabsorbed depreciation of assessment year 2018-19 90,000
Total unabsorbed depreciation to be carried forward by firm 3,00,000
7. A, B, & C are the partners of a firm sharing profits and losses in the ratio 2:2:1 respectively. The firm has
brought forward business loss of ` 2,00,000 and unabsorbed depreciation of ` 1,80,000. During the
previous year 2019-20, B retired from the firm w.e.f. 1st July, 2019. Compute the business loss which will
not be allowed to be carried forward in the hands of firm if –
(a) The firm has earned business income of ` 3,00,000 during the previous year 2019-20
(b) The firm has incurred business loss of ` 3,00,000 during the previous year 2019-20. [CMA Module]
Solution:
(a) Where the firm earned business income of ` 3,00,000
Share of loss of partner B in the brought forward business loss = ` 2,00,000 x 2/5 = ` 80,000
Share of profit of partner B in the business income of the Previous Year 2019-20 i.e. for 3 months
= ` 3,00,000 x 2/5 x 3/12 = ` 30,000
Hence, loss which cannot be carried forward in the hands of the firm = ` 80,000 – ` 30,000 = ` 50,000.
Business loss which can be carried forward and set-off brought forward loss = ` 2,00,000 – ` 50,000
(share of loss of partner B) = ` 1,50,000
Hence, in the previous year 2019-20, the firm shall be allowed to set-off of brought forward loss of ` 1,50,000
(instead of ` 2,00,000) from the current business income of ` 3,00,000.
However, entire unabsorbed depreciation of ` 1,80,000 can be set off from the balance income of ` 1,50,000
` 3,00,000 – ` 1,50,000).
(=`
(b) The firm has incurred business loss of ` 3,00,000 during the previous year 2019-20
` 2,00,000 x 2/5) = ` 80,000.

Share of loss of partner B in the brought forward loss = (`
Share of loss of partner B in the current year business loss for 3 months
= ` 3,00,000 x 2/5 x 3/12 = ` 30,000.
Aggregate loss which cannot be carried forward ` 1,10,000 ( = ` 80,000 + ` 30,000).
Loss which can be carried forward to subsequent assessment year

` 2,00,000 + ` 3,00,000) - ` 1,10,000
= (`
= ` 5,00,000 – ` 1,10,000
= ` 3,90,000.
3,
However, entire unabsorbed depreciation of ` 1,80,000 shall be allowed to be carried forward.
8. Can the brought forward business losses and unabsorbed depreciation be set off against the profit
determined under section 44B? [CA-FINAL]
Answer
The provisions of section 44B, introduced w.e.f. 1.4.1976, requiring computation of income of a non-resident from
shipping business on a presumptive basis are mandatory and not optional. Therefore, there is no possibility of
having a business loss where income is computed on presumptive basis under section 44B. There is an inbuilt
presumption that the business losses and depreciation mentioned in the question relate to another business of the
non-resident and not the shipping business. In such a case, both business loss and unabsorbed depreciation of
another business can be set-off against the profits determined under section 44B in respect of shipping business.
Even though the provisions of section 44B are applicable “notwithstanding anything to the contrary contained in
sections 28 to 43A”, it is possible to take a view since the non obstante clause is relevant only for
computation of income from shipping business under section 44B, it does not bar set-off of unabsorbed
depreciation relating to some other business.

FINAL DT SATC 4A.5
9. Explain in brief about the treatment to be given in the following case under the Income-tax Act, 1961, for
AY 2020-21:
A loss of ` 85,000 was sustained by Simran in the activity of owning and maintaining camels for races.
[CA-FINAL]
Answer
Section 74A(3) lays down the provisions for set-off and carry forward of loss from the activity of owning and
maintaining race horses. According to provisions of section 74A(3), the losses incurred by an assessee from the
activity of owning and maintaining race horses cannot be set-off against the income from any other source other
than the activity of owning and maintaining race horses. Since the scope of this section is confined to the activity
of owning and maintaining race horses only, therefore, set-off and carry forward of loss from the activity of
owning and maintaining camels is not covered under section 74A(3).
It is possible to take a view that the loss from the activity of owning and maintaining camels for races may be
governed by section 72 provided such activity amounts to business. Accordingly, the loss from the activity of
owning and maintaining of camels for races can be set-off against any income (other than income from salary) of
current year and unadjusted amount shall be carried forward for set off against any business income for a
maximum period of 8 assessment years immediately succeeding the assessment year in which the loss was
incurred.
10. M/s. JKLM, a firm, consists of four partners namely, J, K, L and M. They shared profits and losses equally
during the year ended 31.3.2019. The assessed business loss of the firm for the assessment year 2019-20
which it is entitled to carry forward amounts to ` 3,60,000. A new deed of partnership was executed
among J, K, L and M on 1.4.2019 in terms of which they agreed to share profits and losses in the ratio of
15:15:20:50 respectively.
Compute the amount of business loss relating to the assessment year 2019-20, which the firm is entitled
to set off against its business income for the assessment year 2020-21. The business income of the firm
for the assessment year 2020-21 is ` 3,30,000. Your answer should be supported by reasons.
[CA-FINAL]
Answer
The firm is entitled to set off its brought forward business loss amounting to ` 3,60,000 relating to the assessment
year 2019-20 to the extent of ` 3,30,000 against its business income of ` 3,30,000 for the assessment year 2020-
21, as per the provisions of section 72(1).
Section 78(1) which deals with carry forward and set-off of losses in the case of change of constitution of firm is
applicable only where there is retirement or death of a partner. It is not applicable to a case where there is a
change in the ratio of sharing profits and losses amongst the existing partners.
Therefore, section 78(1) is not applicable to the case of M/s. JKLM. The unabsorbed business loss of
` 30,000 relating to the assessment year 2019-20 will be carried forward further after its set-off against the
business income of the assessment year 2020-21.
11. An assessee sustained a loss under the head “Income from House Property” in the previous year relevant
to the assessment year 2020-21, which could not be set off against income from any other head in that
assessment year. The assessee did not furnish the return of loss within the time allowed u/s 139(1) in
respect of the relevant assessment year. However, the assessee filed the return within the time allowed
u/s 139(4). Can the assessee carry forward such loss for set-off against income from house property of
the assessment year 2021-22? (RTP, June-2014)
Solution: Loss u/s 71B and Section 32(2), can be carried forward even if the return of income has been filed after
the due date u/s 139(1) but before the time limit u/s 139(4) for filing belated return.
As per Sec. 139(4) of the Act, it states that, where an assessee failed to file return of income for any assessment
year within the prescribed time limit u/s 139(1), the belated return can be filed either before:
The end of the relevant assessment year; or
Completion of assessment, whichever is earlier.
In the instant case, the assessee has filed the return of income for the assessment year 2020-21 belatedly but
within the time limit u/s 139(4). In view of the above provisions of law, the loss under the head house property, can
be carried forward and set off against the income of the assessment year 2021-22.

FINAL DT SATC 4A.6
12. Raja, an individual was carrying on a business as sole proprietor. On his death, his legal heirs decided to
continue the same business by forming a firm. At the time of death, Raja had a determined business loss
of ` 3 lakhs, under the provisions of the Income-tax Act, to be carried forward. Does the firm, consisting of
all the legal heirs of Raja, get a right to have this loss adjusted against its current income? Discuss.
(RTP, June-2013)
Answer
Under section 78, on death of an individual, if the legal heirs carry on the business of the individual by forming a
Partnership, then the firm is entitled to carry forward the loss of individual. [Madhukant Mehta 247 ITR 805 (SC)].
In the instant case, the carry forward business loss in the hands of late Mr. Raja can be set off against the income
of the firm subject to the following conditions :
The legal heirs are the only partners and no other outsiders are involved
The business carried on belongs to the deceased assessee.
In view of the Supreme Court decision given above, they are entitled to carry forward and set off Mr. Raja’s
business loss of ` 3 lakhs.
13. "Short-term capital losss can be set of only against short-term capital gains. Discuss.
(June 2008, 3 marks)
Answer:
Where the net result of computation in respect of any source falling under any head of income is a loss for any
assessment year, the assessee is entitled to have the amount of such loss set off against income from another
source under the same head of income for the same assessment year.
There is however an exception that the long term capital loss can be set off only against long term capital gains.
But the short term capital loss can be set against long term as well as short term capital gains.
14. Subsequent to the demise of Mrs. X, her sons constituted a film and ran the same business. Can the firm
claim set off of unabsorbed business loss of late X? (Dec 2008, 3 Marks)
Answer:
Where any person carrying on business or profession has succeeded in such capacity by another person
otherwise than by inheritance, then the successor cannot have the loss of predecessor carried forward and set off
against his income. When the business is succeeded by inheritance, the legal heirs are entitled to the benefit of
the loss of predecessor. Even if the legal heirs constitutes themselves as a partnership from, the benefit of
predecessor's loss should be made available to the firm.
15. On 1st April, 2019, Mr. A & Mrs. A purchased entire shares of M/s. Thakur Company Private Limited in
which public are not substantially interested. The company had unabsorbed business loss and
accumulated depreciation from earlier years. Accumulated non-speculative business losses — ` 3 lakhs,
Unabsorbed Depreciation —` ` 8 lakhs The company made sufficient profits during the Asst. year 2020-21
to accommodate above allowances.
(i) State the effect of changes of shareholders in the right of the company to carry forward the losses and
unabsorbed depreciation for set off.
(ii) Is it different if the shares are acquired by Mr. A & Mrs. A by way of gift?
Answer:
(i) The effect of change in shareholding rights to carry forward and set off of business loss and
unabsorbed depreciation are as follows:
M/s. Thakur Company Private Ltd is a closely held company. As per provisions of section 79 of income tax
act, a closely held company will be entitled to carry forward and set off business losses provided the person
beneficially holding 51 % of voting power on the following two dates are same.
(a) On the last day of the previous year in which loss was incurred.
(b) On the last date of the previous year in which the company wants to set off the brought forward loss.
That means to carry forward of loss, same person on the last day of the year loss are required to beneficially
hold 51% of voting power on the last day of the year of setoff.
In the present case 100% beneficial holding on 31st March 2020 are not the same as on 31st March 2019 so
the business loss of ` 3 lakhs can not be carry forward and set off against profit for the asst. year 2020-21.
Provisions of sec. 79 as above is applicable only in case of carry forward and set off of business loss. Carry

FINAL DT SATC 4A.7
forward of unabsorbed depreciation stands in different footings and provisions of section 79 is not applicable.
So M/s Thakur Company Pvt. Ltd is eligible for set off unabsorbed depreciation.
(ii) Where a change in voting power takes place in a previous year on account of transfer of shares by way of gift,
the restriction as per provision in section 79 is not applicable. So if Mr. A & Mrs. A acquired shares of
Thakur Company Pvt. Ltd. by way of gift both business loss and accumulated depreciation can be
carried forward and set off against profit of the Asst. year 2020-21.
16. The return of income for the assessment year 2019-20 was filed, by Mr. Suryanarayana on 21-02-2020. The
summarised results were as under :
` In lac)
(`
Unabsorbed business loss 32
Unabsorbed depreciation 22
Unabsorbed tax holiday relief u/s 80-IB of Unit B 12
For the assessment year 2020-21 for which the return of income will be filed on
29-09-2020, the pertinent data are as below :
Sales turnover 1250
Business income before current depreciation 76
Depreciation of current year only 19
Tax holiday relief u/s 80-IB of Unit B 38
Compute the total income of the assessee for the assessment year 2020-21
Dec 2014 (2012) – 7 Marks
Answer: Assessment year 2019–20
For the assessment year 2019-20, the return of income was filed on 21- 02- 2020, which is beyond the due date
specified u/s 139(1). Hence the assessee cannot carry forward business loss [as per section 80 read with section
139(3)]. The assessee can however carry forward the unabsorbed depreciation to future years, since there is no
requirement that return of income should be filed within the date specified u/s 139(1) for the same. As per section
80AC, where the return of income is filed beyond the due date, the assessee will not be entitled to claim
deduction u/s 80-IB. So this benefit will also lapse.
Assessment year 2020-21

Since the return of income will be filed within the due date, the assessee can claim deduction u/s 80-IB.
Profits and gains of business or profession
Business income before current deprecation 76
Less: Depreciation for AY 2020-21 (As per sec 32(2), unabsorbed depreciation has to be added to
current depreciation) 41
Business income/gross total income 35
Less: Deduction under chapter VIA
Tax holiday relief u/s 80-IB (To be restricted to GTI) 35
Total Income NIL
If time limit is available, balance of deduction u/s 80-IB of ` 3 lacs can be carried forward.
` in
17. The following are the broad details pertaining to Excel Pvt. Ltd., for the AY 2019-20 (all amounts are (`
lacs):
From specified business covered by section 35AD: Loss 12
From other non-speculation business:
Unabsorbed depreciation 8
Business loss excluding depreciation 7
The return of income had been filed on 11.01.2020
For the assessment year 2020-21, the broad position is as under:

From specified business covered by section 35AD: Profit 9
Depreciation of FY 2019-20 alone 3
Business income before depreciation 22
How will the brought forward items be set off in the assessment year 2020-21 and what is the business
income for the assessment year 2020-21? [Dec 2013 (2012)– 5 Marks]
Answer: Set off and carry forward of business loss In terms of sec 80 and 139(3), for carrying forward
business loss covered by sec 72 & section 73A (Specified Business), the return of income should be filed within
the due date as per sec 139(1). Hence the assessee cannot carry forward the non-speculation business loss of
` 7 lacs & loss of ` 12 lakhs from specified businesses.

FINAL DT SATC 4A.8
Unabsorbed depreciation is not covered by above and hence the unabsorbed depreciation of ` 8 lacs can be
carried forward and the same will be deemed to be current depreciation.
Income for AY 2020-21: ` in lacs)

(`
From specified business covered by section 35AD : Profit 9
Less: brought forward loss from specified business set off NIL
Balance income 9
Business income before depreciation 22
Less: Current depreciation as per sec 32(2) [3+8] 11
Balance income 11
Business income chargeable to tax 20
18. Following details pertaining to Mr. Vaamana, a resident Indian aged 58 years, are furnished to you.
Particulars `
(i) Salary received from ABC Ltd. 7,30,000
(ii) Profession tax paid by employer 12,000
(iii) Loss from own business not covered by section 35AD 2,20,000
(iv) Long term capital gains from sale of residential house property 1,20,000
(v) Winning from T.V. games show (Net of TDS ` 30,000) 70,000
Expenses incurred for participating in the show 5,000
(vi) Loss in card games 12,000
(vii) Loss from agricultural lands in India 32,000
June 2013 – 7 Marks]
Answer:
Computation of Total Income Mr. Vaamana
Assessment Year 2020-21
Particulars Amount (``) Amount (``)
Salaries
Received from employer 7,30,000
Profession tax paid by employer (to be treated as perquisite) 12,000
Gross Salary: 7,42,000
Less: Statutory Deduction u/s 16(ia) 50,000
Professional tax paid 12,000 6,80,000
Income chargeable under this head
Loss from non-speculative business not covered by sec-35AD
(Cannot be set off against salaries) 2,20,000
Capital gains
Long-term capital gains from sale of residential house property 1,20,000
Business loss can be set off against LTCG 1,20,000 NIL

Hence chargeable LTCG is
Balance business loss ` 1 lac to be carried forward
Income from other sources
(a) Income from T.V. Games show Gross
No expenditure is allowable from this income u/s 58(4)
(No other loss can be set off against this winnings) 1,00,000
(b) Loss from card games - ` 12,000
(Can neither be set off, nor carried forward)
Income chargeable under this head NIL 1,00,000
Gross total income/Total income 7,80,000
Note:
1. Agricultural income being net loss, the same has to be ignored.

FINAL DT SATC 4A.9
19. Vivitha Logistics Ltd., engaged in the business of logistics support and infrastructural activities (started
on 12.5.2016), has set up a warehouse facility for sugar storage during the current year. The particulars of
investment relating to this warehouse facility business are as under :
` in lacs)
(`
Land 40
Building 100
Machinery 200
Non-compete fee paid to machinery manufacturer 60
Profit from warehouse facility (covered by section 35AD) before depreciation 120
The assessee has earned profits of ` 150 lacs from the business of infrastructural activity (covered by
section 35AD of the Income-tax Act, 1961), ` 40 lacs from the logistics support business and ` 2 lacs as
income from other sources.
Determine the total income of the assessee and the loss, if any, to be carried forward, as per normal
provisions. Notes on treatment of each item above, should form part of your answer.
Logistics support business is not covered by section 35AD. Where the return of income is being filed on
3rd December, 2020, will the right of carry forward of loss be affected? Dec 2011 – 7 Marks
Answer:
Computation of loss from specified business
As per section 35AD of the Income-tax Act, 1961,
a) the assessee can set off the entire capital expenditure against the profits from this business. However,
investment in land and goodwill will not be considered.
b) Deduction will not be available under any other provision. This means that depreciation will not be
available.
The assessee can set off the income from “specified business” against income from any other “specified
business” but not against other business profit. Such unabsorbed business loss has to be carried forward
under section 73A.
The problem clearly states that the warehouse facility business and infrastructure facility business run by
the assessee are covered by the term “specified business” of section 35AD.
In the light of above, total income computed is as under :
Profits and gains of business or profession ` in lacs)

(`
(i) Logistics support business 40
(ii) Specified business covered by Sec 35AD
(a) From infrastructural activities 150
(b) From warehouse facility set off (–) 150
Income from specified business Nil
(Balance ` 90 lacs is carried forward u/s 73A)
Chargeable income under this head 40

Interest from bank deposit 2
Total income 42
Working Note:
Income from cold chain business covered by sec 35AD
Profit from business 120
Less : Capital expenditure deductible in full
Building 100
Machinery 200
Non-compete fee paid to machinery manufacturer 60
Total 360
Loss from cold chain facility business 240
Carry forward of loss u/s 73A

The need for filling of return within the time stipulated u/s 139(1) enjoined by sec 139(3) is for the purpose of
carrying forward losses under sections 72(1), 73(2), 74(3) or 74A(3). Now, w.e.f. AY 18-19, Loss under section
73A is also covered [Amendment by FA 16].
FINAL DT SATC 4A.10
Hence filling the return of income on 3rd December, 2020 will affect the right of carry forward of loss as per
section 73A as per amended provision (FA 16)

FINAL DT SATC 4B.1
Practical Questions – SET B

1) X, an individual, submits the following information relevant for the AY 2020-21
Profit - ` Loss - `
Salary income (computed) 1,42,000
Income from house property:
House A 1,15,000
House B 1,17,000
House C 1,21,000
Profits and gains of business or profession :
Business A 1,08,000
Business B 1,18,000
Business C (speculative) 1,11,000
Business D (speculative) 1,23,000
Capital gains :
Short – term capital gains 1,06,000
Short – term capital loss 1,28,000
Long – term capital gains on sale of building 12,500
Income from other sources :
Income from card games 1,08,000
Loss from card games 1,07,010
Loss on maintenance of race horses 1,06,000
Interest on securities 1,04,000 —
Determine the net income of X for the AY 2020-21
2) Rajesh submits the following information for previous year 2019-20 relevant to the AY 2020-21:
`
1. Profit from Business X situated in Bangalore 2,80,000
2. Profit from Business Y situated in Hyderabad 1,25,000
3. Loss from Business Z carried in Germany (the business is controlled
from India but profits are not received in India) 85,000
4. Unabsorbed depreciation of business Z 45,000
5. Income from house property situated in India 30,000
6. Income from house property situated in London
(rent received in London) 50,000
Find out the Gross Total Income of Rajesh for the AY 2020-21 if he is (a) ROR in India (b) Not ordinarily
resident in India and (c) Non – resident in India. [After Residential Status]
3) X, a resident individual submits the following information for the AY 2020-21:

BUSINESS A `
Loss of the previous year 2019-20 ( – ) 1,20,000
Brought forward loss of the previous year 2018 – 19 ( – ) 1,45,000
BUSINESS B
Profit of previous year 2019-20 1,35,000
BUSINESS C (previous year ends on March 31, business discontinued on April
10, 2019)
Profits of the period April 1, 2019 to April 10, 2019 Nil
Brought forward loss of previous year 2018-19 ( – ) 1,16,000
BUSINESS D (PY ends on March 31, business discontinued on Mar 31, 2019)
Brought forward loss of previous year 2017-18 ( – ) 1,04,000
OTHER INCOME
Interest on debentures held as stock – in – trade 1,48,000
Interest on bonds held as investments 1,60,000
Long – term capital loss on sale of shares (STT not paid) ( – ) 1,46,400
FINAL DT SATC 4B.2
Dividend [deemed dividend under section 2(22)(e)] on September 3, 2019 held as investment
` 1,80,000.
Determine the net income of X for the AY 2020-21. Also calculate the amount of loss which can be
carried forward for being set off to the next assessment year.
4) Mr. Yashwant submits the following information for the financial year ending 31st March, 2020. He
desires that you should (a) compute the gross total income and (b) ascertain the amount of losses
that can be carried forward:
(i) He has two houses: `
(a) House No. 1 – After all statutory deductions 36,000
(b) House No. II – current year loss (10,000)
(ii) He has three proprietary businesses:
(a) Textile business:
(i) Discontinued from 31st October 2019 – current year loss 25,000
(ii) Brought forward business loss of the year 2016-17 80,000
(b) Chemical business:
(i) Discontinued from 1st March, 2018 – hence no profit/loss Nil
(ii) Bad debts allowed in earlier years recovered during this year 30,000
(iii) Brought forward business loss for the assessment year 2018-19 20,000
(c) Leather business: profit for the current year 70,000
(III) (i) Short – term capital gains 20,000
(ii) Long – term capital loss 15,000
5) M/s. Vivitha & Co., a partnership firm, with four partners A, B, C and D having equal shares, furnishes
the following details, summarized from the valid returns of income filed by it:
Assessment year Item eligible for carry forward and set off
2016-17 Unabsorbed business loss ` 1,20,000
2017-18 Unabsorbed business loss ` 1,90,000
2017-18 Unabsorbed depreciation ` 1,20,000
2017-18 Unabsorbed long – term Capital Loss:
— from shares ` 1,10,000
— from building ` 1,90,000
C, who was a partner during the last three years, retired from the firm with effect from 1.4.2019. The
summarized results of the firm for the AY 2020-21 are as under:
`
Income from house property '70,000
Income from business:
Speculation 2,20,000
Non – speculation ( – )50,000
Capital gains
Short – term (from sale of shares) 40,000
Long – term (from sale of building) 2,10,000
Income from other sources 60,000
Briefly discuss, how the items brought forward from earlier years can be set off in the hands of the
firm for the AY 2020-21, in the manner most beneficial to the assesses. Also show the items to be
carried forward. Computation of total income is not required.

FINAL DT SATC 4B.3
6) Compute the total income of Mr. Krishna for the assessment year 2020-21 from the following
particulars:
Particulars Amount (`
`)
Income from business before adjusting the following items: 1,75,000

(a) Business loss brought forward from assessment year 2017-18 70,000
(b) Current depreciation 40,000
(c) Unabsorbed depreciation of earlier year 1,55,000
Income from house property (Gross Annual Value) 4,32,000
Municipal taxes paid 32,000
Mr. Krishna sold a plot at Noida on 12th September, 2019 for a consideration of
` 6,40,000, which had been purchased by him on 20th December, 2017 at a cost of
` 4,10,000
Long-term capital gain on sale of debentures 60,000
Dividend on shares held as stock in trade 22,000
Dividend from a company carrying on agri business 10,000
During the previous year 2019-20, Mr. Krishna has repaid ` 1,67,000 towards housing loan from a
scheduled bank. Out of ` 1,67,000, ` 97,000 was towards payment of interest and rest towards
principal payments.
7) [Mr. P, a resident individual, furnishes the following particulars of his income and other details for the
previous year 2019-20:
Particulars `
(i) Income from salary (computed) 18,000
(ii) Net annual value of house property 70,000
(iii) Income from business 80,000
(iv) Income from speculative business 12,000
(v) Long term capital gain on sale of land 15,800
(vi) Loss on maintenance of race horse 9,000
(vii) Loss on gambling 8,000
Depreciation allowable under the Income-tax Act, 1961, comes to ` 8,000, for which no treatment is
given above. The other details of unabsorbed depreciation and brought forward losses (pertaining to
A.Y. 2019-20) are:
Particulars `
i. Unabsorbed depreciation 9,000
ii. Loss from speculative business 16,000
iii. Short term capital loss 7,800
Compute the gross total income of Mr. P for the Assessment year 2020-21, and the amount of loss
that can or cannot be carried forward.

FINAL DT SATC 4B.4
Class Notes

FINAL DT SATC 4C.1
SOLUTION – SET OFF

Solution 1:
Net income 2,21,000
Loss to be carried forward

Speculative business loss 12,000
Short-term capital loss 9,500
Loss from the activity of owning and maintaining race horses 1,06,000
Solution 2:
Business Income Resident (`) NOR (`) NR (`)
Business X (Profit) 2,80,000 2,80,000 2,80,000
Business Y (Profit) 1,25,000 1,25,000 1,25,000
4,05,000 4,05,000 4,05,000
Business Z (Loss); (controlled from
India but received out of India) (-) 85,000 (-) 85,000 Nil
3,20,000 3,20,000 4,05,000
Unabsorbed depreciation of business Z (-) 45,000 (-) 45,000 Nil
2,75,000 2,75,000 4,05,000
Income from house property ---
Property in India 30,000 30,000 30,000
Property in London 50,000 --- ---
Gross Total Income 3,55,000 3,05,000 4,35,000
Solution 3:
`
Loss of Business A for the previous year 2019-20 (-) 1,20,000
Profit of Business B for the previous year 2019-20 1,35,000
Profit of Business C for the period April 1, 2019 to April 10, 2019 Nil
Interest on debentures held as stock-in-trade 1,48,000
Current business profit 1,63,000
Less : Brought forward loss of Business A, Business C and Business D
[i.e., (` 1,45,000 + ` 1,16,000 + ` 1,04,000) subject to the maximum of ` 1,63,000] 1,63,000
Income under the head "Profits and gains of business or profession" Nil
Computation of Net Income

Profits and gains of business or profession Nil
Capital gains Nil
(Loss of ` 1,46,400 will be carried forward for next 8 years for set off against long-term capital gain)
Interest on bonds held as investment 1,60,000
Deemed dividend on shares 1,80,000
Gross total income 4,57,000
Less : Deduction under sections 80C to 80U Nil
Net income 4,57,000
Notes :
1. As debentures are held by X as stock-in-trade, interest income is a part of business profits. Interest income
can, therefore, be utilised for claiming set off of brought forward business losses. This rule is, however, not
applicable in the case of interest on bonds as bonds are held by X as investment.
2. Though Business D was not in existence during the previous year 2019-20, yet the brought forward business
loss of the year 2018-19 can be set off against the income of the assessment year 2020-21
Solution 4: Computation of gross total income

[for the assessment year 2020-21]
` `
Income from house property
House No. I 36,000
House No. II (-) 10,000 26,000
FINAL DT SATC 4C.2
Profit of the leather business 70,000
Losses : Textile business - current year loss (-) 25,000
45,000
Bad debts recovered taxable u/s 41 (4) 30,000 75,000
Income from capital gains
Short term capital gain 20,000
Long term capital loss, can be set off only against LTCG Nil 20,000
1,21,000
Set off of b/f losses
b/f business loss of assessment year 2016-17 80,000
b/f business loss of assessment year 2018-19 20,000
1,00,000
Maximum allowed to be set off (to the extent of income under the
head 'Profits and gains of business or profession') (-) 75,000
Gross total income 46,000
Statement of losses to be carried forward to assessment year 2021-22
business loss of assessment year 2016-17 (80,000-75,000) 5,000
business loss of assessment year 2018-19 20,000
Total 25,000
Long term capital loss of assessment year 2020-21 15,000
Solution 5:
According to section 78(1), where there is a change in the constitution of the firm, the loss relatable to outgoing
partner (whether by way of retirement or death) has to be excluded for the purposes of carry forward. However,
this provision does not apply in the case of unabsorbed depreciation.
Accordingly, M/s. Vivitha & Co. is entitled to carry forward the losses to the extent detailed here below:
Item Loss (`) Relatable to Balance eligible for

C(`) carry forward (`)
Business loss of 2017-18 1,20,000 30,000 90,000
Business loss of 2018-19 1,90,000 47,500 1,42,500
Long term capital loss of 2018-19 3,00,000 75,000 2,25,000
Set off of items in the hands of

M/s. Vivitha & Co. for the A.Y. 2020-21
Particulars Amount Amount
(`) (`)
1. Income from house property
Current year as given 70,000
Less: Brought forward depreciation (refer WN 1) 70,000 NIL
2. Profits and gains of business or profession
Current year speculation 2,20,000
Less: Current year Non-speculation loss set off 50,000
(Refer WN 2)
1,70,000
Less: Brought forward business losses of earlier year
(2016-17- ` 90,000 and 2017-18 ` 80,000) 1,70,000
(Refer WN 3) NIL
3. Capital gain
Short term (from sale of shares) 40,000
Long-term (from sale of building) 2,10,000
Less: Brought forward LTC loss of AY 2019-20
(Refer WN 4) 2,10,000 NIL
4. Income from other sources
Current year before set off 60,000
Less: Brought forward depreciation (Refer WN 1) 50,000 10,000
50,000
Losses to be carried forward to A.Y. 2021-22
Business loss (` 1,42,500 - ` 80,000) 62,500
Long term capital loss (` 2,25,000 - ` 2,10,000) 15,000
Both these losses relate to A.Y. 2019-20

FINAL DT SATC 4C.3
Working Notes:
1. Unabsorbed depreciation can be set off against income from any head. Hence it will be advantageous to set
off unabsorbed depreciation against income from house property and income from other sources.
2. In the current year, non-speculation business loss can be set off against speculation business income.
3. Brought forward non-speculation business loss can also be set off against speculation business income of
current year.
4. According to section 74, brought forward long term capital losses shall be set off only against long-term
capital gains of current year.
Solution 6:
Computation of Total Income of Mr. Krishna for the AY 2020-21
Particulars ` `
(1) Income from house property
Gross Annual Value 4,32,000
Less: Municipal taxes paid 32,000
Net Annual Value (NAV) 4,00,000
Less: Deductions under section 24
(a) 30% of NAV 1,20,000
(b) Interest on housing loan 97,000 1,83,000
(2) Income from business

Income from business 1,75,000
Less : Current year depreciation under section 32(1) 40,000
1,35,000
Less: Set-off of brought forward business loss of AY 2017-18 under 70,000
section 72 65,000
Less: Unabsorbed depreciation set-off [See Note 3] 65,000 Nil
(3) Capital gains

Long term capital gain on sale of debentures 60,000
Less: Unabsorbed depreciation set-off [See Note 3] 60,000 Nil
Short term capital gain on sale of land [See Note 2] 2,30,000

Less: Unabsorbed depreciation set-off [See Note 3] 30,000 2,00,000
(4) Income from other sources
Dividend on shares (whether held as stock-in-trade or from a

company carrying on agricultural operations) exempt under section
10(34) - Nil
Less : Chapter VI-A deduction
Section 80C [Principal repayment of housing loan] 70,000
Total income 3,13,000
Notes:
(1) Since land is held for a period of less than 24 months, the gain of ` 2,30,000 arising from sale of such
land is a short-term capital gain.
(2) Brought forward unabsorbed depreciation can be adjusted against any head of income. However, it is
most beneficial to set-off unabsorbed depreciation first against long-term capital gains, since it is taxable
at a higher rate of 20% (the other income of the assessee falling in the 10% slab rate).

FINAL DT SATC 4C.4
Solution 7:
Computation of Gross Total Income of Mr. P for the A.Y. 2020-21
Particulars ` `
(i) Income from salary (computed) 18,000
(ii) Income from House Property
Net Annual Value 70,000
Less : Deduction under section 24 (30% of ` 70,000) 21,000 49,000
(iii) Income from business and profession

(a) Income from business 80,000
Less : Current year depreciation 8,000
72,000
Less : Unabsorbed depreciation 9,000 63,000
(b) Income from speculative business 12,000
Less : Brought forward loss from speculative business 12,000 Nil
(Balance loss of ` 4,000 (i.e. ` 16,000 – ` 12,000) can
be carried forward to the next year)
(iv) Income from capital gain
Long term capital gain on sale of land 15,800
Less : Brought forward short term capital loss 7,800 8,000
Amount of loss to be carried forward to the next year

Particulars Rs
Loss from speculative business (to be carried forward as per section 73) 4,000
Loss on maintenance of race horses (to be carried forward as per section 74A) 9,000
Notes:
(i) Loss on gambling can neither be set-off nor be carried forward.
(ii) As per section 74A(3), the loss incurred on maintenance of race horses cannot be set-off against income
from any other source other than the activity of owning and maintaining race horses. Such loss can be
carried forward for a maximum period of 4 assessment years.
(iii) Speculative business loss can set off only against income from speculative business of the current year
and the balance loss can be carried forward to A.Y. 2021-22. It may be noted that speculative business
loss can be carried forward for a maximum of four years as per section 73(4).

FINAL DT SATC 5.1
TAX DEDUCTED AT SOURCE

DEDUCTION OF TAX AT SOURCE AND ADVANCE PAYMENT [SEC 190]
The total income of an assessee for the previous year is taxable in the relevant assessment year. However, the
income-tax is recovered from the assessee in the previous year itself through –
(1) Tax deduction at Source (TDS) / Tax collection at source (TCS)
(2) Payment of Advance Tax
Another mode of recovery of tax is from the employer through tax paid by him under section 192(1A) on the non-
monetary perquisites provided to the employee [example Rent Free Accommodation].
These taxes are deductible from the total tax due from the assessee. The assessee, while filing his return of
income, has to pay self-assessment tax under section 140A, if tax is due on the total income as per his return of
income after adjusting, inter alia, TDS, TCS, relief of tax claimed under section 89 and advance tax.
DIRECT PAYMENT [SECTION 191]

Section 191 provides that in the following cases, tax is payable by the assessee directly –
1. in the case of income in respect of which tax is not required to be deducted at source; and
2. Income in respect of which tax is liable to be deducted but is not actually deducted.
In view of these provisions of section 191, the proceedings for recovery of tax necessarily had to be taken against
the assessee whose tax was liable to be deducted, but not deducted.
SURCHARGE & CESS

Surcharge (when receipts payable exceeds 5 Crores / 2 Crores / 1 Crores / 10 Crores / 50 Lakhs etc)
or H & EC is applicable when TDS is deducted either from Salary payment to any person (Res / NR)
OR from the payment to NR / Foreign Company.
NO TDS on GST Component

Circular No. 23/2017 - Tax shall be deducted at source on the amount paid/payable to Resident
without GST component if such GST component is indicated separately.
SALARY [Section 192]

Person Responsible to ANY PERSON responsible for paying any income chargeable to tax under
deduct Tax the head ‘Salaries’ i.e. Employers
Category of Payee Employee [Resident as well as Non-Resident]

Rate of TDS Average rate of income tax computed on the basis of the rates in force for
the relevant financial year in which the payment is made, on the estimated
total income of the assessee.
Time for Deduction of Tax At the time of Payment. [Due date is irrelevant]
Tax on Non-Monetary  U/s 192(1A), the employer may, at his option, pay income-tax on the
Perquisite whole or part of perquisite provided by way of non-monetary payments.
 The tax so payable shall be construed as if it were, a tax deductible at
source, from the income under the head “Salaries”
Other Income A tax payer having salary income in addition to other income chargeable to
tax for that financial year, may send to the employer, the following:
a. particulars of such other income and particulars of any tax deducted
under any other provision;
b. loss, if any, under the head ‘Income from house property’.
The employer shall take the above particulars into account while calculating
tax deductible at source.

FINAL DT SATC 5.2
Requirement to obtain evidence/ proof/ particulars of claims from the employee by the employer
S. No. Nature of Claim Evidence or particulars

1 House Rent Allowance Name, address and PAN of the landlord(s) where the aggregate rent
paid during the previous year exceeds ` 1 lakh.
2 Leave Travel Concession Evidence of expenditure

or Assistance
3 Deduction of interest under Name, address and PAN of the lender

the head “Income from
house property”
4 Deduction under Chapter Evidence of investment or expenditure.

VIA
Taxable Withdrawal from Employee Provident Fund [Sec 192A]

For the purpose of discouraging pre-mature withdrawal and promoting long term savings, if the employee makes
withdrawal before continuous service of five years (other than the cases of termination due to ill health,
contraction or discontinuance of business, cessation of employment etc.) and does not opt for transfer of
accumulated balance to new employer, the withdrawal would be subject to tax.
1. TDS rate is 10% in case of premature taxable withdrawal from EPF (at the time of payment)
2. No TDS if payment is Less than ` 50,000
3. In case PAN is not furnished, TDS rate will be MMR.
Interest on securities [Section 193]

Person Responsible to Every person responsible for paying to a resident any income by way of
deduct Tax & Payee interest on securities.
Rate of TDS 10% [only Resident payee are covered here]
Time for Deduction of Tax At the time of credit to the account of payee or payment, whichever is
earlier.
TDS SHALL NOT BE DEDUCTED IN THE FOLLOWING CASES:

1. On any Security of the CG/SG
2. Interest upto ` 10,000 on 8% Taxable Savings Bonds 2003.
3. Interest upto ` 10,000 on 7.75% GOI Savings (Taxable) Bonds, 2018
4. Imp: On interest payable on “Power Finance Corporation Limited 54EC Capital Gains Bond” and
“Indian Railway Finance Corporation Limited 54EC Capital Gains Bond.
5. Interest paid to Resident Individual ‘or’ HUF on listed or unlisted debentures of widely held company
by account payee cheque of an amount not exceeding ` 5,000 during a financial year.
6. on Securities to LIC, GIC, subsidiaries of GIC or any other insurer.
7. Interest payable on securities issued by a company, where such security is in demat form and is listed on a
recognised stock exchange.

FINAL DT SATC 5.3
Dividends [Section 194]
Person Responsible to Domestic Company
deduct Tax
Payee Resident Shareholder.
Rate of Deduction of Tax 10%
[TDS Rate]
Time for Deduction of Tax Before making any payment in cash or cheque or warrant, or any distribution
or payment to a share holder
Non-deduction of TDS  Dividends referred in u/s 115-O.
 Dividend payments to an individual, if it is paid by account payee
cheque and aggregate of dividend distributed / likely to be distributed
does not exceed ` 2500.
 Dividend receivable by LIC, GIC, its subsidiaries or any other insurer.
Interest other than interest on securities [Section 194A]

Person Responsible to All assessee other than individual and HUF whose accounts are not
deduct Tax subject to audit u/s 44AB of the Act during the preceding financial year
- Paying Interest other than Interest on Securities

Payee RESIDENT PERSON

[TDS Rate]
Time for Deduction of Tax At the time of credit to the account of payee or payment, whichever is
earlier.
Non-deduction of TDS NO TDS If aggregate amount of interest [by all branch] credited or paid
does not exceed-
a) Where the payer is (i) a Banking Company, or (ii) A Co-operative

Society engaged in banking business, or (iii) in respect of Deposit with
post office notified by the central Government [Time deposits
including recurring deposits in case of banks]
- w.e.f 01/04/2019 ` 40,000 ` 10,000 (` 50,000 in case of senior
citizen)#
b) In any other case - ` 5,000
# The threshold limit will be reckoned with reference to the total interest credited or paid by the banking company
or the co-operative society or the public company, as the case may be, (and not with reference to each branch),
where such banking company or co-operative society or public company has adopted core banking
solutions.
NO TDS IS DEDUCTED U/S 194A IN THE FOLLOWING CASES:
 Interest paid or credited by a firm to any of its partners;
 Interest paid or credited by a co-operative society to a member there of or any other cooperative society
[Except interest paid to member by Cooperative bank];
 Interest income credited or paid in respect of deposits (other than time deposits or recurring
deposits) with
 a bank to which the Banking Regulation Act, 1949 applies; or
 a co-operative society engaged in carrying on the business of banking.
 Interest income credited or paid by the Central Government under any provisions of the Income-tax Act.
 Interest paid or credited to Banking companies, Statutory Corporations, LIC, Insurance Companies, UTI
and other notified institution.
 income paid or payable by an infrastructure capital company or infrastructure capital fund or public sector
company in relation to a Zero Coupon Bond issued.

FINAL DT SATC 5.4
QUESTION:
Examine the TDS implications under section 194A in the cases mentioned hereunder–
1. On 1.10.2019, Mr. Harish made a six-month fixed deposit of ` 10 lakh@9% p.a. with ABC Co-
operative Bank. The fixed deposit matures on 31.3.2020.
2. On 1.6.2019, Mr. Ganesh made three nine month fixed deposits of ` 3 lakh each, carrying
interest@9% with Dwarka Branch, Janakpuri Branch and Rohini Branch of XYZ Bank, a bank which
has adopted CBS. The fixed deposits mature on 28.2.2020.
3. On 1.4.2019, Mr. Rajesh started a 1 year recurring deposit of ` 80,000 per month@8% p.a. with PQR
Bank. The recurring deposit matures on 31.3.2020.
SOLUTION
1. ABC Co-operative Bank has to deduct tax at source@10% on the interest of ` 45,000 (9% × ` 10 lakh × ½)
under section 194A. The tax deductible at source under section 194A from such interest is, therefore, `
4,500.
2. XYZ Bank has to deduct tax at source@10% under section 194A, since the aggregate interest on fixed
deposit with the three branches of the bank is ` 60,750 [3,00,000 × 3 × 9% × 9/12], which exceeds the
threshold limit of ` 40,000. Since XYZ Bank has adopted CBS, the aggregate interest credited/paid by all
branches has to be considered. Since the aggregate interest of ` 60,750 exceeds the threshold limit of `
40,000, tax has to be deducted@10% under section 194A.
3. Tax has to be deducted under section 194A by PQR Bank on the interest of ` 41,600 falling due on
recurring deposit on 31.3.2020 to Mr. Rajesh, since
i. “recurring deposit” is included in the definition of “time deposit”; and
ii. such interest exceeds the threshold limit of ` 40,000.
Winnings from lotteries, crossword puzzles, Games etc [Sec 194B &
194BB]
Particulars 194B 194BB
Person Any person paying the sum by way of Any Person being the holder of license
Responsible to winnings from lottery, Crossword Puzzle, paying winning from Horse Races
deduct Tax Card Game or Game of any sort.
Non-deduction If the payment does not exceed ` 10,000 If the payment does not exceed ` 10,000
of TDS during a financial year. during a financial year.
Payee All Assessee [Resident as well as Non-Resident]
Rate of 30%
Deduction of [Benefit of lower or NIL Tax under Section 197 is not applicable]
Tax [TDS Rate]
Time for At the Time of Payment;
Deduction of
Tax [Where prize money is in Kind, before releasing the prize, the payer should ensure that tax
has been paid in respect of the winnings.]
Payments to contractors and sub-contractors [Section 194C]

Person Responsible to Payments made by any person other than Individual/HUF/BOI/AOP, who
deduct Tax are not subject to tax Audit u/s 44AB of the Act during the preceding
financial year.
Payee Any person Resident in India
TDS on Payment for work contract
Time for Deduction of Tax At the time of Credit or Payment, whichever is earlier.

FINAL DT SATC 5.5
Rate of Deduction of Tax For all Contractors and Sub Contractors:
[TDS Rate]
(a) If payee is Ind. & HUF – 1%

(b) for others payee – 2%
[Provision of Section 197 for lower TDS Rate is available]
Non Deduction of TDS:

(1) No deduction will be required to be made if the consideration for the contract (payee-wise) does not
exceed ` 30,000.
Further, tax will be required to be deducted at source where the amount being credited or paid to a
contractor/sub -contractor exceeds ` 30,000 in a single payment or ` 100,000 in the aggregate during a
financial year.
(2) No Individual or HUF shall be liable to deduct tax on sum credited or paid to the account of the contractor
where such sum is credited or paid exclusively for personal purposes of such individual or any member
of HUF.
(3) In case of Contractor in the business of Plying, Hiring or Leasing goods Carriages:
No deduction on payment to a contractor, during the course of the business of plying, hiring or
leasing goods carriages, if he furnishes his PAN to the deductor & owns 10 or Less goods carriage
at any time during the PY
If PAN is not quoted by the Transporter, TDS Rate will be 20% in the absence of PAN as per Section
206AA.
(4) The deduction of income-tax will be made from sums paid for carrying out any work or for supplying labour
for carrying out any work. In other words, the section will apply only in relation to ‘works contracts’ and
‘labour contracts’ and will not cover contracts for sale of goods.
(5) Work includes –
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of transport other than by railways;
(d) catering;
(e) manufacturing or supplying a product according to the requirement or specification of a customer by
using material purchased from such customer.
However, “work” shall not include manufacturing or supplying a product according to the requirement
or specification of a customer by using raw material purchased from a person, other than such
customer, as such a contract is a contract for ‘sale’.
[It may be noted that the term “work” would include manufacturing or supplying a product according to
the requirement or specification of a customer by using material purchased from such customer. In
such a case, tax shall be deducted on the invoice value excluding the value of material
purchased from such customer if such value is mentioned separately in the invoice. Where the
material component has not been separately mentioned in the invoice, tax shall be deducted on
the whole of the invoice value.]
.

FINAL DT SATC 5.6
Applicability of TDS provisions on payments by broadcasters or Television Channels to production
houses for production of content or programme for telecasting [Circular No. 04/2016, dated 29-2-2016]
The issue under consideration is whether payments made by the broadcaster/telecaster to production houses for
production of content/programme are payments under a ‘work contract’ liable for tax deduction at source under
section 194C or a contract for ‘professional or technical services’ liable for tax deduction at source under section
194J.
In this regard, the CBDT has clarified that while applying the relevant provisions of TDS on a contract for
content production, a distinction is required to be made between:
1. a payment for production of content/programme as per the specifications of the broadcaster/telecaster; and
2. a payment for acquisition of broadcasting/ telecasting rights of the content already produced by the
production house.
In the first situation where the content is produced as per the specifications provided by the broadcaster/
telecaster and the copyright of the content/programme also gets transferred to the telecaster/ broadcaster, such
contract is covered by the definition of the term `work’ in section 194C and, therefore, subject to TDS under that
section.
However, in a case where the telecaster/broadcaster acquires only the telecasting/ broadcasting rights of the
content already produced by the production house, there is no contract for ‘’carrying out any work”, as required in
section 194C(1). Therefore, such payments are not liable for TDS under section 194C. However, payments of this
nature may be liable for TDS under other sections of Chapter XVII-B of the Act.
Insurance commission [Section 194D]

Person Responsible to Any Insurance company paying Insurance Commission
deduct Tax
Payee Resident Assessee
Rate of TDS 5% if recipient is resident other than company
10% if recipient is domestic company
[Provision of Section 197 for lower TDS Rate is available]
Time for Deduction of Tax At the Time of Credit or payment, whichever is earlier.
Non-deduction of TDS If the payment does not exceed ` 15,000 during financial Year

FINAL DT SATC 5.7
Payment in respect of life insurance policy [Section 194DA]
Person Responsible to Insurance Company issuing Life Insurance Policy
deduct Tax
Rate of Deduction of Tax 1% on any sum paid to a Resident under a Life Insurance Policy
[TDS Rate] including the sum allocated by way of bonus which are not exempt u/s
10(10D)
However, from 1.9.2019, tax is to be deducted at source @5% on

the amount of income comprised therein i.e., after deducting
the amount of insurance premium paid by the resident
assessee from the total sum received.
Time for Deduction of Tax At the Time of Payment
Non-deduction of TDS No TDS, If the aggregate payment is less than ` 100,000.
QUESTION:
Examine the applicability of the provisions for TDS under section 194DA in the above cases -
(i) Mr. X, a resident, is due to receive ` 4.50 lakhs on 31.3.2020, towards maturity proceeds of LIC policy
taken on 1.4.2017, for which the sum assured is ` 4 lakhs and the annual premium is ` 1,25,000.
(ii) Mr. Y, a resident, is due to receive ` 2.20 lakhs on 31.3.2020 on LIC policy taken on 1.4.2011, for which
the sum assured is ` 2 lakhs and the annual premium is ` 35,000.
(iii) Mr. Z, a resident, is due to receive ` 95,000 on 1.10.2019 towards maturity proceeds of LIC policy
taken on 1.10.2011 for which the sum assured is ` 90,000 and the annual premium was ` 19,000.
SOLUTION
(i) Since the annual premium exceeds 10% of sum assured in respect of a policy taken on 1.4.2013, the
maturity proceeds of ` 4.50 lakhs are not exempt under section 10(10D) in the hands of Mr. X. Therefore,
tax is required to be deducted@5% under section 194DA on the amount of income comprised
therein i.e., on ` 75,000 (` 4,50,000, being maturity proceeds - ` 3,75,000, being the entire amount
of insurance premium paid).
(ii) Since the annual premium is less than 20% of sum assured in respect of a policy taken before 1.4.2012,
the sum of ` 2.20 lakhs due to Mr. Y would be exempt under section 10(10D) in his hands. Hence, no tax
is required to be deducted at source under section 194DA on such sum payable to Mr. Y.
(iii) Even though the annual premium exceeds 20% of sum assured in respect of a policy taken before
1.4.2012, and consequently, the maturity proceeds of ` 95,000 would not be exempt under section
10(10D) in the hands of Mr. Z, the tax deduction provisions under section 194DA are not attracted since
the maturity proceeds are less than ` 1 lakh.
Payments to Non-Resident Sportsmen or Sports Association

[Section 194E]
Person Responsible to deduct Any person making payment in nature of income as referred in Section
Tax 115BBA
Payee Non-Resident Sportsman (including athlete) or Entertainer who is not an

Indian Citizen / Non-Resident Sports Association
Rate of Deduction of Tax 20% + surcharge + cess

[TDS Rate]

FINAL DT SATC 5.8
Income referred to in section 115BBA
1. income received or receivable by a non-resident sportsman (including an athlete) by way of-
a. participation in any game or sport in India (However, games like crossword puzzles, horse races etc.
taxable under section 115BB are not included herein); or
b. advertisement; or
c. contribution of articles relating to any game or sport in India in newspapers, magazines or journals.
2. Guarantee amount paid or payable to a non-resident sports association or institution in relation to
any game or sport played in India. However, games like crossword puzzles, horse races etc. taxable
under section 115BB are not included herein.
3. income received or receivable by a non-resident entertainer (who is not a citizen of India) from his
performance in India.
QUESTION:
Calculate the amount of tax to be deducted at source (TDS) on payment made to Ricky Ponting, an
Australian cricketer non-resident in India, by a newspaper for contribution of articles ` 25,000.
SOLUTION
Under section 194E, the person responsible for payment of any amount to a nonresident sportsman for
contribution of articles relating to any game or sport in India in a newspaper shall deduct tax @20%. Further,
since Ricky Ponting is a non-resident, health and education cess @4% on TDS would also be added.
Therefore, tax to be deducted = ` 25,000 x 20.8% = ` 5,200.
Payments in respect of deposits under National Savings Scheme

[Section 194EE]
1. The person responsible for paying to any person any amount from NSS as mentioned in section
80CCA shall, at the time of payment thereof, deduct income-tax thereon at the rate of 10%.
2. No deduction if payment is less than ` 2,500 during the financial year.
3. No TDS in case of payment on death to legal heirs of the assessee.
Commission etc. on the sale of lottery tickets [Section 194G]

Under Section 194G, the person responsible for paying any income by way of commission, remuneration or prize
(by whatever name called) on lottery tickets in an amount exceeding ` 15,000 shall deduct income-tax thereon
at the rate of 5%. Such deduction should be made at the time of credit or payment, whichever is earlier.
Commission or brokerage [Section 194H]

deduct Tax subject to audit u/s 44AB of the Act during the preceding financial
year –
Responsible for paying any income by way of commission
(other than insurance commission) or brokerage
Payee Resident Person

[TDS Rate] [Provision of Section 197 for lower TDS Rate is available]
Non-deduction of TDS No TDS, If the aggregate payment does not exceed ` 15,000.
“Commission or brokerage” includes any payment received or receivable, directly or indirectly, by a

person acting on behalf of another person for services rendered, or for any services in the course of
buying or selling of goods, or in relation to any transaction relating to any asset, valuable article or thing,
other than securities.
Further, there would be no requirement to deduct tax at source on commission or brokerage payments by
BSNL or MTNL to their public call office (PCO) franchisees.
FINAL DT SATC 5.9
Applicability of TDS provisions on payments by television channels and publishing houses to
advertisement companies for procuring or canvassing for advertisements [Circular No. 05/2016, dated 29
2-2016]
There are two types of payments involved in the advertising business:

1. Payment by client to the advertising agency, and
2. Payment by advertising agency to the television channel/newspaper company
The applicability of TDS on these payments has already been dealt with in Circular No. 715 dated 8-8-1995,
where it has been clarified that while TDS under section 194C (as work contract) will be applicable on the first
type of payment, there will be no TDS under section 194C on the second type of payment e.g. payment by
advertising agency to the media company.
However, another issue has been raised in various cases as to whether the fees/charges taken or retained by
advertising companies from media companies for canvasing/booking advertisements (typically 15% of the billing)
is 'commission' or 'discount' for attracting the provisions of section 194H.
The CBDT has clarified that no TDS is attracted on payments made by television channels/newspaper
companies to the advertising agency for booking or procuring of or canvassing for advertisements.
It is also further clarified that 'commission' referred to in CBDT's Circular No. 715 dated 8-8-1995 does not refer to
payments by media companies to advertising companies for booking of advertisements but to payments for
engagement of models, artists, photographers, sportspersons, etc. and, therefore, is not relevant to the issue of
TDS referred to in this Circular.
QUESTION:
Moon TV, a television channel, made payment of ` 50 lakhs to a production house for production of
programme for telecasting as per the specifications given by the channel. The copyright of the
programme is also transferred to Moon TV. Would such payment be liable for tax deduction at source
under section 194C? Discuss.
Also, examine whether the provisions of tax deduction at source under section 194C would be attracted if
the payment was made by Moon TV for acquisition of telecasting rights of the content already produced
by the production house.
SOLUTION
In this case, since the programme is produced by the production house as per the specifications given by Moon
TV, a television channel, and the copyright is also transferred to the television channel, the same falls within the
scope of definition of the term ‘work’ under section 194C. Therefore, the payment of ` 50 lakhs made by Moon TV
to the production house would be subject to tax deduction at source under section 194C.
If, however, the payment was made by Moon TV for acquisition of telecasting rights of the content already
produced by the production house, there is no contract for ‘’carrying out any work”, as required in section 194C(1).
Therefore, such payment would not be liable for tax deduction at source under section 194C.

FINAL DT SATC 5.10
RENT [SECTION 194-I]
deduct Tax subject to audit u/s 44AB of the Act during the preceding financial
year
– Responsible for paying Rent.
“RENT” means any payment under any lease, sub-lease, tenancy or

any other agreement or arrangement for the use of (either separately or
together) any –
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings,
whether or not any or all of the above are owned by the payee.
Payee Any person being Resident
TDS Rate Land/Building/ Furniture/Fittings Machinery/Plant/Equipment
10% for all 2%
Non-deduction of TDS  No deduction if amount of rent paid/payable does not exceed

` 2,40,000 (w.e.f 01/04/2019) ` 1,80,000 during any financial year.
 NO TDS if the payee is the Government or a local authority.
Tax Points: – 194I applicable

 If a person has taken a particular space on rent and thereafter sub-lets the same fully or in part for putting up
hoarding, he would be liable to TDS u/s 194-I and not u/s 194C.
 Payment made for the rent to the co-owner each having a definite and ascertainable share in the property is
exceeds the limit of ` 2,40,000 per annum in the hands of each co-owner separately
 Payment made to landlord as deposit if in the nature of advance rent or non-refundable deposit.
 Payment made for Warehousing Charges. However, the provisions of 194-I are not applicable to the
cooling charges paid by the customers of the cold storage. However, since the arrangement between
the customers and cold storage owners are basically contractual in nature, the provision of section 194-C
will be applicable to the amounts paid as cooling charges by the customers of the cold storage.
 Treatment of tax credit in the hands of the Payee, for TDS on Advance Rent: - pro-rata TDS is allowed
according to the rent offered for taxation.
No requirement to deduct tax at source under section 194-I on remittance of Passenger Service Fees
(PSF) by an Airline to an Airport Operator [Circular No. 21/2017, dated 12.06.2017]
Section 194-I requires deduction of tax at source at specified percentage on any income payable to a resident by
way of rent. Explanation to this section defines the term “rent” as any payment, by whatever name called, under
any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any (a) land; or (b) building;
or (c) land appurtenant to a building; or (d) machinery; (e) plant; (f) equipment (g) furniture; or (h) fitting, whether
or not any or all of them are owned by the payee.

FINAL DT SATC 5.11
The primary requirement of any payment to qualify as rent is that the payment must be for the use of land and
building and mere incidental/minor/ insignificant use of the same while providing other facilities and
service would not make it a payment for use of land and buildings so as to attract section 194-I.
Accordingly, the CBDT has, vide this circular, clarified that the provisions of section 194-I shall not be applicable
on payment of PSF by an airline to Airport Operator.
Clarification on applicability of TDS provisions of section 194-I on lumpsum lease premium paid for
acquisition of long term lease [Circular No. 35/2016, dated 13-10-2016]
The issue of whether or not TDS under section 194-I is applicable on 'lump sum lease premium' or 'one-time
upfront lease charges" paid by an assessee for acquiring long-term leasehold rights for land or any other property
has been examined by the CBDT.
Accordingly, the CBDT has, vide this Circular, clarified that lump sum lease premium or one-time upfront lease
charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold
rights over land or any other property are not payments in the nature of rent within the meaning of section 194-
I. Therefore, such payments are not liable for TDS under section 194-I.
TDS ON PURCHASE OF IMMOVABLE PROPERTY [Section 194-IA]

Person Responsible to deduct Any person (being a transferee) responsible for paying (other than
Tax the person referred to in section 194LA)
Payee Resident transferor
Payments Covered Any sum by way of consideration for transfer of any immovable
property (other than agricultural land in rural area in India).
[Situated in or outside India]
Consideration includes Consideration for transfer of immovable property include all

(w.e.f 01/09/2019) charges of the nature of club membership fee, car parking fee,
electricity or water facility fee, maintenance fee, advance fee
or any other charges of similar nature, which are incidental to
transfer of the immovable property.
Non-deduction of TDS No tax is deductible where the consideration paid or payable for
the transfer of an immovable property is less than ` 50,00,000.
NOTE: Provisions of section 203A (pertaining to TAN) shall not apply in respect of tax deducted
TDS ON PAYMENT OF RENT BY CERTAIN IND/HUF [Section 194-IB]

Person Responsible to deduct Any Individual and HUF whose accounts are not subject to audit u/s
Tax 44AB of the Act during the preceding financial year
Payee Resident
Payments Covered Rent Exceeding ` 50,000 p.m.
Rate of Deduction of Tax 5% of aggregate rent
Time for Deduction of Tax At the Time of Credit of Rent for the Last Month or Payment, whichever
is earlier.
FINAL DT SATC 5.12
NOTE:
1. Provisions of Section 203A (pertaining to TAN) shall not apply in respect of tax deducted
2. In case Section 206AA applies, TDS amount shall not exceed the amount of Rent payable for
the last month of the Previous Year/Tenancy Period.
QUESTION:
Mr. X, a salaried individual, pays rent of ` 55,000 per month to Mr. Y from June, 2019. Is he required to
deduct tax at source? If so, when is he required to deduct tax? Also, compute the amount of tax to be
deducted at source. Would your answer change if Mr. X vacated the premises on 31st December, 2019?
Also, what would be your answer if Mr. Y does not provide his PAN to Mr. X?
SOLUTION
Since Mr. X pays rent exceeding ` 50,000 per month in the F.Y. 2019-20, he is liable to deduct tax at source
@5% of such rent for F.Y. 2019-20 under section 194-IB. Thus, ` 27,500 [` 55,000 x 5% x 10] has to be deducted
from rent payable for March, 2020.
If Mr. X vacated the premises in December, 2019, then tax of ` 19,250 [` 55,000 x 5% x 7] has to be deducted
from rent payable for December, 2019. In case Mr. Y does not provide his PAN to Mr. X, tax would be deductible
@20%, instead of 5%.
In case 1 above, this would amount to ` 1,10,000 [` 55,000 x 20% x 10] but the same has to be restricted to
` 55,000, being rent for March, 2020.
In case 2 above, this would amount to ` 77,000 [` 55,000 x 20% x 7] but the same has to be restricted to
` 55,000, being rent for December, 2019.
1.
2.
3. Section 194-IC : REFER CG NOTES

FINAL DT SATC 5.13
Fees for Professional or Technical Services [Section 194J]
Person Responsible to deduct Any person, other than an individual or a HUF, who is responsible for
Tax paying income of specified nature.
Individual/HUF, subjected to tax audit u/s 44AB in the immediately
preceding year, are liable to deduct TDS on payment in the nature of
fees for professional services & Fees for Technical Services only.
Payments Covered (a) Fees for Professional Services
(b) Fees for Technical Services
(c) Royalty
(d) Payments referred u/s 28(va) - Sum received for not carrying
out any activity in relation to Business/Profession or not
sharing any Know-How, Patent etc. [Non-Compete Fees)
Rate of Deduction of Tax 10% [2% if payee is engaged only in the business of Operation of
[TDS Rate] Call Centre]
Non-deduction of TDS  No tax deduction is required if the amount being credited or paid
during a financial year does not exceed ` 30,000 for
each of four payments separately.
 No TDS on Sum paid by Individual / HUF towards professional
services exclusively for their personal purposes.
TDS on remuneration other than salary to a director [Section 194J]
Section 194J has been amended to provide that tax is required to be deducted on the remuneration or fee
or commission etc paid to a director, which is not in the nature of salary, at the rate of 10% of such
remuneration.
Meaning of “Professional services”

“Professional services” means services rendered by a person in the course of carrying on legal, medical,
engineering or architectural profession or the profession of accountancy or technical consultancy or interior
decoration or advertising or such other profession as is notified by the CBDT for the purposes of section 44AA or
of this section.
Other professions notified for the purposes of section 44AA are as follows:
a. Profession of “authorised representatives”;
b. Profession of “film artist”;
c. Profession of “company secretary”.
The CBDT has notified the services rendered by following persons in relation to the sports activities as
Professional Services for the purpose of the section 194J:
a. Sports Persons,
b. Umpires and Referees,
c. Coaches and Trainers,
d. Team Physicians and Physiotherapists,
e. Event Managers,
f. Commentators,
g. Anchors and
h. Sports Columnists.
Accordingly, the requirement of TDS as per section 194J would apply to all the aforesaid professions. The term
“profession”, as such, is of a very wide import. However, the term has been defined in this section exhaustively.
For the purposes of TDS, therefore, all other professions would be outside the scope of section 194J. For
example, this section will not apply to professions of teaching, sculpture, painting etc. unless they are
notified.

FINAL DT SATC 5.14
Consideration for use or right to use of computer software is royalty within the meaning of
section 9(1)(vi)
As per section 9(1)(vi), any income payable by way of royalty in respect of any right, property or information is
deemed to accrue or arise in India. The term “royalty” means consideration for transfer of all or any right in respect
of certain rights, property or information.
The consideration for use or right to use of computer software is royalty by clarifying that, transfer of all or any
rights in respect of any right, property or information includes and has always included transfer of all or any right
for use or right to use a computer software (including granting of a licence) irrespective of the medium through
which such right is transferred.
Consequently, the provisions of tax deduction at source under section 194J would be attracted in respect
of consideration for use or right to use computer software since the same falls within the definition of
royalty.
Note:
The Central Government has, vide Notification No.21/2012 dated 13.6.2012, effective from 1st July, 2012,
exempted certain software payments from the applicability of tax deduction under section 194J. Accordingly,
where payment is made by the transferee for acquisition of software from a resident transferor, the
provisions of section 194J would not be attracted if -
a. the software is acquired in a subsequent transfer without any modification by the transferor;
b. tax has been deducted under section 194J on payment for any previous transfer of such software; and
c. the transferee obtains a declaration from the transferor that tax has been so deducted along with the PAN of
the transferor.
Payment of compensation on acquisition of certain immovable

property [Section 194LA]
Person Responsible to deduct Any person
Tax
Payments Covered Any payment in the nature of compensation/ enhanced compensation
on account of compulsory acquisition of any immovable property
(other than agricultural land).
Here Agricultural land includes Urban Land also.
TDS Rate 10%
Time for Deduction of Tax At the time of payment
Non-deduction of TDS No tax deduction is required if the aggregate amount during the
financial year does not exceed ` 250,000

FINAL DT SATC 5.15
Payment made by an individual or a HUF for contract work or by way of
fees for professional services or commission or brokerage [Section 194M]
NEW SECTION – effective from 01/09/2019
A. Applicability and rate of TDS
Section 194M, inserted with effect from 1.9.2019, provides for deduction of tax at source @5% by
an individual or a HUF responsible for paying any sum during the financial year to any resident –
i. for carrying out any work (including supply of labour for carrying out any work) in pursuance
of a contract; or
ii. by way of commission (not being insurance commission referred to in section 194D) or
brokerage; or
iii. by way of fees for professional services.
It may be noted that only individuals and HUFs (other than those who are required to deduct
income-tax as per the provisions of section 194C or 194H or 194J) are required to deduct tax in
respect of the above sums payable during the financial year to a resident.
B. Time of deduction
The tax should be deducted at the time of credit of such sum or at the time of payment of such
sum, whichever is earlier.
C. Threshold limit
No tax is required to be deducted where such sum or, as the case may be, aggregate amount of
such sums credited or paid to a resident during the financial year does not exceed ` 50,00,000.
D. Non-applicability of TDS under section 194M
An individual or a Hindu undivided family is not liable to deduct tax at source under section
194M if –
i. they are required to deduct tax at source under section 194C for carrying out any work
(including supply of labour for carrying out any work) in pursuance of a contract i.e., an
individual or a HUF who is subject to tax audit under section 44AB(a)/(b) in the immediately
preceding financial year and such amount is not exclusively credited or paid for personal
purposes of such individual or HUF.
ii. they are required to deduct tax at source under section 194H on commission (not being
insurance commission referred to in section 194D) or brokerage i.e., an individual or a HUF
whose total sales, gross receipts or turnover from the business or profession carried on by
him exceed the monetary limits of ` 1 crore and ` 50 lakhs, respectively, specified under
section 44AB during the immediately preceding financial year.
iii. they are required to deduct tax at source under section 194J on fees for professional services
i.e., an individual or a HUF whose total sales, gross receipts or turnover from the business or
profession carried on by him exceed the monetary limits of ` 1 crore and ` 50 lakhs,
respectively, specified under section 44AB during the immediately preceding financial year
and such amount is not exclusively credited or paid for personal purposes of such individual
or HUF.
FINAL DT SATC 5.16
E. No requirement to obtain TAN
The provisions of section 203A containing the requirement of obtaining Tax deduction account
number (TAN) shall not apply to the person required to deduct tax in accordance with the provisions of
section 194M.
QUESTION:
Examine whether TDS provisions would be attracted in the following cases, and if so, under which
section. Also specify the rate of TDS applicable in each case. Assume that all payments are made to
residents.
S.No. Particulars of the payer Nature of payment Aggregate of

payments made
in the
F.Y. 2019-20
1 Mr. Ganesh, an individual Contract Payment for repair of 5 lakhs
carrying on retail business with residential house
turnover of ` 2.5 crores in the
P.Y. 2018-19 Payment of commission to Mr. Vallish ` 80,000
for business purposes
2 Mr. Rajesh, a wholesale trader Contract Payment for reconstruction of ` 20 lakhs in

who declares profits under residential house (made during the January, 2020,
section 44AD for P.Y. 2018-19 period January- March, 2020) ` 15 lakhs in Feb
and P.Y. 2019-20. 2020 and ` 20
lakhs in March
2020.
3 Mr. Satish, a salaried individual Payment of brokerage for buying a ` 51 lakhs
residential house in March, 2020
4 Mr. Dheeraj, a pensioner Contract payment made during October- ` 48 lakhs

November 2019 for reconstruction of
residential house
SOLUTION
S.No. Particulars of the payer Nature of payment Aggregate Whether TDS provisions are
of attracted?
payments
in the F.Y.
2019-20
1 Mr. Ganesh, an individual Contract Payment ` 5 lakhs No, TDS under section 194C is
carrying on retail for repair of not attracted since the payment is
business with turnover of residential house for personal purpose and TDS
` 2.5 crores in the P.Y. under section 194M is not
2018-19 attracted as aggregate of contract
payment to the payee in the
P.Y.2019-20 does not exceed
Rs.50 lakh.
Payment of ` 80,000 Yes, u/s 194H, since the

commission to payment exceeds ` 15,000,
Mr. Vallish for and Mr. Ganesh’s turnover
business exceeds ` 1 crore in the P.Y.
purposes 2018-19.
2 Mr. Rajesh, a wholesale Contract Payment ` 55 lakhs Yes, under section 194M, since
trader who declares for reconstruction the aggregate of payments
profits under section of residential house (i.e., ` 55 lakhs) exceed ` 50
44AD for P.Y. 2018-19 and lakhs, and the payments are
P.Y. 2019-20. made after 1.9.2019.

FINAL DT SATC 5.17
Since he declares profits on
presumptive basis under section
44AD, he is not subject to tax
audit in the P.Y. 2018-19. Hence,
TDS provisions under section
194C are not attracted in respect
of payments made in the P.Y.
2019-20.
3 Mr. Satish, a salaried Payment of ` 51 lakhs Yes, under section 194M, since
individual brokerage for the payment of ` 51 lakhs made
buying a residential in March 2020 exceeds the
house threshold of ` 50 lakhs. Since Mr.
Satish is a salaried individual, the
provisions of section 194H are
not applicable in this case.
4 Mr. Dheeraj, a pensioner Contract payment ` 48 lakhs TDS provisions under section
for reconstruction 194C are not attracted since Mr.
of residential house Dheeraj is a pensioner and
hence, not subject to tax audit.
TDS provisions under section

194M are also not applicable in
this case, since the payment of
` 48 lakhs, even though made
after 1.9.2019, does not exceed
the threshold of ` 50 lakhs.

FINAL DT SATC 5.18
TDS on cash withdrawal [Section 194N] - NEW
w.e.f 01/09/2019
1. Applicability and rate of TDS

Section 194N, inserted with effect from 1.9.2019, provides that every person, being
 a banking company to which the Banking Regulation Act, 1949 applies (including any bank
or banking institution referred under section 51 of that Act)
 a co-operative society engaged in carrying on the business of banking, or
 a post office
who is responsible for paying, in cash, any sum or aggregate of sums exceeding ` 1 crore during
the previous year to any person from one or more accounts maintained by such recipient-person
with it, shall deduct tax at source @2% of sum exceeding ` 1 crore.
2. Time of deduction
This deduction is to be made at the time of payment of such sum.
3. Non-applicability of TDS under section 194N

Liability to deduct tax at source under section 194N shall not be applicable to any payment
made to-
 the Government
 any banking company or co-operative society engaged in carrying on the business of
banking or a post-office
 any business correspondent of a banking company or co-operative society engaged in
carrying on the business of banking, in accordance with the RBI guidelines
 any white label ATM operator of a banking company or co-operative society engaged in
carrying on the business of banking, in accordance with the authorisation issued by the RBI
under the Payment and Settlement Systems Act, 2007
 such other person or class of persons notified by the Central Government in
consultation with the RBI.

FINAL DT SATC 5.19
AMOUNT PAYABLE TO GOVERNMENT/RBI ETC [SECTION 196]
No Deduction of Tax shall be made by any person from any sums payable to:
(i) CG/SG (ii) RBI
(iii) Statutory Corporation which is exempt from Tax (iv) Mutual Fund [Section 10(23D)].
Tax Deducted is income received [Section 198]

(1) All sums deducted in accordance with the foregoing provisions shall, for the purpose of computing the
income of an assessee, be deemed to be income received.
(2) However, the following tax paid or deducted would not be deemed to be income received by the assessee for
the purpose of computing the total income–
i. the tax paid by an employer under section 192(1A) on non-monetary perquisites provided to the
employees
ii. tax deducted under section 194N
Credit for Tax Deducted At Source [Section 199]

(1) TDS deducted and paid shall be treated as payment of tax on behalf of the deductee.
(2) Any sum referred to in Section 192(1A) and paid to the CG, shall be treated as the tax paid on behalf of the
employee. [Tax on Non-Monetary Perquisite]
Consequences of failure to deduct or pay [Section 201]

(1) The following persons shall be deemed to be an assessee in default if they do not deduct the whole or any
part of the tax or after deducting fails to pay the tax -
(i) any person including the principal officer of a company, who is required to deduct any sum in
accordance with the provisions of the Act; and
(ii) an employer paying tax on non-monetary perquisites under section 192(1A) .
Provided such person shall not be deemed to be an assessee in default in respect of such tax if
Resident payee (resident or non-resident)-
(a) has furnished his ROI u/s 139;
(b) has taken into account such sum for computing income in his ROI; and
(c) has paid the tax due on the income declared by him,
and the person furnishes a certificate from a chartered accountant in prescribed manner.
(2) Such person shall also be liable to pay simple interest:

(i) At one percent [1%] for every month or part of a month on the amount of such tax was deductible to
the date on which such tax is deducted; and
(ii) At one and one-half percent [1.5%] for every month or part of a month on the amount of such tax
was deducted to the date on which such tax is actually paid.
Provided that if Resident payee has furnished his ROI as aforesaid, the interest shall be payable
from date on which tax was deductible to the date of furnishing ROI only.
(3) No order shall be made under this Section deeming a person to be an assessee in default for failure to
deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of
 7 years from the end of the financial year in which the payment is made or credit is given OR
 2 years from the end of financial year in which the correction statement is delivered under
proviso to Section 200(3),
whichever is later.

FINAL DT SATC 5.20
QUESTION:
An amount of ` 40,000 was paid to Mr. X on 1.7.2019 towards fees for professional services without
deduction of tax at source. Subsequently, another payment of ` 50,000 was due to Mr. X on 28.2.2020,
from which tax@10% (amounting to` 9,000) on the entire amount of ` 90,000 was deducted. However, this
tax of ` 9,000 was deposited only on 22.6.2020. Compute the interest chargeable under section 201(1A).
SOLUTION
Interest under section 201(1A) would be computed as follows:
Particulars Amount (`)
1% on tax deductible but not deducted i.e., 1% on ` 4,000 for 8 months 320
1½% on tax deducted but not deposited i.e. 1½% on ` 9,000 for 4 months 540
Total 860
Common number for TDS [Section 203A]

A. Persons responsible for deducting tax shall apply to the AO for the allotment of a “Tax deduction and
Collection account number” in Form No. 49B. [TAN]
B. The same is to be obtained within 1 month from the end of the month in which the tax was deducted.
C. TDS No. [TAN] has to be compulsorily quoted in challans for payment of any tax deducted; TDS
Certificates; TDS Statements; TDS Returns; and other documents as prescribed.
No Direct Demand on Assessee/Payee [Section 205]

Where tax is deductible at source under the forgoing provisions of this chapter, the assessee shall not be called
upon to pay the tax himself to the extent to which tax has been deducted from that income.
Mandatory requirement of furnishing PAN in all TDS Matters [Sec 206AA]:

A. Any person whose receipts are subject to TDS i.e. the deductee, shall mandatorily furnish his PAN to the
deductor otherwise the deductor shall deduct tax at source at higher of the following rates –
(i) the rate prescribed in the Act;
(ii) at the rate in force i.e., the rate mentioned in the Finance Act; or
(iii) at the rate of 20%.
B. Furnishing of PAN is mandatory also in cases where the taxpayer files a declaration in Form 15G or 15H
(under section 197A) for non deduction of TDS otherwise, abovementioned rates will apply.
C. Further, No certificate u/s 197 (Lower TDS) will be granted by the AO unless the PAN is furnished by the
applicants.

FINAL DT SATC 5.21
Class Notes

FINAL DT SATC 5.22
Class Notes

FINAL DT SATC 5.23
Additional Questions & Case Study
1. LL Limited paid leave travel facility to its employees and considered exemption under section 10(5),
based on the self-declaration furnished by the employees. The Assessing Officer held that the
company as an employer ought to have verified the genuineness of the claim of exemption by
obtaining from them, the proof of actual expenditure incurred by availing leave travel facility.
Accordingly, the Assessing Officer treated the assessee company as assessee in default. Decide the
correctness of action.
SOLUTION
Section 192 casts liability on the employer to deduct tax at source from the salary paid to its employees. In
this case, the employer has paid leave travel concession / facility to its employees and the said concession /
facility would be eligible for exemption subject to the conditions laid down in section 10(5) read with Rule 2B
of the Income-tax Rules, 1962.
Section 192(2D) casts responsibility on the person responsible for paying any income chargeable under the
head ‘Salaries’ to obtain from the assessee, the evidence or proof or particulars of prescribed claims under
the provisions of the Act in the prescribed form and manner for the purposes of –
a. estimating income of the assesses; or
b. computing tax deductible under section 192(1).
Rule 26C of the Income-tax Rules, 1962 mandates a salaried assessee claiming, inter alia, leave travel
concession or assistance to furnish evidence of expenditure incurred in relation thereto to the person
responsible for making such for payment under section 192(1), for the purpose of estimating his income for
computing the tax deductible under section 192.
Thus, the action of the Assessing Officer is correct in law.
2. Mr. Sharma, an employee of M/s. ABC Ltd. since 10-04-2016 resigned on 31-03-2020 and withdrew
` 60,000 being the balance in his EPF account. Discuss with reasons whether the provisions of
Chapter XVII-B are attracted and if so, what is the net amount receivable by the payee, Mr. Sharma?
SOLUTION
As per section 192A, in a case where the accumulated balance due to an employee participating in a
recognized provident fund is includible in his total income owing to the provisions of Rule 8 of Part A of the
Fourth Schedule not being applicable, the trustees of the Employees Provident Fund Scheme, 1952 or any
person authorised under the scheme to make payment of accumulated balance due to employees are
required to deduct income-tax@10% at the time of payment of accumulated balance due to the employee.
Tax deduction at source has to be made only if the amount of such payment or aggregate amount of such
payment of the payee is ` 50,000 or more.
Rule 8 of Part A of the Fourth Schedule, inter alia, provides that only if an employee has rendered continuous
service of five years or more with the employer, then accumulated balance in a recognized provident fund
payable to an employee would be excluded from the total income of that employee.
In the present case, Mr. Sharma has withdrawn an amount exceeding ` 50,000 on his resignation after
rendering a continuous service of four years with M/s. ABC Ltd. Therefore, tax has to be deducted at
source@10% under section 192A on ` 60,000, being the amount withdrawn on his resignation without
rendering continuous service of a period of five years with M/s. ABC Ltd.
The net amount receivable by Mr. Sharma is ` 54,000 [i.e., ` 60,000 – ` 6,000, being tax deducted at
source].
Note – It is assumed that Mr. Sharma has furnished his permanent account number (PAN) to the person
responsible for deducting tax at source. Otherwise, tax would be deductible at the maximum marginal rate. It
may be noted that with effect from 1.6.2015 such employee can furnish declaration in Form No. 15G for non-
deduction of tax at source under section 192A by virtue of section 197A(1A).

FINAL DT SATC 5.24
3. Maya Bank credited ` 73,50,000 towards interest on the deposits in a separate account for macro-
monitoring purposes by using Core-branch Banking Solutions (CBS) software. No tax was deducted
at source in respect of interest on deposits so credited even where the interest in respect of some
depositors exceeded the limit of ` 40,000.
The Assessing Officer disallowed 30% of interest expenditure, where the interest on time deposits
credited exceeded the limit of ` 40,000 and also levied penalty under section 271C.
Decide the correctness of action of the Assessing Officer.
SOLUTION
The Explanation below section 194A(1) provides that where any income by way of interest other than interest
on securities is credited to any account, whether called ‘interest payable account’ or ‘suspense account’ or by
any other name, in the books of account of the person liable to pay such income, such crediting shall be
deemed to be credit of such income to the account of the payee and provisions of section 194A, shall, thus,
apply.
However, the CBDT has, vide Circular No.3/2010 dated 2.3.2010, clarified that Explanation to section 194A
will not apply in cases of banks where credit is made to provisioning account on daily/monthly basis for the
purpose of macro monitoring only by the use of CBS software.
Since no constructive credit to the depositor's / payee's account takes place while calculating interest on daily
/ monthly basis in the CBS software used by banks, tax need not be deducted at source on such provisioning
of interest by banks for the purposes of macro monitoring only.
In such cases, tax shall be deducted at source on accrual of interest at the end of the financial year or at
periodic intervals as per practice of the bank or as per the depositor's or payee’s requirement or on maturity
or on encashment of time deposit, whichever event takes place earlier and wherever the aggregate amount
of interest income credited or paid or likely to be credited or paid during the financial year by the bank
exceeds the limits specified in section 194A i.e., ` 40,000.
In view of the above, the action of the Assessing Officer in disallowing the interest expenditure credited in a
separate account for macro monitoring purpose is not valid and consequent initiation of penalty proceedings
under section 271C is not tenable in law.
4. Mr. Govind won the first prize in a lottery ticket and the prize was a Maruti car worth ` 5 lacs. What is
the procedure to be adopted before handing over the Maruti Car to Mr. Govind?
SOLUTION
Section 194B provides that the person responsible for paying to any person, any income by way of winnings
from any lottery or crossword puzzle, card game or any other game of any sort and the amount of winning
exceeds ` 10,000, tax shall be deducted at source @30%.
However, in case where the winning is wholly in kind, the person responsible for paying the prize shall before
releasing the winning, ensure that the tax has been paid in respect of such winning.
The Karnataka High Court in the case of CIT v. Hindustan Lever Ltd. (2014) 361 ITR 1 has held that where
the winnings are wholly in kind, the responsibility cast under section 194B is to ensure that the tax is paid by
the winner of the prize before the prize is released in his favour. In this regard, the CBDT Circular No.763
dated 18/2/1998 clarifies that the person responsible for paying the winnings shall, before releasing such
winnings, ensure that the tax is paid by the winner. He can do so, for example, by collecting from the winner
a sum equal to the tax deductible at source on the winnings in kind, before releasing the winnings. For this
purpose, the value of the winnings in kind shall be taken as the cost incurred by the payer in acquiring the
said winnings in kind.
Therefore, in this case since the entire winning is in kind, it must be ensured that the sum equal to the tax
deductible at source (i.e., ` 1,50,000, being @ 30% of ` 5 lacs) is paid by Mr. Govind, before the car is
released in his favour. This can be done by collecting ` 1,50,000 from Mr. Govind before releasing the
Maruti car to him and remitting the said sum to the Government account or verifying the tax payment by the
winner and thereafter releasing the prize.

FINAL DT SATC 5.25
5. B. Airways Ltd. sold tickets to the travel agents in India at a minimum fixed commercial price. The
agents were permitted to sell the tickets at a higher price but not exceeding the maximum published
price. Commission at the rate of 9% of minimum fixed commercial price was deducted under section
194H by the company. The Assessing Officer contended that the liability for tax deduction at source
is attracted on the difference between the minimum fixed commercial price and the maximum
published price by treating it as "additional special commission" in the hands of the agents.
Is the contention of Assessing Officer tenable in law?
SOLUTION
As per the provisions of section 194H, a person is liable to deduct tax at source at the time of credit or
payment of commission to any resident, whichever is earlier.
In the present case, B. Airways Ltd. correctly deducted tax at source under section 194H from the
commission@9% of the minimum fixed commercial price paid to the travel agents, who were allowed to sell
the air tickets at any price higher than the minimum fixed commercial price subject to a maximum published
price. However, the Assessing Officer contented that the airline company was required to deduct tax at
source on the difference between the minimum fixed commercial price and the maximum published price by
treating it as “additional special commission” in the hands of the agents.
The facts of the case are similar to the case of CIT v. Qatar Airways (2011) 332 ITR 253, where the Bombay
High Court held that the difference between the maximum published price and the minimum fixed commercial
price cannot be taken as “additional special commission” in the hands of the agents. This is because the
maximum published price is the maximum price and the airline company has granted permission to the
agents to sell the tickets at a price lower than the maximum published price. Further, the airline company
would have no information about the exact rate at which the tickets were ultimately sold by its agents. In
order to deduct tax at source on the difference between actual sale price and minimum fixed commercial
price, the exact income in the hands of the agents must be ascertainable by the airline company. However, it
is not so ascertainable in this case, since the agents are given discretion to sell the tickets at any rate
between the minimum fixed commercial price and the maximum published price. It would be impracticable
and unreasonable to expect the airline company to get a feedback from its numerous agents in
respect of the price at which the tickets were sold by them.
Applying the rationale of the above case to the case on hand, B. Airways Ltd. is not liable to deduct tax at
source under section 194H on the difference between the maximum published price and the minimum fixed
commercial price, even though the amount earned by the agent over and above the minimum fixed
commercial price is taxable as income in their hands.
Therefore, the contention of the Assessing Officer is not tenable in law.
6. Applicability of TDS provisions under section 194-I to payments made by the customers on account
of cooling charges to the cold storage owners
CBDT Circular No.1/2008 dated 10.1.2008 provides clarification regarding applicability of provisions of
section 194-I to payments made by the customers on account of cooling charges to the cold storage owners.
The main function of the cold storage is to preserve perishable goods by means of a mechanical process,
and storage of such goods is only incidental in nature. The customer is also not given any right to use any
demarcated space/place or the machinery of the cold store and thus does not become a tenant. Therefore,
the provisions of 194-I are not applicable to the cooling charges paid by the customers of the cold storage.
However, since the arrangement between the customers and cold storage owners are basically contractual in
nature, the provision of section 194-C will be applicable to the amounts paid as cooling charges by the
customers of the cold storage.

FINAL DT SATC 5.26
7. The issue as to whether the charges fixed by the Airport Authority of India (AAI) for landing and
parking facility for the aircraft are for the “use of the land” by the airline company came up before the
Supreme Court in Japan Airlines Co. Ltd. v. CIT / CIT v. Singapore Airlines Ltd. (2015) 377 ITR 372.
The Supreme Court observed that the charges which are fixed by the AAI for landing and take-off services as
well as for parking of aircrafts are not for the "use of the land". These charges are for services and facilities
offered in connection with the aircraft operation at the airport which include providing of air traffic services,
ground safety services, aeronautical communication facilities, installation and maintenance of navigational
aids and meteorological services at the airport.
There are various international protocols which mandate all authorities manning and managing these airports
to construct the airport of desired standards which are stipulated in the protocols. The services which are
required to be provided by these authorities, like AAI, are aimed at passengers' safety as well as for safe
landing and parking of the aircrafts.
Therefore, the services are not restricted to merely permitting "use of the land" of airport. On the contrary, it
encompasses all the facilities that are to be compulsorily offered by the AAI in tune with the requirements of
the protocol.
The Supreme Court observed that the charges levied on air-traffic includes landing charges, lighting charges,
approach and aerodrome control charges, aircraft parking charges, aerobridge charges, hangar charges,
passenger service charges, cargo charges, etc. Thus, when the airlines pay for these charges, treating such
charges as charges for "use of the land" would tantamount to adopting a totally simplistic approach which is
far away from the reality.
The Supreme Court opined that the substance behind such charges has to be considered and when the
issue is viewed from this angle, keeping the larger picture in mind, it becomes very clear that the charges are
not for use of the land per se and, therefore, it cannot be treated as "rent" within the meaning of section 194-
I. The Supreme Court, thus, concurred with the view taken by the Madras High Court in Singapore Airlines
case and overruled the view taken by the Delhi High Court in United Airlines/Japan Airlines case.
8. ABC Ltd. took on sub-lease a building from J, an individual, with effect from 1.9.2019 on a rent of
` 25,000 per month. It also took on hire machinery from J with effect from 1.10.2019 on hire charges
of ` 15,000 per month. ABC Ltd. entered into two separate agreements with J for sublease of building
and hiring of machinery. The rent of building and hire charges of machinery for the financial year
2019-20 were ` 1,75,000 and ` 90,000, respectively, which were credited by ABC Ltd. to the account of
J in its books of account on 31.3.2020. Examine the obligation of ABC Ltd. with regard to deduction
of tax at source in respect of the rent and hire charges.
SOLUTION
As per Section 194-I dealing with deduction of tax at source from payment of rent, the rate of TDS applicable
is 2% for machinery hire charges and 10% for building lease rent. The scope of the section includes within its
ambit, rent for machinery, plant and equipment. Tax is required to be deducted at source from payment of
rent, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement
for the use of building and machinery, irrespective of whether such assets are owned or not by the payee.
The limit of ` 2,40,000 for tax deduction at source will apply to the aggregate rent of all the assets. Even if
two separate agreements are entered into, one for sub-lease of building and another for hiring of machinery,
rent and hire charges under the two agreements have to be aggregated for the purpose of application of the
threshold limit of ` 2,40,000. In this case, since the payment for rent and hire charges credited to the account
of J, the payee, aggregates to ` 2,65,000 (` 1,75,000 + ` 90,000), tax is deductible at source under section
194-I. Tax is deductible@10% on ` 1,75,000 (rent of building) and @2% on ` 90,000 (hire charges of
machinery).

FINAL DT SATC 5.27
9. TPAs liable to deduct tax under section 194J on payment to hospitals on behalf of insurance
companies
The CBDT has, through Circular No. 8/2009 dated 24.11.2009, clarified that TPAs (Third Party
Administrator’s) who are making payment on behalf of insurance companies to hospitals for settlement of
medical/insurance claims etc. under various schemes including cashless schemes are liable to deduct tax at
source under section 194J on all such payments to hospitals etc. This is because the services rendered by
hospitals to various patients are primarily medical services and, therefore, the provisions of section 194J are
applicable to payments made by TPAs to hospitals etc.
Consequently, all such past transactions between TPAs and hospitals would fall within the provisions of
section 194J and consequence of failure to deduct tax or after deducting tax failure to pay on all such
transactions would make the deductor (TPAs) deemed to be an assessee-in-default in respect of such tax
and also liable for charging of interest under section 201(1A).
However, no proceedings under section 201 may be initiated after the expiry of six years from the end of the
financial year in which payments have been made without deducting tax at source etc. by the TPA’s. Further,
the tax demand arising out of section 201(1) in situations arising above, may not be enforced if the deductor
(TPA) satisfies the officer in charge of TDS that the relevant taxes have been paid by the deductee-assessee
(hospitals etc.). A certificate from the auditor of the deductee-assessee stating that the tax and interest due
from deductee-assessee has been paid for the assessment year concerned would be sufficient compliance
for the above purpose. However, this will not alter the liability to charge interest under section 201(1A) till
payment of taxes by the deductee assessee or liability for penalty under section 271C, as the case may be.
10. Transaction charges paid to BSE by its members are not for technical services
In the case of CIT v. Kotak Securities Ltd (2016) 383 ITR 1 (SC) the Supreme Court dealt on whether
transaction charges paid by the members of the stock exchange for availing fully automated online trading
facility, being a facility provided by the stock exchange to all its members, constitute fees for technical
services to attract the provisions of tax deduction at source under section 194J.
It observed that technical services like managerial and consultancy service are in the nature of specialised
services made available by the service provider to cater to the special needs of the customer-user as may be
felt necessary. It is the above feature that would distinguish or identify a service provider from a facility
offered.
The Apex Court, accordingly, held that the service provided by the BSE for which transaction charges are
paid failed to satisfy the test of specialized, exclusive and individual requirement of the user or the consumer
who may approach the service provider for such assistance or service.
Therefore, the transaction charges paid to BSE by its members are not for technical services but are in the
nature of payments made for facilities provided by the stock exchange. Such payments would, therefore, not
attract the provisions of tax deduction at source under section 194J.
11. East Bengal Club, a renowned football club, has engaged Raghu, a resident in India, as its coach at a
remuneration of ` 6 lacs per annum. The club wants to know from you whether it is liable to deduct
tax at source from such remuneration.
SOLUTION
Section 194J requires deduction of tax at source @10% from the amount credited or paid by way of fees for
professional services, where such amount or aggregate of such amounts credited or paid to a person
exceeds ` 30,000 in a financial year. As per Explanation (a) to section 194J, professional services includes
services rendered by a person in the course of carrying on such other profession as is notified by the CBDT
for the purposes of section 194J.
Accordingly, the CBDT has, vide Notification No.88 dated 21.8.2008, in exercise of the powers conferred by
clause (a) of the Explanation to section 194J notified the services rendered by coaches and trainers in
relation to the sports activities as professional services for the purposes of section 194J.
Therefore, the club is liable to deduct tax at source under section 194J from the remuneration payable to the
Coach, Raghu.

FINAL DT SATC 5.28
Class Notes

FINAL DT SATC 5.29
TAX COLLECTION AT SOURCE [Section 206C]

1. Every Seller at the time of debiting the buyer with the amount payable or receiving payments from buyers
engaged in business of alcoholic liquor, forest produce, scrap, timber, tendu leaves, etc. shall collect tax at
the followings rates:
Sr. No. Nature of goods TCS

Rate
1 Alcoholic liquor for human consumption (other than Indian made foreign liquor) 1%
2 Tendu Leaves 5%
3 Timber obtained under a forest lease 2.5%
4 Timber obtained by mode other than under a forest lease 2.5%
5 Any other forest produced not being timber or tendu leaves 2.5%
6 Scrap 1%
7 Minerals, being Coal or lignite or iron ore 1%
Such tax is not to be collected if the purchase of above goods is made by buyer (Resident in India) for
the purpose of manufacturing, processing or producing articles or things or for the purposes of
generation of power.
2. Every person, who grants a lease or a licenseor enters into a contract, etc for the purpose mentioned
below shall collect tax at the following rates [Collectee - any person other than a public sector
company]
Sl. No. Nature of contract or license or lease, etc. TCS Rate
(i) Parking Lot 2%
(ii) Toll plaza 2%
(iii) Mining and quarrying (excluding mineral oils, petroleum & natural gas) 2%
3. Every Person, being a Seller, who receives any amount as consideration for sale of a motor vehicle (at retail
level) of the value exceeding ten lakh rupees, shall, at the time of receipt of such amount, collect from the
buyer, a sum equal to 1% of the sale consideration (any mode) as income-tax.
4. "Seller" means the Central Government, a State Government or any local authority or corporation or authority
established by or under a Central, State or Provincial Act, or any company or firm or co-operative society
and
also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover
from the business or profession carried on by him exceed the monetary limits specified under clause
(a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in
which the goods of the nature specified in the Table in sub-section (1) are sold.
5. Buyer for Point 1:

Buyer does not include a Public Sector Company, the CG, SG and an Embassy, a High Commission,
Legation, Commission, Consulate and the trade representation of a foreign state and a club
A buyer in the retail sale of such goods purchased by him for personal consumption.

FINAL DT SATC 5.30
6. Buyer for Point 3:
Buyer doesn’t include
(a) Public Sector company which is engaged in the business of carrying passengers
(b) A Local Authority
(c) CG, SG and an Embassy, High Commission, Legation, Commission, Consulate & the Trade
representation of a foreign State.
CBDT Clarification relating to certain issues with respect to section 206C(1F)
These amendments in section 206C have given rise to certain issues relating to the scope and applicability of the
provisions. Accordingly, the CBDT has, vide Circular No. 22/2016 dated 8.6.2016 and Circular No.23/2016 dated
24.6.2016, clarified the following issues in “Question & Answer (Q&A)” format.
1. Whether TCS@1% is on sale of motor vehicle at retail level or also on sale of motor vehicles by
manufacturers to dealers/ distributors?
Answer:
A. To bring high value transactions within the tax net, section 206C has been amended to provide that the
seller shall collect the tax @ 1% from the purchaser on sale of motor vehicle of the value exceeding ` 10
lakhs. This is brought to cover all transactions of retail sales and accordingly, it will not apply on sale of
motor vehicles by manufacturers to dealers/distributors.
2. Whether TCS@1% on sale of motor vehicle is applicable only to luxury cars?
Answer:
No, as per section 206C(1F), the seller shall collect tax@1% from the purchaser on sale of any motor vehicle
of the value exceeding ` 10 lakhs.
3. Whether TCS@1% is applicable in the case of sale to Government Departments, Embassies,

Consulates and United Nation Institutions, of motor vehicle or any other goods or provision of
services?
Answer:
Government, institutions notified under United Nations (Privileges and Immunities) Act 1947, and Embassies,
Consulates, High Commission, Legation, Commission and trade representation of a foreign State shall not be
liable to levy of TCS@1% under sub-section (IF) of section 206C.
4. Whether TCS is applicable on each sale of motor vehicle or on aggregate value of sale during the
year?
Answer:
Tax is to be collected at source@1% on sale consideration of a motor vehicle exceeding ` 10 lakhs. It is
applicable to each sale and not to aggregate value of sale made during the year.
5. Whether TCS@1% on sale of motor vehicle is applicable in case of an individual?
Answer:
The definition of "Seller" as given in clause (c) of the Explanation below sub-section (11) of section 206C
shall be applicable in the case of sale of motor vehicles also. Accordingly, an individual who is liable to audit
as per the provisions of section 44AB during the financial year immediately preceding the financial year in
which the motor vehicle is sold shall be liable for collection of tax at source on sale of motor vehicle by him.
6. How would the provisions of TCS on sale of motor vehicle be applicable in a case where part of the
payment is made in cash and part is made by cheque?
Answer:
The provisions of TCS on sale of motor vehicle exceeding ` 10 lakhs is not dependent on mode of payment.
Any sale of motor vehicle exceeding ` 10 lakhs would attract TCS@1%.

FINAL DT SATC 5.31
Section 206CC - Requirement to furnish Permanent Account number by collectee.
(1) Notwithstanding anything contained in any other provisions of this Act, any person paying any sum or
amount, on which tax is collectible at source under Chapter XVII-BB (herein referred to as collectee) shall
furnish his Permanent Account Number to the person responsible for collecting such tax (herein referred
to as collector), failing which tax shall be collected at the higher of the following rates, namely:—
a. at twice the rate specified in the relevant provision of this Act; or
b. at the rate of 5%.
(2) The provisions of this section shall not apply to a non-resident who does not have permanent
establishment in India.

FINAL DT SATC 5.32
Class Notes

FINAL DT SATC 5A.1
PRACTICAL QUESTION – SET A

1. Mr. Vinod Dutta, an Indian resident, won a Tata Indica worth ` 6 Lakhs, as the first prize in a lottery.
According to Section 194B of the Income Tax Act, 1961, tax has to be deducted at source from the
winnings of lottery at the time of payment of the prize money.
Explain the procedure to be adopted before handing over the Tata Indica (the lottery prize) to Mr.
Vinod Dutta. [MTP-J14-1; PTP-J15/3; RTP-J14]
Solution:
Section 194B of the Income Tax Act, 1961 provides that where the winnings are wholly in kind or partly in
kind and partly in cash, but the cash part of it is not sufficient to meet the liability for tax deduction at source,
in respect of the whole of the winnings, the person responsible shall, before releasing the winnings, ensure
that, the tax has been paid in respect of the winnings. Therefore, in the case under consideration, the entire
winnings being in kind, a sum equal to the tax to be deducted at source (i.e. ` 1,80,000 being 30% of
` 6,00,000) must be collected from the assessee, by the agent and remitted to the Government account
before releasing the lottery prize to him. Thus, ` 1,80,000 - being 30% of ` 6,00,000 must be collected from
the assessee, by the agent and remitted to the Government account before releasing the Tata Indica to him.
2. H Ltd., engaged in providing cellular phone facilities to their subscribers, had been granted licenses
by the Department of Telecommunication for operating specific circles. For providing inter
connection, H Ltd. entered into agreement with MTNL/BSNL, which were regulated by the TRAI and
under the agreement, H Ltd. had to pay interconnection, access charges and port charges to the
interconnection providers. The income-tax department was of the view that interconnection/
port/access charges were liable for tax deduction at source in view of the provisions of section 194J
and that these charges were in the nature of fees for technical services. Whether the contention
taken by the Income-tax department is tenable in law? Discuss. Support your answer with citation of
relevant case law. [MTP-D13/2]
Answer:
The Hon’ble Supreme Court in CIT v. Bharti Cellular Ltd. [2011] 330 ITR 239 (SC) has held that, the
services rendered qua interconnection/port access did not involve any human interface and, therefore, the
services could not be regarded as 'technical services' as contemplated under section 194Jof the Act. The
interconnect/port access facility was only a facility to use the gateway and the network of MTNL/ other
companies. MTNL or other companies did not provide any assistance or aid or help to the assessee in
managing operating, setting up their infrastructure and network. No doubt, the facility of interconnection and
port access provided by MTNL/ other companies was 'technical' in the sense that it involved sophisticated
technology.
The expression 'technical service' was not to be construed in the abstract and general sense but in the
narrower sense as circumscribed by the expressions 'managing service' and 'consultancy service' as
appearing in Explanation 2 to Section 9(1)(vii) of the Act. The expression technical service' would have
reference to only technical service rendered by a human. it would not include any service provided by
machines or robots.
Therefore, the interconnect charges/ port access charges could not be regarded as fees for technical services
hence not liable for tax deducted at source.
3. Mrs. Kavita Agarwal, a resident, plans to sell the following properties to residents in India, during the
last quarter of 2019-20:
(i) Agricultural lands in urban area for ` 55 lacs;
(ii) Agricultural lands in non-urban area (situate in a place which is at an aerial distance of 30 kms
from nearby municipality) for ` 80 lacs;
(iii) Residential house for ` 90 lacs. The valuation for stamp duty purposes is ` 110 lacs.
She wants to know whether she would suffer any tax deduction at source (TDS) under the provisions
of the Income-tax Act, 1961, and if yes, the applicable rate and the quantum of TDS.
(Dec 2014, 5 Marks)

FINAL DT SATC 5A.2
Answer:
TDS on sale of immovable property u/s 194-IA Deduction of tax at source has to be made u/s 194-IA
where there is transfer of immovable property for a consideration of ` 50 lacs or more. The TDS rate is 1% of
the total consideration. "Immovable property" means any land (other than rural agricultural land) or any
building or part of a building.
Therefore, the TDS obligation will be:

(i) Agricultural lands in urban area for ` 55 lacs: The provisions of section 194-IA are attracted. TDS rate is
1% and TDS to be deducted is ` 55,000
(ii) Agricultural lands in non-urban area for ` 80 lacs : The provision of section 194-IA are NOT attracted.
(iii) Residential house for ` 90 lacs: The provisions of section 194-IA are attracted. TDS rate is 1% on actual
consideration and TDS to be deducted is ` 90,000. What is relevant is actual consideration and not the
valuation for stamp duty purposes.
4. Examine and state the applicability of provisions under Income Tax Act for deductions of Income Tax
at source under Income Tax Act/rules on following cases for Asst. Year 2020-21.
(i) Mr. K an employee of Central Government is due to receive arrear of salary for the earlier three
previous years that are 2016-17 to 2018-19 during the previous year 2019-20. Whether such arrear
salary is subject to deduction of tax during previous year 2019-20.
(ii) MIS X Ltd. enter into an agreement with MIS ABC Consultants for providing engineering services
to the Company for a Consideration of ` 10,000 per month. MIS ABC Consultants requires MIS X
Ltd. to deduct tax at source @2% u/s 194C. Finance department of the view that tax deduction
should be 10% u/s 194J of Income Tax Act. (Dec 2012, 4 Marks)
Answer
(i) Arrear of salary for the previous year 2016-17 to 2018-19 are taxable in the previous year 2019-20 on
receipt as not taxed earlier on accrual basis in the hands of Mr. K, an employee. The authorized person of
the Central Govt. would be liable to deduct tax at source from such arrear. However Mr. K can claim relief
u/s 89(1) of the Income Tax Act provided the employee would produced the details in the prescribed Form
10E to his employer to consider the relief u/s 89 while deducting tax at source.
(ii) The definition of professional service on which tax is to be deductible under section 194J includes
engineering services also. So fee of ` 10,000 per month paid M/S ABC Consultant represent fee for
professional Services & the income tax deduction at source on payment is to be made @ 10% under such
section that is 194J. M/S ABC Consultants requirement for deduction of tax at source@ 2% u/s 194C is
not correct.
5. Fly Fast Airways Ltd. sold tickets to the travel agents in India at a minimum fixed commercial price.
The agents were permitted to sell the tickets at a higher price. The price to be charged by the travel
agents was restricted to a maximum of published price. Fly Fast Airways Ltd. was obliged to pay to
its travel agents, a commission at the rate of 9% of published price, on which tax was deducted under
Section 194H of the Income Tax Act, 1961 by the company. The Assessing Officer contended that
company was also liable to deduct tax at source, on the amount of difference between the published
price and the minimum fixed commercial price, by treating it as “additional special commission” in
the hands of the agents.
Examine whether the contention of the Assessing Officer is tenable in law, in the light of decided
case law. (RTP June -14)
Solution:
Section 194H of the Income Tax Act, 1961 provides that, any person (other than an individual or Hindu
Undivided Family), who is responsible for paying commission or brokerage (not being insurance
commission), to a resident shall deduct tax at source, at the time of payment or credit, whichever is earlier.
No tax is deductible if the amount paid/ credited during the financial year does not exceed ` 15,000.
In the present case, Fly Fast Airways Ltd. correctly deducted tax at source under Section 194H of the Income
Tax Act, 1961, from the commission paid to the travel agents (@9% of the published price). The travel
agents were permitted to sell the tickets, at a price higher than the minimum fixed commercial price, subject
to a maximum of the published price. However, the Assessing Officer contended that, the airline company
was also obliged to deduct tax at source on the difference between the published price and the minimum
commercial price, by treating it as “additional special commission”, in the hands of the agents.

FINAL DT SATC 5A.3
The facts of the case are similar to the case of CIT v. Qatar Airways (2011) 332 ITR 253. In this case, the
Bombay High Court held that the difference between the published price and the minimum fixed commercial
price of the tickets cannot be taken as “additional special commission” in the hands of the agents.
Firstly, the travel agents were given the discretion to sell the tickets at any rate between the minimum fixed
commercial price and the published price (which was the maximum price). Secondly, in the absence of any
communication/ feedback from the air travel agents, the airline company would not have any information
about, the exact rate at which the tickets were finally sold by the travel agents. For deducting tax at source on
the difference between the actual sale price and the minimum fixed commercial price ( as contended by the
Assessing Officer), the exact income in the hands of the agents must necessarily be ascertainable by the
airline company.
Applying the rationale of the above case to the case of Fly Fast Airways Ltd, the airline company shall not be
liable to deduct tax at source under Section 194H of the Income Tax Act, 1961, on the difference between
the published price and the minimum fixed commercial price. However, the amount earned by the agent over
and above the minimum fixed commercial price would be taxable as income in the hands of the agent.
Therefore, the contention raised by the Assessing Officer is not tenable in law.
6. In respect of a co-owned property, would the threshold limit mentioned in section 194-I for non-
deduction of tax at source apply for each co-owner separately or is it to be considered for the
complete amount of rent paid to attract liability to deduct tax at source? MTP-J14-1, RTP –J14
Solution
Relevant Judicial Case: CIT v. Senior Manager, SBI (2012) 206 Taxman 607 (All.)
In the present case, the assessee was paying rent for the leased premises occupied. The said premise was
co-owned and the share of each co-owner was definite and ascertainable. Also, the assessee made payment
to each co-owner separately by way of cheque. The assessee did not deduct tax at source under section
194-I stipulating that the payment made to each co-owner was less than the minimum threshold mentioned in
the said section and therefore, no liability to deduct tax at source on the rent so paid is attracted, though the
whole rent taken together exceeds the said threshold limit.
The Revenue contended that since the premises let out to the assessee had not been divided/partitioned by
metes and bounds, it cannot be said that any specified portion let out to the assessee was owned by a
particular person. Therefore, the assessee had to deduct tax at source on the rent so paid assessing the co-
owners as association of persons and the threshold limit mentioned in section 194-I was to be seen in
respect of the entire rent amount. Hence, the Revenue was of the view that assessee was liable to deduct
tax on the payment of rent and interest would be leviable on failure to deduct such tax under section 201.
Considering the above mentioned facts, the Allahabad High Court held that since the share of each co-owner
is definite and ascertainable, they cannot be assessed as an association of persons as per section 26. The
income from such property is to be assessed in the individual hands of the co-owners. Therefore, it is not
necessary that there should be a physical division of the property by metes and bounds to attract the
provisions of section 26.
Therefore, in the present case, since the payment of rent is made to each co-owner by way of separate
cheque and their share is definite, the threshold limit mentioned in section 194-I has to be seen separately for
each co-owner, Hence, the assessee would not be liable to deduct tax on the same and no interest under
section 201 is leviable.
The decision in the above mentioned case, however, does not apply in this case, since the Assessing Officer
is not an Appellate Authority.
Therefore, in the present case, the Bombay High Court, considering the above mentioned decisions, held
that additional grounds can be raised before the Appellate Authority even otherwise than by way of filing
return of income. However, in case the claim has to be made before the Assessing Officer, the same can
only be made by way of filing a revised return of income.
7. Is a person having income below taxable limit, required to furnish his PAN to the deductor as per the
provisions of section 206AA, even though he is not required to hold a PAN as per the provisions of
section 139A? (RTP –J14)

FINAL DT SATC 5A.4
Solution:
Relevant Judicial Case: Smt A. Kowsaiya Bat v. UOI (2012) 346 ITR 156 (Kar.)
As per the provisions of section 139A, inter alia, a person whose total income does not exceed the maximum
amount not chargeable to income-tax, is not required to apply to the Assessing Officer for the allotment of a
permanent account number (PAN).
However, as per the provisions of section 206AA, notwithstanding anything contained in any other provision
of this Act, any person who is entitled to receive any sum or income or amount on which tax is deductible
under Chapter XVII-B, i.e., the deductee, shall furnish his PAN to the deductor, otherwise tax shall be
deducted as per the provisions section 206AA, which is normally higher. It is mandatory for an assessee to
furnish his PAN, despite filing Form 15G as required under section 197A, to seek exemption from deduction
of tax.
The provisions of section 139A are contradictory to section 197A, due to the fact that assessees whose
income was less than the maximum amount not chargeable to income-tax, were not required to hold PAN,
whereas their declaration furnished under section 197A was not accepted by the bank or financial institution
unless PAN was communicated as per the provisions of section 206AA. The provisions of section 206AA
creates inconvenience to small investors, who invest their savings from earnings as security for their future,
since, in the absence of PAN, tax was deducted at source at a higher rate.
In order to avoid undue hardship caused to such persons, the Karnataka High Court, in the present case,
held that it may not be necessary for such persons whose income is below the maximum amount not
chargeable to income-tax to obtain PAN and in view of the specific provision of section 139A, section 206AA
is not applicable to such persons. Therefore, the banking and financial institutions shall not insist upon such
persons to furnish PAN while filing declaration under section 197A. However, section 206AA would continue
to be applicable to persons whose income is above the maximum amount not chargeable to income-tax.
8. Mr. Rupesh Kumar, an Indian resident, is a practicing Cost and Management Accountant. He was
paid ` 90,000 on 1st September, 2019 towards fees for his professional services, without deducting
tax at source. Later on, a further sum of ` 1,00,000, was due to him on 1st March, 2020, from which
tax of ` 20,000 was deducted at source. The tax so deducted, was deposited on 26th June, 2020.
Compute interest payable by the deductor under Section 201(1A) of the Income Tax Act, 1961.
(RTP –J14)
Solution:
Section 194J of the Income Tax Act, 1961 provides for deduction of tax at source @ 10%, in respect of fees
for professional services. Since, there is delay in deduction and deposit of tax, interest under Section 201(1A)
is attracted.
As per the provisions of Section 201(1A), if a person, who is liable to deduct tax at source, fails to deduct tax
at source or after deducting such tax, fails to pay the tax required by the Act, then he is liable to pay interest
as follows:
(i) 1% for every month or part of month, on the amount of such tax from the date on which such tax was
deductible to the date on which such tax is actually deducted.
(ii) 1.5% for every month or part of the month on the amount of such tax from the date on which such tax was
deducted to the date on which tax is actually paid.
Therefore, in the given case, interest under
Section 201(1A) would be computed as follows:
Particulars Computation Amount (`

`)
1% on tax deductible, but not deducted 1% on Rs 9,000 for 7 months 630
1.5% on tax deducted, but not deposited 1.5% on Rs 20,000 for 4 months 1,200
TOTAL 1,830
Thus, interest payable by the person liable to deduct tax at source, amounts to `1,830.
9. Samadhan Ltd. entered into an agreement for the warehousing of its products with Life Warehousing
and deducted tax at source as per provisions of Section 194C out of warehousing charges paid
during the year ended on 31.03.2020. The Assessing Officer while completing the assessment for
A.Y. 2020-21 of Samadhan Ltd. asked the Company by treating the warehousing charges as rent as
defined in section 194-I to make payment of difference amount of TDS with interest. It submitted by
the Company that the receipt had already paid tax on the entire amount of warehousing charges and
therefore, now the difference amount of TDS can be not recovered. However, it will make the payment
of due interest on the difference amount of TDS. (RTP–D13)

FINAL DT SATC 5A.5
Solution:
TDS has to be deducted u/s 194-I from payment made towards warehousing charges [Circular No.
718/22.8.1995]. Further, No demand u/s 201(1) should be enforced after the tax deductor has satisfied the
Officer-In-Charge of TDS that the taxes due have been paid by the deductee–assessee.
However, this will not alter the liability to charge interest u/s 201(1A) till the date of payment of taxes by the
deductee or the liability for penalty u/s 271C. [Hindustan Coco coal Beverage (P) Ltd vs. CIT 293 ITR 226
(SC)].
In the instant case, Samadhan Ltd. has deducted tax u/s 194C at 1% instead of 10% u/s 194-I. However it is
mentioned that warehousing has already paid the tax on its income from Samadhan Ltd. If Samadhan Ltd.
proves to the satisfaction of the Assessing Officer that the taxes have paid on the relevant income by the
deductee, then the Assessing Officer cannot recover the TDS amount from it. However, Samadhan Ltd. is
liable for interest on the differential amount at 1% per month or part of a month.
10. Can services rendered by a hotel to its customers in providing hotel room with various facilities &
amenities (like housekeeping, bank counter, beauty salon, car rental, health club etc.) amount to
―carrying out any “work” to attract the provisions of section 194C? Support your answer with
decided case laws. (RTP –J13)
Solution:
East India Hotels Ltd. vs. CBDT (2010) 320 ITR 0526 (Som.)
Relevant section: 194C On this issue, the High Court observed that the words “carrying out any work” in
section 194C are limited to any work which on being carried out culminates in a product or result. “Work” in
the context of this section, has to be understood in a limited sense and would extend only to the service
contracts specifically included in section 194C by way of clause (iv) of the Explanation below sub-section(7).
The provisions of tax deduction at source under section 194C would be attracted in respect of payments for
carrying out the work like construction of dams, laying of roads and air fields, erection or installation of plant
and machinery etc. In these contracts, the execution of the contract by a contractor or sub-contractor results
in production of the desired object or accomplishing the task under the contract.
However, facilities or amenities made available by a hotel to its customers do not fall within the meaning of
work under section 194C, and therefore provisions of TDS under this section are not attracted.
11. Compute the amount of tax deduction at source on the following payments made by M/s. Robust Ltd.
during the previous year 2019-20, as per the provisions of the Income Tax Act, 1961:
Sl. Date Nature of Payment
No
01.10.2019 Payment of ` 2,00,000 to Mr. Vikas, a transporter, who is having PAN.
(i)
Payment of fee for technical services of ` 25,000 and royalty of ` 20,000 to Mr.
01.11.2019
(ii) Deepak, who is having PAN.
30.06.2019 Payment of ` 25,000 to M/s PQR Ltd. for repair of building.
(iii)
Payment of ` 2,00,000 made to Mr. Amar for purchase of diaries made
01.01.2020 according to the specifications of M/s Robust Ltd. However, no material was
(iv)
supplied to such diaries to Mr. Amar by M/s. Robust Ltd.
Payment of ` 2,30,000 made to Mr. Vishwas for compulsory acquisition of his
01.01.2020
(v) house, as per law of the State Government,
01.02.2020 Payment of commission of ` 16,000 to Mr. Umesh.
(vi)
(RTP –J15)
Solution
(i) No tax is required to be deducted at source under Section 194C by M/s Robust Ltd. on payment to
transporter Mr. Vikas, provided he furnishes his PAN to M/s Robust Ltd.
(ii) As per Section 194J of the Income Tax Act, 1961, liability to deduct tax is attracted only in case the
payment made as fees for technical services and royalty, individually exceed ` 30,000 during the financial
year. In the given case, since, the individual payments for fee of technical services ` 25,000 and royalty of
` 20,000, is less than ` 30,000 each, there is no liability to deduct tax at source. It is assumed that no
other payment towards fees for technical services and royalty were made during that year to Mr. Deepak.

FINAL DT SATC 5A.6
(iii) Provisions of Section 194C are not attracted in this case, since the payment for repair of building on
30.06.2019 to M/s. PQR Ltd is less than the threshold limit of ` 30,000.
(iv) According to Section 194C of the Income Tax Act, 1961, the definition of “work” does not include the
manufacturing or supply of product according to the specification by customer in case the material is
purchased from a person other than the customer.
Therefore, there is no liability to deduct tax at source in respect of payment of ` 2,00,000 to Mr. Amar,
since the contract is a contract for “sale”.
(v) As per Section 194LA of the Income Tax Act, 1961, any person liable for payment to a resident, any sum
in the nature of compensation or consideration on account of compulsory acquisition under any law, of
any immovable property, is responsible for deduction of tax at source if such payment or aggregate
amount of such payments, to the resident during the financial year exceeds ` 2,50,000.
In the given case, no liability to deduct tax at source is attracted as the payment does not exceed
` 2,50,000.
(vi) As per Section194H of the Income Tax Act, 1961, any person (other than an individual or HUF), who is
responsible for paying commission or brokerage to a resident shall deduct tax at source, if the amount of
such income or, the aggregate of the amounts of such income credited or paid during the financial year
exceeds ` 15,000.
Since, the commission payment made to Mr. Umesh exceeds ` 15,000, the provisions of Section 194H
are attracted. The tax to be deducted at source shall be = ` 16,000 × 5% = ` 800.
12. State in brief the applicability of tax deduction at source provisions, the rate and amount of tax
deduction in the following cases for the previous year 2019-20:
(i) Winning by way of jackpot in a horse race ` 1,00,000.
(ii) Payment made by a firm to sub-contractor ` 3,00,000 with outstanding balance of ` 1,20,000
shown in the books as on 31.03.2020.
(iii) Payment made to Chris Gayle, a cricketer, by a newspaper for contribution of articles ` 25,000.
(RTP –J15)
Solution:
(i) Provisions for tax deduction at source under Section 194BB of the Income Tax Act, 1961 @ 30% are
attracted if the amount exceeds ` 10,000 in respect of income arising by way of winning a jackpot in horse
races.
Tax to be deducted = ` 1,00,000 × 30% = ` 30,000.
(ii) Provisions for tax deduction at source under Section 194C of the Income Tax Act, 1961 are attracted in
respect of payment by a firm to a sub-contractor. Under Section 194C of the Income Tax Act, 1961 tax is
deductible at the time of credit or payment, whichever is earlier @ 1%, if the payment is made to an
individual or HUF and 2% for others.
Assuming that the sub-contractor to whom the payment has been made is an individual and the
aggregate amount credited during the year is ` 4,20,000, tax is deductible @ 1% on ` 4,20,000.
Tax to be deducted = ` 4,20,000 × 1% = ` 4,200.
(iii) Under Section 194-E the person responsible for payment of any amount to a non-resident sportsman for
contribution to articles relating to any game or sport in India in a newspaper shall deduct tax at source @
20%. Further, since Chris Gayle is a non-resident, health & education cess @ 4% on TDS would also
be added.
Therefore, tax to be deducted = ` 25,000 × 20.80% = ` 5,200.
13. State the applicability of TDS provisions and TDS amount in the following cases:
(a) Rent paid for hire of machinery by B Ltd. to Mr. Raman ` 2,50,000.
(b) Fee paid to Dr. Srivatsan by Sundar (HUF) ` 35,000 for surgery performed to a member of the
family.

FINAL DT SATC 5A.7
Solution:
(a) Since the rent paid for hire of machinery by B. Ltd. to Mr. Raman exceeds ` 2,40,000, the provisions of
section 194-I for deduction of tax at source are attracted. The rate applicable for deduction of tax at
source under Section 194-I on rent paid for hire of plant and machinery is 2% assuming that Mr. Raman
had furnished his permanent account number to B Ltd.
Therefore, the amount of tax to be deducted at source= ` 2,50,000 x 2% = ` 5,000.
Note: In case Mr. Raman does not furnish his permanent account number to B Ltd., tax shall be deducted
@ 20% on ` 2,50,000, by virtue of provisions of section 206AA.
(b) As per the provisions of section 194J, a Hindu Undivided Family is required to deduct tax at source on
fees paid for professional services only if it is subject to tax audit under section 44AB in the financial year
preceding the current financial year.
However, if such payment made for professional services is exclusively for the personal purpose of any
member of Hindu Undivided Family, then, the liability to deduct tax is not attracted.
Therefore, in the given case, even if Sundar (HUF) is liable to tax audit in the immediately preceding
financial year, the liability to deduct tax at source is not attracted in this case since, the fees for
professional service to Dr. Srivatsan is paid for a personal purpose i.e. the surgery of a member of the
family.
TDS provisions under section 194M are also not applicable in this case, since the payment does
not exceed the threshold of ` 50 lakhs.
14. What are the provisions relating to tax deduction at source in respect of:
(a) ABC and Co. Ltd. paid ` 19,000 to one of its Directors as sitting fees on 1-01-2020.
(b) Mr. X sold his house to Mr. Y on 01-02-2020 for ` 60 lacs?
Solution:
(a) Section 194J provides for deduction of tax at source @10% from any sum paid by way of any
remuneration or fees or commission, by whatever name called, to a resident director, which is not in the
nature of salary on which tax is deductible under section 192. The threshold limit of ` 30,000 upto which
the provisions of tax deduction at source are not attracted in respect of every other payment covered
under section 194J is, however, not applicable in respect of sum paid to a director.
Therefore, tax@10% has to be deducted at source under section 194J in respect of the sum of ` 19,000
paid by ABC Ltd. to its director.
(b) Section 194-IA requires every person, being a transferee, responsible for paying any sum as
consideration for transfer of any immovable property (other than agricultural land), to deduct tax@1% of
such sum, at the time of credit of such sum to the account of the resident transferor or at the time of
payment of such sum to a resident transferor, whichever is earlier.
Such tax is required to be deducted at source where the consideration for transfer of immovable property
is ` 50 lakhs or more.
In this case, since the consideration for transfer of house exceeds ` 50 lakhs, Mr. Y is liable to deduct tax
at source@1% under section 194-IA on the consideration of ` 60 lakhs payable for transfer of house to
Mr. X.
15. Ashwin doing manufacture and wholesale trade furnishes you the following information : Total
turnover for the financial year
Particulars `
2018-19 1,05,00,000
2019-20 95,00,000

FINAL DT SATC 5A.8
State whether tax deduction at source provisions are attracted for the below said expenses incurred
during the financial year 2019-20:
Particulars `
Interest paid to UCO Bank 41,000
Contract payment to Raj (2 contracts of ` 12,000 each) 24,000
Shop rent paid (one payee) 2,90,000
Commission paid to Balu 17,000
Solution:
As the turnover of Ashwin for F.Y.2018-19, i.e. ` 105 lakh, has exceeded the monetary limit of ` 100 lakh
prescribed under section 44AB, he has to comply with the tax deduction provisions during the financial year
2019-20, subject to, however, the exemptions provided for under the relevant sections for applicability of TDS
provisions.
Interest paid to UCO Bank
TDS under section 194A is not attracted in respect of interest paid to a banking company.
Contract payment of ` 24,000 to Raj for 2 contracts of ` 12,000 each
TDS provisions under section 194C would not be attracted if the amount paid to a contractor does not exceed
` 30,000 in a single payment or ` 100,000 in the aggregate during the financial year. Therefore, TDS
provisions under section 194C are not attracted in this case.
Shop Rent paid to one payee – Tax has to be deducted under section 194-I as the rental payment exceeds
` 2,40,000.
Commission paid to Balu– Tax has to be deducted under section 194-H as the commission exceeds `
15,000.
deducti0on in the following cases for the financial year 2019-20:
(i) Winning by way of jackpot in a horse race ` 1,00,000.
(ii) Payment made by a firm to sub-contractor ` 3,00,000 with outstanding balance of ` 1,20,000
shown in the books as on 31-03-2020.
(iii) Rent paid for plant and machinery ` 1,50,000 by a partnership firm having sales turnover of
` 20,00,000 and net loss of ` 15,000.
(iv) Payment made to Ricky Ponting, an Australian cricketer, by a newspaper for contribution of
articles ` 25,000.
Solution:
(i) Provisions for tax deduction at source under section 194BB @ 30% are attracted if the amount exceeds `
5,000 in respect of income arising by way of winning a jackpot in horse races.
Tax to be deducted = ` 1,00,000 x 30% = ` 30,000
(ii) Provisions of tax deduction at source under section 194C are attracted in respect of payment by a firm to
a sub-contractor. Under section 194C, tax is deductible at the time of credit or payment, whichever is
earlier @ 1% if the payment is made to an individual or HUF and 2% for others.
Assuming that sub-contractor to whom payment has been made is an individual and the aggregate
amount credited during the year is ` 4,20,000, tax is deductible @ 1% on ` 4,20,000.
Tax to be deducted = ` 4,20,000 x 1% = ` 4,200
(iii) As per section 194-I, tax is to be deducted @ 2% on payment of rent for plant and machinery, only if the
payment exceeds ` 2,40,000 during the financial year. Since rent of ` 1,50,000 paid by a partnership firm
does not exceed ` 2,40,000, tax is not deductible.

FINAL DT SATC 5A.9
(iv) Under section 194E, the person responsible for payment of any amount to a non-resident sportsman for
contribution of articles relating to any game or sport in India in a newspaper shall deduct tax @ 20%.
Further, since Ricky Ponting is a non-resident, health & education cess @4% on TDS would also be
added.
17. X Ltd. makes the following payments during the financial year 2019-20 –
1. Payment to A, a resident transport contractor (owns 8 truck): ` 11,50,000 (PAN is intimated by A to
X Ltd.).
2. Payment to B, a resident transport contractor (owns 8 truck): ` 1,00,000 (PAN is not intimated by B
or B does not have PAN).
3. Payment to C, a resident catering contractor: ` 21,50,000 (PAN is intimated by C to X Ltd.).
4. Payment to D, a resident catering contractor: ` 2,00,000 (PAN is not intimated by D or D does not
have PAN).
Determine the amount of tax deductible u/s 194C in this case.
Solution:
Payment/credit of consideration of a works contract to a resident contractor is covered by section 194C. the
expression “works contract” includes advertising contracts, broadcasting /telecasting contract, carriage of
goods or passengers, catering and manufacturing (if raw material is supplied by the payer). Tax will be
deducted at the rate of 1% (if recipient is an individual/HUF) or 2% (if recipient is any other person). If PAN of
the contractor is not available, tax will be deducted at the rate of 20%. However, in the case payment or credit
to transport contractors (i.e., the business of plying, hiring or leasing goods carriages & does not own more
than 10 trucks), no tax is deductible if the recipient contractor gives his PAN to payer.
Particular `
Payment to A (transport contractor and PAN is intimated, no TDS) Nil
Payment to B (transport contractor and PAN is not intimated, tax will be deducted @ 20%) 20,000
Payment to C (catering contractor and PAN is intimated, tax will deducted @ 1%) 21,500
Payment to D (catering contractor and PAN is not intimated, tax will deducted @ 20%)
40,000
Total 81,500
18. X is a sole proprietor. His annual turnover is more than ` 180,00,000 since last 5 years. During the
financial year 2019-20, he makes the following payments to a non-banking company –
1. Interest on loan taken for the marriage of his daughter (amount of interest paid on March 1, 2020:
` 5,00,000)
2. Interest on loan for business purposes (amount of interest paid on March 21, 2020: ` 6,00,000)
U/s 194A, tax is deductible on interest other than interest on securities. Discuss whether the
aforesaid payments are covered by this provision.
Solution:
X, the payer, is an individual. His books of account are required to be audited u/s 44AB. Consequently, tax is
deductible u/s 194A. Section 194A is applicable in such a case regardless of the fact whether payment
of interest pertains to a personal loan or a business loan. Tax will be deductible on ` 5,00,000 as well as
` 6,00,000 at the rate of 10%.
19. X is sole proprietor. His annual turnover is more than ` 280,00,000 since last 5 years. During the
financial year 2019-20, he makes the following payments:
1. Payment of royalty for business purpose: ` 20,00,000 on January 2020.
2. Payment of professional fees to an architect for construction of a residential building for his own
use: ` 6,00,000 on January 3, 2020.
3. Payment of professional fees to an advocate for filing an appeal in the Bombay High Court
pertaining to a business transaction: ` 7,00,000 on January 10, 2020.
4. Payment of technical fees to an engineer for preparation of a project report (which will be set up in
a backward area in Jharkhand): ` 8,00,000 during April 2019.
Discuss the TDS Deductibility.

FINAL DT SATC 5A.10
Solution:
X, the payer, is an individual. His books of account are required to be audited u/s 44AB. U/s 194J, tax is
deductible by an individual/HUF (whose books of account are required to be audited u/s 44AB in the
preceding year) as follows –
1. Tax is deductible on payment/credit of technical fees (whether it is for business purpose or otherwise).
2. Tax is deductible on payment/credit of professional fees only when it is for business purpose.
3. Tax is not deductible at all on payment/credit of royalty by an individual/HUF.
Consequently, in the given problem tax will be deductible as follows –
Amount of TDS (i.e., @

10% of payment/credit)
`
1. Payment of royalty for business purposes (no TDS by an individual/HUF u/s
194J) Nil
2. Payment of professional fees for personnel purposes (no TDS by an
individual/HUF u/s 194J on professional fees for personal purposes) Nil
3. Payment of professional fees for business purposes (tax is deductible) 70,000
4. Payment of technical fees (tax is deductible) 80,000
Total 1,50,000
* TDS provisions under section 194M are also not applicable in this case, since the payment of ` 7
lakhs, even though made after 1.9.2019, does not exceed the threshold of ` 50 lakhs.
20. M, an individual, had let out his building on a monthly rent of ` 20,000. The tenant deducted tax u/s
194-I from the Rent paid to M, but did not remit such tax to the credit of the Central Government. M
filed his return of income for the Assessment Year 2020-21 including therein the Rental Income from
the said building and paid the balance tax on his total income after taking credit for tax deducted at
source by the Tenant. The AO has called upon M to pay the tax to the extent of TDS. Is the AO
justified.
Solution:
Section 205 provides that where tax is deductible at source, under the provision of the Act, the assessee shall
not be called upon to pay the tax himself to the extent to which the tax has been deducted from that income.
In view of the above specific provisions, Mr. M cannot be held liable to pay tax to the extent TDS. Hence, the
action of AO is not justifiable.
deduction in the following cases for the financial year 2019-20:
(i) Payment of ` 27,000 made to Jacques Kallis, a South African cricketer, by an Indian newspaper
agency on 02.07.2019 for contribution of articles in relation to the sport of cricket.
(ii) Rent of ` 1,70,000 paid by a partnership firm for use of plant and machinery.
(iii) Winnings from horse race - ` 1,50,000.
(iv) Sitting fees of ` 16,000 paid to director of the company on 30.12.2019.
(v) ` 2,30,000 paid to Mr. A, a resident individual on 22.02.2020 by the State Government of Uttar
Pradesh on compulsory acquisition of his urban land.
Solution:
(i) Under section 194E, where any income referred to in section 115BBA is payable to a non-resident
sportsman for contribution of articles relating to any game or sport in India in a newspaper, such income
shall be liable to tax @ 20%. Further, since Jacques Kallis is a non-resident, health & education cess
@4% on TDS would also be added.
(ii) As per section 194-I, tax is deductible at the time of credit or payment, whichever is earlier @ 2% on
payment of rent for plant and machinery, only if the credit or payment exceeds ` 2,40,000 during the
financial year. Since rent of ` 1,70,000 paid by a partnership firm does not exceed ` 2,40,000, tax is not
deductible.
(iii) Provisions for tax deduction at source under section 194BB @ 30% are attracted in respect of income
arising by way of winnings from any horse race at the time of payment thereof, if the winnings exceed
` 10,000. Tax to be deducted = ` 1,50,000 x 30% = ` 45,000

FINAL DT SATC 5A.11
(iv) As per section 194J, the company shall be liable to deduct tax at source @ 10% on any fees paid to a
director on or after 1.07.2012, on which the tax is not deductible under section 192. The threshold limit
of ` 30,000 for non-deduction of tax at source under section 194J is not applicable in case of any
remuneration or fees or commission payable to director of a company. Tax to be deducted =
` 16,000 x 10% = ` 1,600
(v) Tax shall be deducted at source under section 194LA if the consideration or enhanced consideration paid
to a resident individual during the financial year exceeds ` 2,50,000 in aggregate. Since in this case, the
amount paid to Mr. A, a resident individual, on 22.2.2019 does not exceed ` 2,50,000, tax is not
deductible under section 194LA
22. Mr. X sold his house property in Bangalore as well as his rural agricultural land for a consideration of
` 60 lakh and ` 15 lakh, respectively, to Mr. Y on 1.8.2019. He has purchased the house property and
the land in the year 2017 for ` 40 lakh and ` 10 lakh, respectively. The stamp duty value on the date of
transfer, i.e., 1.8.2019, is ` 85 lakh and ` 20 lakh for the house property and rural agricultural land,
respectively. Determine the tax implications in the hands of Mr. X and Mr. Y and the TDS implications,
if any, in the hands of Mr. Y, assuming that both Mr. X and Mr. Y are resident Indians.
Section 50C + 194-IA + 56(2)(vii)
Solution:
(i) Tax implications in the hands of Mr. X
As per section 50C, the stamp duty value of house property (i.e. ` 85 lakh) would be deemed to be the
full value of consideration arising on transfer of property. Therefore, ` 45 lakh (i.e., ` 85 lakh – ` 40
lakh, being the purchase price) would be taxable as short-term capital gains in the A.Y. 2020-21.
Since rural agricultural land is not a capital asset, the gains arising on sale of such land is not taxable
in the hands of Mr. X.
(ii) Tax implications in the hands of Mr. Y

In case immovable property is received for inadequate consideration, the difference between the
stamp value and actual consideration would be taxable under section 56(2)(x), if such difference
exceeds ` 50,000 or 5% of sales consideration.
Therefore, in this case ` 25 lakh (`

` 85 lakh – ` 60 lakh) would be taxable in the hands of Mr. Y under
section 56(2)(x).
Since agricultural land is not a capital asset, the provisions of section 56(2)(x) are not attracted
in respect of receipt of agricultural land for inadequate consideration, since the definition of
“property” under section 56(2)(x) includes only capital assets specified thereunder.
(iii) TDS implications in the hands of Mr. Y

Since the sale consideration of house property exceeds ` 50 lakh, Mr. Y is required to deduct tax at
source under section 194-IA. The tax to be deducted under section 194-IA would be ` 60,000, being
1% of ` 60 lakh.
TDS provisions under section 194-IA are not attracted in respect of transfer of rural agricultural land.
23. Mr. Sunil sold his house property in Hyderabad as well as his rural agricultural land for a
consideration of ` 70 lakh and ` 20 lakh, respectively, to his friend Mr. Ravi on 1.10.2019. He has
purchased the house property and the land in the year 2017 for ` 45 lakh and ` 12 lakh, respectively.
The stamp duty value on the date of transfer, i.e., 1.10.2019, is ` 78 lakh and ` 22 lakh for the house
property and rural agricultural land, respectively. Determine the tax implications in the hands of Mr.
Sunil and Mr. Ravi and the TDS implications, if any, in the hands of Mr. Ravi, assuming that both Mr.
Sunil and Mr. Ravi are resident Indians.

FINAL DT SATC 5A.12
Solution:
Tax implications on sale of house property and rural agricultural land at a price lower than the stamp duty
value
(i) Tax implications in the hands of Mr. Sunil As per section 50C, the stamp duty value of house property (i.e.
` 78 lakh) would be deemed to be the full value of consideration arising on transfer of property.
Therefore, ` 33 lakh (i.e. ` 78 lakh – ` 45 lakh, being the purchase price) would be taxable as short-term
capital gains in the A.Y. 2020-21. Since rural agricultural land is not a capital asset, the gains arising on sale
of such land is not taxable in the hands of Mr. Sunil.
(ii) Tax implications in the hands of Mr. Ravi In case immovable property is received for inadequate
consideration, the difference between the stamp value and actual consideration would be taxable under
section 56(2)(x), if such difference exceeds ` 50,000 or 5% of sales consideration.
Therefore, in this case ` 8 lakh (`

` 78 lakh – ` 70 lakh) would be taxable in the hands of Mr. Ravi under section
56(2)(x).
Since rural agricultural land is not a capital asset, the provisions of section 56(2)(x) are not attracted
in respect of receipt of rural agricultural land for inadequate consideration, since the definition of
“property” under section 56(2)(x) includes only the capital assets specified thereunder.
(iii) TDS implications in the hands of Mr. Ravi Since the sale consideration of house property exceeds
` 50 lakh, Mr. Ravi is required to deduct tax at source under section 194-IA. The tax to be deducted under
section 194-IA would be ` 70,000, being 1% of ` 70 lakh.
TDS provisions under section 194-IA are not attracted in respect of transfer of rural agricultural land

FINAL DT SATC 6.1
CHARITABLE OR RELIGIOUS TRUSTS

[SECTIONS 11 TO 13]
CHARITABLE PURPOSE – SECTION 2(15)

Section 2(15) states that ‘charitable purpose’ includes
relief of the poor, education, YOGA, medical relief,
preservation of environment (including watersheds, forests and wildlife) and
preservation of monuments or places or objects of artistic or historic interest and
the advancement of any other object of general public utility.
Provided that the advancement of any other object of general public utility shall not be a charitable
purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business,
or any activity of rendering any service in relation to any trade, commerce or business, for a cess or
fee or any other consideration, irrespective of the nature of use or application, or retention, of the
income from such activity, unless:
(i) such activity is undertaken in the course of actual carrying out of such advancement of any
other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed
20% of the total receipts, of the trust or institution undertaking such activity or activities, of
that previous year;
Income from property held for charitable or religious purposes

[SECTION 11(1)]:
The following income shall not be included in the total income of the PY of the person in receipt of the income:
(a) Income derived from property held under trust wholly for charitable and religious purposes to the extent
such income is applied in India for such purpose.
Where any such income is accumulated or set apart for application to such purpose in India, to the
extent to which the income so accumulated or set apart is not in excess of 15% of the income from such
property. . [Section 11(1)(a)]
(b) Income in the form of voluntary contributions made with a specific direction that they shall form part of
the corpus of the trust or institution. [Section 11(1)(d)]
NOTE:
1. Inability to apply in full 85 per cent of the income:
(i) If the whole or any part of the income has not been received during that year, the period of
application is extended to cover the previous year in which the income is actually received and
the previous year immediately following the year.

FINAL DT SATC 6.2
(ii) Due to any other Reason:
The period of application is extended to cover the year immediately following the previous year in
which such income was derived.
Formalities: Exercise of option

To avail the facility of the extended period of application of income, the trust has to exercise an option in
writing that the income applied later as prescribed may be deemed to be income applied to the relevant
charitable purposes during the previous year in which the income was derived. Such option has to be
exercised before the expiry of the time allowed statutorily under section 139(1).
2. The words “Applied to religious or charitable purpose” includes-

Revenue Expenses
Purchase of Capital Assets
Donation to Other Religious or Charitable Trust during the PY
Repayment of loan taken for purchase of capital Assets
Finance Act 2017 (w.e.f AY 2018-19)

Any amount credited or paid, out of trust income, to any other trust or institution registered under section
12AA, being contribution with a specific direction that they shall form part of the corpus of the trust or
institution, shall not be treated as application of income for charitable or religious purposes
Finance Act 2018 (w.e.f AY 2019-20)

For the purposes of determining the amount of application, the provisions of Section 40(a)(ia) and Section
40A(3) & 40A(3A), mutatis mutandis, apply as they apply in computing the income chargeable under the
head "Profits and gains of business or profession".
EXEMPTION IF INCOME ACCUMULATED FOR SPECIFIC

PURPOSE – SECTION 11(2)
Where eighty-five per cent of the income is not applied or is not deemed to have been applied to charitable or
religious purposes in India but is accumulated or set apart either wholly or in part for application to such purposes
in India, such income shall not be included in the total income of the previous year if:
A notice in writing is given to the AO in the prescribed manner specifying the purpose for accumulation
and the period not exceeding 5 years for which the income is to be accumulated or set a part.
SECTION 11(3) - EXEMPTION WITHDRAWN IF INCOME ACCUMULATED FOR SPECIFIC

PURPOSE
Any income referred in section 11(2) above, which-
is not utilized for the purpose for which it is so accumulated or set apart during the 5 year period or in
the year immediately following the expiry thereof , then it shall be deemed to be the income of the
previous year immediately following the expiry of 5 year, or
is donated to any trust registered u/s 12AA or to any specified institutions referred to in section
10(23C), then it shall be deemed to be the income of the previous year in which it is so donated, or
is applied to purposes other than the purpose for which it was accumulated or set apart , then it
shall be deemed to be the income of the previous year in which it is so applied ,or
ceases to remain invested in modes specified in Sec 11(5) ,

then it shall be deemed to be the income of the previous year in which it so ceases.

FINAL DT SATC 6.3
BUSINESS INCOME OF CHARITABLE TRUST
As per Section 11(4A), Income of a charitable trust engaged in business activity will be exempt only if:
(i) such business is incidental to the attainment of the objects of the trust/institution; and
(ii) Separate books of account are maintained by such trust/institution in respect of such business.
Section 11(4) clarifies that the trustees may claim that the income of such undertaking enjoys exemption under
section 11. However, the AO shall have the power to determine the income of the undertaking in accordance
with the provisions of the Act relating to assessment.
Where the income determined by the AO is in excess of that shown in the books of the undertaking, such excess
shall be deemed to be applied to purposes other than charitable or religious purposes and accordingly
chargeable to tax.
No Exemption u/s 10
Section 11 has been amended to provide that where a trust or an institution has been granted registration
for purposes of availing exemption thereunder, and the registration is in force for a previous year, then
such trust or institution cannot claim any exemption under any provision of section 10 [other than
exemption of agricultural income under section 10(1) and exemption available under section 10(23C)].
Section 11(1A) – Capital Gain

where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred
and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so
held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or
religious purposes to the extent specified hereunder, namely:—
(i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such
capital gain;
(ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such
capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of
the transferred asset;
VOLUNTARY CONTRIBUTIONS [Section 12]

Any voluntary contribution received by a trust shall be deemed to be income derived from property held under
trust wholly for charitable or religious purposes.
However, corpus donations (i.e. contributions made with a specific direction that they shall from part of the
corpus of the trust or institution) shall not be treated as income. Such corpus donations are treated as capital
receipts not chargeable to tax.

FINAL DT SATC 6.4
CONDITIONS FOR APPLICABILITY OF SECTIONS 11 & 12 [SECTION 12A]
a) APPLICATION TO COMMISSIONER:
A charitable or religious trust or institution is required to make an application for registration in the
prescribed form and in the prescribed manner to the Principal Commissioner or the Commissioner and
such Trust is registered u/s 12AA.
b) YEAR OF EXEMPTION:
The exemption would be available only with effect from the assessment year relevant to the previous year in
which the application is filed and not of earlier AYs.
Circumstance when exemption would be granted for an earlier assessment year:

Where a trust or institution has been granted registration under section 12AA, the benefit of sections 11 and
12 shall be available in respect of any income derived from property held under trust in any assessment
proceeding for an earlier assessment year which is pending before the Assessing Officer as on the date of
such registration.
Condition for grant of such exemption:
The objects and activities of such trust or institution in the relevant earlier assessment year should be the
same as those on the basis of which such registration has been granted.
c) AUDIT & FURNISHING OF REPORT:

Where the total income of the trust without giving effect to the provisions of section 11 and 12 exceeds
the maximum amount which is not chargeable to income tax in any previous year, the accounts of the trust
must be audited by a chartered accountant and the report of such audit should be furnished along with the
return.
d) Return of Income must be filed u/s 139(4C) within time allowed u/s 139(1). In case of belated return,
exemption will not be available u/s 11 or 12.
PROCEDURE FOR REGISTRATION [SECTION 12AA]

The Principal Commissioner or the Commissioner, on receipt of an application for registration of a trust or
institution made under section 12A shall proceed as follows:
1. VERIFICATION OF DOCUMENTS: He would call for such documents or information from the trust or
institution as he thinks necessary in order to satisfy himself about –
a) the genuineness of activities of the trust or institution and
b) the compliance of such requirements of any other law for the time being in force by the trust or
institution as are material for the purpose of achieving its objects
and may also make such enquiries as he may deem necessary in this behalf.
2. ORDER IN WRITING: After satisfying himself about the objects of the trust or institution and then
genuineness of its activities as required in (1)(a) above and compliance of the requirements under (1)(b)
above, he shall pass an order in writing registering the trust or institution.
3. REASONABLE OPPURTUNITY: A copy of such an order issued shall be sent to the applicant. However,
refusal order shall not be passed unless the applicant has been given a reasonable opportunity of being
heard.
4. ORDER IN 6 MONTHS: Every order granting or refusing registration shall be passed within six months
from the end of the month in which the application for registration of trust or institution is received by the
Principal Commissioner or the Commissioner.
5. CANCELLATION OF REGISTRATION:
Where a trust or an institution has been granted registration, and subsequently it is noticed that its activities
are being carried out in such a manner that,—
(a) its income does not enure for the benefit of general public;
(b) it is for benefit of any particular religious community or caste;
(c) any income or property of the trust is applied for benefit of specified persons like author of trust,
trustees etc.; or
(d) its funds are invested in prohibited modes,
then, the Principal Commissioner or the Commissioner may cancel the registration of such trust or institution.

FINAL DT SATC 6.5
The Commissioner may also cancel the registration of such trust or institution, if it has not
complied with the requirement of any other law and the order, direction or decree, by
whatever name called, holding that such non-compliance has occurred, has either not been
disputed or has attained finality.
However, if the trust or institution proves that there was a reasonable cause for the activities to be carried out
in the above manner, the registration shall not be cancelled.
ANONYMOUS DONATIONS RECEIVED BY CHARITABLE

TRUSTS/INSTITUTIONS TO BE SUBJECT TO TAX [SEC 115BBC]
“Anonymous Donation” means any voluntary contribution where the person receiving such contribution does
not maintain a record of the identity indicating the name and address of the person making such contribution
and such other particulars as may be prescribed.
Anonymous donations shall be taxable at a flat rate of 30% [plus Cess] to the extent such donation exceeds:
(1) 5% of the TOTAL DONATIONS received by the assessee; or

(2) ` 100,000.
whichever is higher.
Exemptions as per Section 11 & 12 as well as Basic Exemptions are not available against the above Anonymous
Donations.
However, in the following cases, the taxability as discussed above will not be applicable:
1. Anonymous Donations received by a trust or institution created or established wholly for religious
purposes.
2. If the trust is substantially financed by CG.
3. In case of partly charitable and partly religious institutions/trusts, if anonymous donation is directed
for religious purpose.
[In case of trust established wholly for charitable purpose, the anonymous donation will always be chargeable
to tax @ 30%]
EXEMPTIONS – HIGHER OF 5% OF TOTAL DONATION OR ` 100,000 .
The total tax payable by such institutions would be –

(1) Tax@30% on anonymous donations exceeding the exemption limit as calculated above; and
(2) Tax on the balance income i.e. total income as reduced by the anonymous donations which have
been subject to tax@30% under section 115BBC.
The following table illustrates the calculation of anonymous donations liable to tax @30% under section
115BBC
Situation Total Anonymous Exemption Anonymous Donations
donations donations (`
`) donations subject to
during the received during taxable@30% tax at
year (``) the year (`
`) (`
`) normal
rates (`
`)
1 15,00,000 4,00,000 1,00,000 3,00,000 12,00,000
2 30,00,000 7,00,000 1,50,000 5,50,000 24,50,000
3 40,00,000 10,00,000 2,00,000 8,00,000 32,00,000

FINAL DT SATC 6.6
Example:
Income from property held under trust is ` 6 lakh. The voluntary contributions received by a trust is Rs.
20 lakh, which includes anonymous donations of ` 4 lakh and corpus donations of ` 5 lakh. The trust has
applied ` 10 lakh to purchase a building on 1.8.2019 for meeting its objective. Compute the tax liability of
the trust for A.Y. 2020-21.
Answer:
Particulars ` `
Income from property held under trust 6,00,000
Voluntary contributions 20,00,000
Less: Corpus donations (not taxable) 5,00,000
15,00,000
Less: Anonymous donations (taxable@30% under section 3,00,000
115BBC) [`
` 4,00,000 – ` 1,00,000]
12,00,000
18,00,000
Less: 15% of income eligible for retention/ accumulation 2,70,000
without conditions 15,30,000
10,00,000
Less: Purchase of building for the purpose of the trust
Total Income (excluding anonymous donations 5,30,000
taxable@30%)
The tax payable by the trust would be the aggregate of –

(i) ` 90,000, being income-tax calculated@30% on ` 3 lakh (i.e., ` 4 lakh – ` 1 lakh); and
(ii) ` 18,500, being income-tax calculated at normal rates on ` 5.30 lakh (i.e., ` 5,30,000).
The total tax payable would be ` 1,11,755 (`
` 1,08,500 plus cess@4%)

FINAL DT SATC 6.7
TAX EXEMPTION TO POLITICAL PARTIES [SEC 13A]

Can a political party claim exemption of its income under section 13A of the Income-tax Act, 1961?
Answer:
Under Section 13A, a political party registered under section 29A of the Representation of the People Act,
1951, can claim exemption under the following heads:
(a) Income from house property,
(b) Capital gains,
(c) Income from other sources &
(d) Income by way of voluntary contributions received by such political party.
These exemptions are subject to the following conditions:-

(i) The political party must keep and maintain such books of account and other documents as would enable
the Assessing Officer to properly deduce its income therefrom.
(ii) The political party should keep and maintain a record of each such voluntary contribution other than
contribution by way of Electoral Bond in excess of ` 20,000 and the names and addresses of such
contributors, the date of receipt and such other details as may be relevant or appropriate.
(iii) No donation exceeding ` 2,000 is received by such political party otherwise than by an account
payee cheque drawn on a bank or an account payee draft or use of electronic clearing system
through a bank account or through such other prescribed electronic mode or through
electoral bond.
(iv) The accounts of the political party must be audited by a chartered accountant.
(v) A report under section 29C(3) of the Representation of People Act, 1951 has to be submitted by the
treasurer of such political party or any other person authorised by the political party in this behalf for
every financial year.
(vi) Return of Income must be filed u/s 139(4B) within time allowed u/s 139(1). In case of belated
return, exemption will not be available u/s 13A.
.
.
EXEMPTION FOR VOLUNTARY CONTRIBUTIONS RECEIVED BY
ELECTORAL TRUSTS [SECTION 13B]
DISTRIBUTION OF 95% OF DONATIONS TO ANY REGISTERED POLITICAL PARTY:
Distribution of any voluntary contribution received by an electoral trust shall be treated as its income
under section 2(24),
but shall be exempt under Section 13B, if the trust distributes to any registered political party during the
year,
95% of the aggregate donations received by it during the year along with the surplus if any,
brought forward from any earlier previous year.

FINAL DT SATC 6.8
CLASS NOTES

FINAL DT SATC 6A.1
CHARITABLE TRUSTS – SET ‘A’
1. Shri Dubbawala Charitable Trust (Regd.) submits the particulars of its income / outgoing for the
Previous Year 2019-20 as below :
`
(i) Income from property held under trust for charitable purposes: 10,00,000
` 2,20,000 out of ` 10,00,000 is received in PY 2020-21)
(`
(ii) Voluntary contributions (out of which ` 50,000 will form part of the corpus) 2,00,000
The trust spends ` 1,77,500 during the Previous Year 2019-20 for charitable purposes. In respect of
` 2,20,000, it has exercised its option to spend it within the permissible time-limit in the year of receipt
or in the year, immediately following the year of receipt.
Compute and discuss the chargeability of the income of the trust for AY 20-21 [CMA Module]
Solution:
(a) Computation of taxable income and tax liability of the charitable trust for the PY 2019-20 / AY 2020-21
Particulars `
(i) Income from property held under trust for charitable purposes 10,00,000
` 2,00,000 - ` 50,000)
(ii) Voluntary contributions (` 1,50,000
11,50,000
Less: 15% set apart for future application 1,72,500
Balance 9,77,500
Less: Amount spent during the Previous Year for charitable purposes 1,77,500
Balance 8,00,000
Less: Income not received during the Previous Year 2019-20 2,20,000
Taxable Income
5,80,000
Tax payable: Rate of tax
2,50,000 Nil Nil
2,50,000 5% 12,500
80,000 20% 16,000
28,500
`)
Tax Payable (` 29,640
2. Shri Mungeri Ram Temple Trust (Regd.) derived ` 6,00,000 income from the property held under
charitable trust during the Previous Year 2019-20. About 40% of the income has been received by the
end of the financial year. The trust could spend ` 60,000 for charitable purposes during the year 2019-
20 and 40% receipts, received by the year end in 2019-20, are being planned to be applied for
charitable purposes during the Previous Year 2020-21. Compute its income for the said two years if
the amount planned to be spent during Previous Year 2020-21 for charitable purposes is ` 1,00,000.
[CMA Module]
Solution:
(a) Computation of Taxable Income of Charitable Trust: PY 2019-20/AY 2020-21
Particulars `
Income from property held under Trust 6,00,000
Less: 15% set apart for future application for charitable purposes 90,000
Balance 5,10,000
Less : Income applied for charitable purposes during the year 2019-20 60,000
Balance 4,50,000
Less: Income realised by the close of the Previous Year—40% of ` 6,00,000 2,40,000
Taxable Income 2,10,000

(b) Previous Year : 2020-21/A.Y. 2021-22
Amount set apart in 2019-2020 to be applied for
Charitable purposes in 2020-21 = 2,40,000
Less: Amount applied for charitable purposes = 1,00,000

FINAL DT SATC 6A.2
3. Shree Ram Charitable Trust registered under section 12AA of the Income-tax Act, 1961 runs a school.
During the year ended 31st March, 2020, it sold one building for a sum of ` 50 lacs. The building was
acquired by the trust at ` 10 lacs in the year 2017-18.
The trust utilized ` 41 lacs out of sale consideration in construction of an additional school building.
Advise the trust on the taxable capital gain. (4 marks, Dec 14)
Answer: As per section 11(1A) of the Income-tax Act, where a capital asset held under trust is transferred
and if only a part of the net consideration is utilised for acquiring the new capital asset, so much of such
capital gain as is equal to the amount, if any by which the amount so utilised exceeds the cost of the
transferred asset shall be considered to have been applied for the objects of the trust and the exemption shall
be restricted to such amount.
In the given case, the amount of capital gain = ` 50 lacs - ` 10 lacs = ` 40 lacs. The amount considered to be
applied for the objects of the trust and exempted under section 11(1A) = ` 41 lacs - ` 10 lacs = ` 31 lacs.
The balance capital gain of ` 9 lacs shall be treated as part of other income. Exemption, however, can also
be claimed by utilizing 85% of the taxable capital gain towards the objects of the trust within the
previous year.
4. During the accounting period ended on March 31st, 2020, a charitable trust derived:
(i) income from property held for charitable purposes : ` 3,00,000 (` ` 1,50,000 received in cash and the
remaining balance of ` 1,50,000 is to be received in the year 2020-21),
(ii) voluntary contribution : ` 2,00,000 with no specific direction, and
(iii) ` 20,00,000 with specific direction that it shall form corpus of the trust.
During the previous year 2019-20, the trust spends only ` 1,40,000 for charitable purposes. Determine
its taxable income on the assumption that the trust has obtained extension of time for applying the
unrealised income of ` 1,50,000 in the year of receipt, i.e., 2019-20 whereas it actually spends `
30,000 in the year 2020-21 and ` 40,000 in the year 2021-22. (Jun -14, Set 1, MTP)
Solution:
Taxable income of the trust will be computed as under:
For the assessment year 2020-21 (previous year 2019-20)
Particular `
Income from property held under trust for charitable purposes 3,00,000
Voluntary contributions with no specific direction 2,00,000
Less: 15% set apart for future 75,000
Balance Less: 4,25,000
Amount spent during the previous year 1,40,000
Shortfall 2,85,000
Less: Amount not realised during the previous year 1,50,000
Taxable income 1,35,000
For the assessment year 2022-23 (previous year 2021-22,i.e., the year next following previous year in which
the unrealised income of the previous year 2019-20 is received):
Particular ` `
Income received during the previous year 2020-21 1,50,000
Less: Amount spend during
Previous year 2020-21 30,000
Previous year 2021-22 40,000 70,000
Taxable income 80,000
Note: Voluntary contributions received with specific direction that they shall form corpus of the trust are not
treated as income of the trust.

FINAL DT SATC 6A.3
5. Swastik Charitable Trust furnishes the following particulars, for the year 2019-20: [S/M] `)
(`
Sale price of capital assets 18,30,000
Expenses incurred in connection with sale of the asset 40,000
Cost of the asset sold (purchased in 2018-19) 6,00,000
Compute Capital Gain in the following cases:
(a) Cost of the new asset to be acquired 18,00,000
(b) Cost of the new asset to be acquired 10,00,000
(c) Cost of the new asset to be acquired 5,00,000
(RTP, Dec 2014)
Solution:
Computation of Capital Gain: PY 2019-20/AY 2020-2021
Particulars Case-l (``) Case-II (``) Case-III (``)
Sale price 18,30,000 18,30,000 18,30,000
Less:
Selling expenses (-) 40,000 (-) 40,000 (-) 40,000
Cost of the asset (-) 6,00,000 (-) 6,00,000 (-) 6,00,000
Short-term Capital Gain 11,90,000 11,90,000 11,90,000

Less: Exemption in respect of Capital Gain 11,90,000 4,00,000* Nil**
`)
Taxable Capital Gain (` Nil 7,90,000 11,90,000
Note : * Cost of new asset - cost of asset sold: 10,00,000 - 6,00,000 = 4,00,000 **Cost of new asset - cost of
asset sold: 5,00,000 - 6,00,000 = Nil
6. Whether repayment of borrowed funds utilised for construction of commercial complex augmenting
income of trust and amounts to application of income for charitable purpose eligible for exemption
under section 11? Your answer should be supported by decided case laws. (RTP, Dec-2013)
Solution:
Director of Income-tax (Exemption) vs. Govindu Naicker Estate (2009) 315 ITR 237 (Mad.)
Relevant Section: 11 During the assessment under section 143(3) of the Act, the Assessing Officer noted
that, the trust had made part repayment of a loan taken from the bank for constructing a multi-storied building.
The Assessing Officer opined that the multi-storied commercial complex was not one of the objects of the
trust and the expenditure incurred for the construction of the building could not be treated as charitable in
nature, that the repayment of loan could not be regarded as application of income towards the charitable
objects of the trust and rejected the claim of the assessee. The Commissioner (Appeals) allowed the
appeal on the ground that the property of the trust was in a dilapidated condition and fresh construction had
to be undertaken by obtaining a loan. The subsequent letting out of the property was connected with the
carrying out of the objects of the trust and hence, the repayment of loan ought to have been treated as eligible
application. The finding of the Commissioner (Appeals) was confirmed by the Tribunal.
The High Court held that the Tribunal was right in holding that the repayment of loan taken from the bank
for construction of commercial complex was application of income for charitable purposes and the assessee-
trust was eligible for exemption under section 11 of the Act. Even though the expenditure incurred is
capital in nature, if the expenditure is incurred for the purpose of promoting the object of the trust, it
could be considered as application of the income for the purpose of the trust. If the application of the
income resulted in the maintenance of the property held under trust for charitable purpose, is for the purpose
of augmenting income in order to pursue the objects of the trust that would amount to application of income
for the purpose of the trust.

FINAL DT SATC 6A.4
7. Can Explanation to Section 11(2) be applied in respect of the accumulation up to 15% referred to in
section 11(1)(a), to treat the donation made to another charitable trust from the permissible
accumulation up to 15% as income of the trust? (RTP, June-2013)
Solution:
DIT (Exemption) vs. Bagri Foundation (2012) 344 ITR 193 (Delhi)
The assessee is a charitable trust registered under section 12AA and recognized under section 80G. The
assessee filed the return of income for the previous year declaring nil income. On perusal of the application of
income made during the year, it was found that donation to the corpus of another trust was made which was
much higher than the gross total income declared in the return of income. The source of the excess donation
was the accumulation of income of the past made under section 11(1)(a) (i.e., out of permissible accumulation
up to 15%) and encashment made out of these accumulations/funds.
The Assessing Officer added the donation made out of the accumulations or the set apart income, applying
the Explanation to section 11(2) and accordingly, computed taxable income of the assessee.
Considering the above mentioned issue, the Delhi High Court held that, as per the provisions of section
11(1)(a), the accumulations up to 15% is permitted and no additional conditions are attached with such
accumulation. It is an absolute exemption.
However, as per section 11(2) accumulations in excess of 15% is also allowed but subject to certain
conditions mentioned therein and also subject to provisions of Explanation to section 11(2), which mentions
that the amount accumulated in excess of 15% under section 11(2) cannot be donated to another trust. Such
an explanation is not mentioned under section 11(1). Therefore, the Explanation to section 11(2) cannot
be said to be applicable to the accumulations under section 11(1)(a) i.e. accumulations up to 15%, unless
there is an express mention in the Act for the same.
Therefore, it follows that even if the donations by the assessee to another charitable trust were out of
past accumulations under section 11(1)(a) i.e. up to 15%., the same would not be liable to be included
in the total income as assessed by the Assessing Officer.
8. State the conditions for claiming exemption u/s 11 (RTP, Dec-2012)
Answer: The conditions for claiming exemption u/s 11 are:

(i) Registration of the trust must be made with the Principal Commissioner / Commissioner of Income tax;
(ii) The activities of the charitable trust should be confined within India;
(iii) Not less than 85% of such income shall be applied for charitable purposes within the previous year. It can
be accumulated for a period of 5 years;
(iv) If the total income before claiming exemption exceeds the maximum amount not chargeable to tax, the
accounts should be audited;
(v) Unapplied income should be invested in specified deposits. Corpus donations are not considered as
income but as capital receipt;
(vi) Agricultural income will not form part of total income for the purpose of computing application of 85% as
laid down u/s 11.
9. Devdas Charitable Trust submits the particulars of its receipts and outgoing during the previous year
2019-20 as below : `
(i) Income from property held under trust for charitable purposes 20,00,000
(ii) Voluntary contribution (out of which ` 5,00,000 will form part 15,00,000
of the corpus)
(i) Donations paid to blind charitable school 6,00,000
(ii) Scholarship paid to poor students 4,00,000
(iii) Amount spent on holding free eye camps in urban slums 3,00,000
(iv) Amount set apart for setting up an old age home 10,00,000
Compute the total income of the trust for the previous year’s 2019-20 and 2025-26 if it spends
` 5,00,000 during the previous year upto 2024-25 and ` 3,00,000 during the previous year 2025-26 in
setting up the old age home. (RTP, Dec-2012)

FINAL DT SATC 6A.5
Solution:
(a) Computation of the Taxable Income of the trust for previous year 2019-20
Particulars `
(i) Income from property held under charitable trust 20,00,000
(ii) Income from voluntary contributions (`` 15,00,000 - `5,00,000) 10,00,000
Total 30,00,000
Less : 15% set apart for future application 4,50,000
Balance 25,50,000
Less: Income applied for charitable purposes:
(i) Donations to blind charitable school 6,00,000
(ii) Scholarship to poor students 4,00,000
(iii) Free eye camps in urban slums 3,00,000
Total 13,00,000
Amount set apart for old age home 10,00,000 23,00,000
`)
Taxable Income (` 2,50,000
(b) Previous year 2025-26

Amount set apart for old age home 10,00,000
Less: 1. Amount spent upto 2024-25 3,00,000
2. Amount spent during 2025-26 5,00,000
10. During the previous year 2019-20, a charitable trust gets the following income:
`
a) Voluntary contributions 12,90,000
(with specific direction that they shall form part of the corpus of the trust)
b) Voluntary contributions (without any specific direction) 18,30,000
c) Income from property held in trust 8,66,000
During the previous year 2019-20, the trust spends ` 8,90,000 for charitable purpose in India. Besides, it
gives donation of ` 85,480 to public charitable trusts. It sets apart ` 14,00,000 for the purpose of construction
of a charitable hospital up to March 31, 2025.
Determine the taxable income of the trust on the assumption that the trust utilises ` 8,70,000 up to
March 31, 2026 for the purpose of completing construction of a charitable hospital. Besides, out of the
accumulated amount, the trust gives a donation of ` 1,00,000 to another charitable trust.
11. The books of account maintained by a National Political Party registered under Representation of the
People Act, for the year ended on 31.3.2020 disclose the following receipt:
`)
(`
(a) Rent of property let out to a departmental store at Chennai 17,00,000
(b) Interest on deposits other than banks 18,00,000
(c) Contributions of ` 22,000 each from 50 persons (who have secreted their names) 11,00,000
(d) Contribution @ ` 220 each from 5,000 members 11,00,000
(e) Net Profit of cafeteria run in the premises at Delhi 13,00,000
Compute the total income of the political party with reasons for inclusion or
otherwise. ` 24,00,000]
[`

FINAL DT SATC 6A.6
12. An institution having its main object as “advancement of general public utility” received ` 30 lakhs in
aggregate during the P.Y. 2019-20 from an activity in the nature of trade. The total receipts of the
institution, including donations, was ` 140 lakhs. It applied 85% of its total receipts from such activity
during the same year for its main object i.e. advancement of general public utility.
i. What would be the tax consequence of such receipt and application thereof by the
institution?
ii. Would your answer be different if the institution’s total receipts had been ` 150 lakhs (instead
of ` 140 lakhs) in aggregate during the P.Y. 2019-20?
What would be your answer if the main object of the institution is “relief of the poor” and the
institution receives ` 30 lakhs from a trading activity, when its total receipts are ` 140 lakhs and
applies 85% of the said receipts for its main object?
Solution:
i. As the main object of the institution is “advancement of object of general public utility”, the institution
will lose its “charitable” status for the P.Y. 2019-20, since it has received ` 30 lakhs from an activity in
the nature of trade, which exceeds ` 28 lakhs, being 20% of the total receipts of the institution
undertaking that activity for the previous year. The application of 85% of such receipt for its main
object during the year would not help in retaining its “charitable” status for that year. The institution
will lose its charitable status and consequently, the benefit of exemption of income for the P.Y. 2019-
20, irrespective of the fact that its approval is not withdrawn or its registration is not cancelled.
ii. If the total receipts of the institution is ` 150 lakhs, and the institution receives ` 30 lakhs in
aggregate from an activity in the nature of trade during the P.Y. 2019-20, then it will not lose its
“charitable status” since receipt of upto 20% of the total receipts of the institution undertaking in a
year from such activity is permissible. The institution can claim exemption subject to fulfillment of
other conditions under sections 11 to 13. Further, such activity should also be undertaken in the
course of actual carrying out of such advancement of any other object of general public utility.
iii. The restriction regarding carrying on of a trading activity for a cess, fee or other consideration will not
apply if the main object of the institution is “relief of the poor”. Therefore, receipt of ` 30 lakhs from a
trading activity by such an institution will not affect its “charitable status”, even if it exceeds 20% of
the total receipts of the institution. The institution can claim exemption subject to fulfillment of other
conditions under sections 11 to 13.
13. NEW QUESTION:

(a) Help All charitable trust, having its main object as relief of poor, earned agricultural income of
` 2.80 lakh, dividend income of ` 1.10 lakh and income of ` 1.30 lakh from mutual funds specified
under section 10(23D) during the P.Y. 2019-20.
The trust claims exemption under section 10(1), 10(34) and 10(35) in respect of its agricultural
income, dividend income and income from mutual funds, respectively, without complying with the
conditions laid down under section 11. Examine the correctness or otherwise of the claim of the
trust.
(b) Histo Space charitable trust, having its main object as preservation of monuments of historic
interest, purchased computers for ` 12 lakh in March, 2019 for the purposes of the trust and
claimed the same as application of income in the P.Y. 2018-19. It also claims depreciation @ 40%
on such computers for P.Y. 2019-20, while computing income for the purpose of application for
that year. Examine the correctness or otherwise of the claim of the trust.
Solution:
(a) Section 11(7) provides that where a trust has been granted registration under section 12AA and the
registration is in force for a previous year, then, such trust cannot claim any exemption under any
provision of section 10 [other than exemption of agricultural income under section 10(1) and exemption
available under section 10(23C)].

FINAL DT SATC 6A.7
Therefore, a charitable trust cannot claim exemption under section 10(35) in respect of income from
mutual funds and exemption under section 10(34) in respect of dividends, since it has voluntarily opted for
the special dispensation under sections 11 to 13, and consequently has to be governed by the provisions
of these sections.
Accordingly, it has to apply 85% of such income for charitable purposes to claim exemption under section
11. However, it can claim exemption under section 10(1) in respect of agricultural income, since section
11(7) provides an exception in respect of such income.
Therefore, the claim of Help All charitable trust, as regards exemption under section 10(34) and section
10(35), is not correct.
(b) Section 11(6) provides that income for the purposes of application shall be determined without allowing
any deduction for depreciation or otherwise in respect of any asset, the cost of acquisition of which has
been claimed as an application of income under section 11 in the same or any other previous year.
Accordingly, in this case, since the cost of computers (i.e., ` 12 lakh) has been claimed and allowed as
application of income under section 11 while computing the income of the trust for the P.Y. 2018-19,
depreciation on computers will not be allowed for the purpose of determining income for the purposes of
application in the P.Y. 2019-20.
Therefore, the depreciation claim made by Histo Space charitable trust is not correct.

FINAL DT SATC 6A.8
Class Notes

FINAL DT SATC 6B.1
CHARITABLE TRUSTS – SET ‘B’
1. “Charitable trusts and institutions registered under section 12AA, cannot claim exemption under any
of the clauses of Section 10”. Discuss the correctness of this statement.
Answer
The statement is partially correct.
Where a trust or institution has been granted registration under section 12AA and the registration is in force
for a previous year, then, such trust or institution can still claim exemption of agricultural income under section
10(1) as well as exemption available under section 10(23C).
Therefore, the statement that such trust or institution cannot claim exemption under any of the clauses of
section 10 is not fully correct, since it can still claim exemption under section 10(1) and under section
10(23C).
2. An electoral trust approved by the CBDT is not liable to income-tax in respect of voluntary
contribution received and other income - Discuss the correctness of the statement.
Answer
Section 13B provides exemption in respect of voluntary contribution received by an electoral trust approved
by the CBDT in accordance with the scheme to be made by the Central Government.
Voluntary contribution received by an electoral trust would be treated as its income under section 2(24), but
shall be exempt under section 13B if the trust distributes to a registered political party during the year, 95% of
the aggregate donations received by it during the year a long with surplus brought forward from any earlier
years. Another condition for availing the benefit under this section is that the electoral trust should function in
accordance with the rules framed by the Central Government.
It may be noted that the exemption under section 13B will be available only in respect of voluntary contribution
received by an electoral trust. The exemption cannot be claimed in respect of any other income of the
electoral trust. Therefore, the given statement is not correct.
3. The books of account maintained by a National Political Party registered with Election Commission
for the year ended on 31.3.2020 disclose the following receipts:
(a) Rent of property let out to a departmental store at Chennai ` 6,00,000
(b) Interest on deposits other than banks ` 5,00,000
(c) Contributions from 100 persons (who have secreted their names) of ` 11,000 each ` 11,00,000
(d) Contribution @ ` 11 each from 1,00,000 members by cheque
(recorded in books of account) ` 11,00,000
(e) Net profit of cafeteria run in the premises at Delhi ` 3,00,000
Compute the total income of the political party for the assessment year 2020-21, with reasons for
inclusion or otherwise.
Answer
The total income of a political party registered with the Election Commission is to be computed as per section
13A under which the income derived from house property, income from other sources and income by way of
voluntary contributions received from any person, on fulfilling of the conditions as mentioned there under are
exempt from tax.
In this case assuming that the National Political Party fulfills all the conditions mentioned thereunder, the
income is computed as under:
Computation of total income of National Political Party

Particulars `
(a) The rent of the property of ` 6 lacs located at Chennai Nil
(b) The interest received on deposits of ` 5 lacs Nil
(c) The contributions given by 100 persons of ` 11,000 each by secreting
their identities (See Note below) Nil
(d) The contribution of ` 11 each given by its members being recorded in
the books Nil
(e) Net profit of cafeteria at Delhi 3,00,000
FINAL DT SATC 6B.2
Note: In respect of each voluntary contribution in excess of ` 20,000, exemption would be available only if the
political party keeps and maintains a record of such contribution and the name and address of the person who
has made such contribution. However, in this case, this provision is not attracted since the contribution given
by each person is less than ` 20,000.
4. Explain in the context of provisions of the Act, whether the income derived during the year ended on
31.03.2020 in following case shall be subject to tax in the A.Y. 2020-21:
A political party, duly registered under section 29A of the Representation of the People Act, 1951,
received rent of ` 1,25,000 per month of one of its building let out to a bank from 01.06.2019.
Answer
Rent received by the political party from the bank is an income chargeable under the head "Income from
house property". However, according to the provisions of section 13A, income from, inter alia, house property
shall not be included in total income of a political party registered under section 29A of the Representation of
the People Act, 1951, provided the political party fulfills the conditions as specified therein.
Therefore, rent of ` 1,25,000 received by the registered political party from letting out of its building to a bank
would not be included in its total income.
5. Hundi (charitable box) superscribing “contributions in this hundi form part of corpus of trust fund”
kept at Lord Venkateshwara Temple, Tirumala, was opened on 30.3.2020. Cash of ` 100 lacs and
valuable articles worth ` 250 lacs were found to have been contributed by the devotees.
Answer
As per section 11(1)(d), income in the form of voluntary contributions made with a specific direction that they
shall form part of the corpus of the trust or institution shall not be included in the total income of the recipient.
In the given case, there is a specific declaration by the temple authorities that the contributions being put in
the hundi (charity box) would form part of the corpus of the trust fund.
Therefore, it is possible to take a view that those who put the contributions in the hundi give a tacit declaration
that the contributions would form part of the corpus. Hence, a view can be taken that such contributions shall
not be included in the total income of the recipient trust.
Further, it may be noted that the provision relating to taxability of anonymous donations under section
115BBC does not apply to voluntary contributions received by a trust or institution created or established
wholly for religious purposes.
6. MSO Foundation, a charitable institution set up on 1st April, 2019 and registered under section 12AA
with effect from that date, is engaged in providing education in hotel management. The organisation
acquires a building for using the same for holding classes and office activities. It has approached you
for your opinion on its eligibility to claim the cost of the building and also depreciation thereon in the
current year and the subsequent year. Advise the institution indicating the reasons.
Answer
(i) 15% of income from property held for charitable purposes is exempt from tax under section 11. The
remaining 85% of such “income” would be exempt if it is “applied” for charitable purposes in India.
(ii) Application of the amount can be for revenue or capital purposes. As long as the expenditure is incurred
out of income earned by the trust and for the purposes of carrying on the objects of the trust, it would be
treated as application of income even if such expenditure is for capital purposes.
Therefore, since the building is acquired by the organization for holding classes and office activities, which
is for the purposes of carrying on the objects of the charitable institution i.e., for providing education in
hotel management, the cost of the building would be treated as application of income.
However, Section 11 provides that where the cost of building is claimed as application, no other deduction
for depreciation or otherwise would be allowed as an application of income in respect of such asset for the
same or any other previous year.

FINAL DT SATC 6B.3
7. "Capital expenditure cannot be said to be application of income by a trust under section 11(1)(a) of
the Income-tax Act, 1961." Examine the validity of this statement.
Answer
This statement is not valid, since, if the income is applied for the purchase of a capital asset for the purposes
of the trust, it would still constitute application of income for charitable purpose. If an assessee invests in
construction of a building so as to augment its resources for fulfilling the objectives of the institution, the same
would be considered as application for charitable purpose. Similarly, repayment of loan taken for construction
of a building or construction of a commercial complex so as to augment the resources of the trust would also
amount to application of income for charitable purposes.
However, where the cost of such assets is claimed as application, no other deduction for depreciation or
otherwise would be allowed as an application of income in respect of such asset for the same or any other
previous year.
8. Bharat Charitable Trust created on 1.1.2018 applied for registration of trust under section 12A of the
Income-tax Act, 1961 before the Commissioner of Income-tax on 1.7.2019.
(i) Explain with reasons the period for which the trust is eligible to get exemption under section 11
and 12 of the Income-tax Act, 1961.
(ii) Can the exemption under sections 11 and 12 for A.Y. 2020-21 be denied if the trust is holding
investments in equity shares of a public sector company since 01.07.2019?
(iii) The Trust has also applied for granting exemption under section 80G of the Income-tax Act, 1961.
However, the approval for the same has been rejected by the Commissioner of Income-tax under
section 80G(5)(vi) of the Income-tax Act on 30.9.2019. The Trust seeks your advice on whether it
can file an appeal against the said rejection before the higher authorities.
Answer
(i) As per section 12A, in respect of applications filed on or after 1st June, 2007, the provisions of sections
11 and 12 shall apply in relation to the income of the trust from the assessment year relevant to the
financial year in which the application is made i.e. the exemption would be available only with effect from
the assessment year relevant to the previous year in which the application is filed.
However, where registration has been granted to the trust under section 12AA, then the benefit of
sections 11 and 12 shall apply in respect of income of the trust for the earlier assessment years, if the
assessment proceedings of such earlier assessment years are pending before the Assessing Officer on
the date of registration. The objects and activities of such trust in the relevant earlier assessment years
should be the same as those on the basis of which such registration has been granted.
Hence, Bharat Charitable Trust shall be eligible to get exemption under sections 11 and12 with effect from
the financial year in which the application is made i.e., P.Y. 2019-20 onwards. If assessment proceedings
are pending for assessment year 2018-19 and A.Y. 2019-20, the benefit of section 11 and 12 shall apply
for such assessment years, provided the objects and activities of the trust remain unchanged.
(ii) A trust registered under section 12AA cannot be denied exemption for holding shares in a public sector
company in view of section 13(1)(d)(iii), which provides for denial of exemption to a trust holding shares in
a company, other than, inter alia, shares in a public sector company. Hence, the exemption under
section 11 and 12 cannot be denied to the trust for holding investments in equity shares of a
public sector company.
(iii) Section 253 provides that an appeal can be filed before the Appellate Tribunal against an order passed by
the Principal Commissioner or Commissioner under section 80G(5)(vi) rejecting the application of such
trusts for the purpose of recognition under section 80G.Therefore, the trust can file an appeal before
Appellate Tribunal against the said rejection.
9. Help All, a trust created on 1st January, 2020 for providing relief to the poor, applied for registration
under section 12A on 1st March, 2020. On that date, its corpus fund comprised only of the initial
contribution made by the trustees. The Commissioner denied registration solely on the ground that
the trust had not commenced any charitable activity, due to which he could not satisfy himself about
the genuineness of the trust. Is the ground for denial of registration by the Commissioner justified in
this case? Discuss.

FINAL DT SATC 6B.4
Answer
The Karnataka High Court, in DIT (Exemptions) v. Meenakshi Amma Endowment Trust (2013) 354 ITR 219,
opined that an application under section 12A for registration of the trust can be sought even within a week of
its formation. The activities carried on by the trust are to be seen in a case where the registration is sought
much later after formation of the trust.
The High Court further observed that the corpus fund included contribution made by the trustees only, which
indicated that the trustees were contributing the funds by themselves in a humble way and were intending to
commence charitable activities. The assessee-trust had not also collected any donation for the activities of the
trust, by the time its application came up for consideration before them. When the application for registration
was made, the trust, therefore, did not have sufficient funds for commencement of its activities.
The High Court observed that, with the money available with the trust, it cannot be expected to carry out
activity of charity immediately. Consequently, in such a case, it cannot be concluded that the trust has not
intended to do any activity of charity. In such a situation, where application is made shortly after formation of
the trust, the objects of the trust as mentioned in the trust deed have to be taken into consideration by the
authorities for satisfying themselves about the genuineness of the trust and not the activities carried on by it.
Later on, if it is found from the subsequent returns filed by the trust, that it is not carrying on any charitable
activity, it would be open to the concerned authorities to withdraw the registration granted or cancel the
registration as per the provisions of section 12AA(3).
Applying the rationale of the above ruling, the Commissioner cannot deny registration solely on the ground
that the trust had not commenced any charitable activity in this case, since the trust has applied for
registration under section 12A within two months after its formation and the corpus fund comprised only of
contribution made by the trustees. The Commissioner has to take into consideration the objects of the trust as
mentioned in the trust deed to satisfy itself about the genuineness of the trust.
10. A charitable trust registered under Section 12AA of the Income-tax Act, 1961 has, out of its income of
` 3,90,000 for the year ending 31.3.2020 and sale proceeds of a capital asset, held by it for less than 36
months, amounting to ` 9,60,000, purchased a building during the year ending 31.3.2020 for
` 13,50,000. The capital asset was sold during the year ending 31.3.2020. The building is held only for
charitable purposes. The trust claims that the purchase of the building amounts to application of its
income for charitable purposes and that the capital gain arising on the sale of the capital asset is
deemed to have been applied to charitable purposes. Is the claim made by the charitable trust valid in
law?
Answer
Section 11(1)(a) stipulates that in order to avail exemption of income derived from property held under trust
wholly for charitable or religious purposes, the trust is required to apply for charitable or religious purposes,
85% of its income from such property. In this case, the trust has earned income of ` 3,90,000 for the year
ended 31.3.2020. It has also earned short term capital gain from sale of capital asset for ` 9,60,000. The trust
had utilized the entire amount of ` 13,50,000 for the purchase of a building meant for charitable purposes.
The Supreme Court in S.RM. M. CT. M. Tiruppani Trust v. CIT (1998) 230 ITR 636 ruled that the assessee-
trust, which applied its income for charitable purposes by purchasing a building for use as a hospital, was
entitled to exemption under section 11(1) in respect of such income.
The ratio of the decision squarely applies to the case of the charitable trust in question. Therefore, the
charitable trust is justified in claiming that the purchase of the building amounted to application of its income
for charitable purposes.
Under section 11(1A), where the whole of the sale proceeds of a capital asset held by a charitable trust is
utilised by it for acquiring another capital asset, the capital gain arising there from is deemed to have been
applied to charitable purposes and would be exempt.
Section 11(1A) does not make any distinction between a long-term capital asset and a short term capital
asset. The claim of the charitable trust to the effect that the capital gain is deemed to have been applied to
charitable purposes is tenable in law.

FINAL DT SATC 6B.5
11. How do you deal with the following situation? Give reasons for your answer.
Ramji Charitable Trust has filed return of income for the Assessment Year 2020-21 within the
stipulated time under section 139(1) and applied only 50% of its income to specified purposes. It
intends to accumulate the balance 35% of income to be spent in future years. While completing the
assessment, the Assessing Officer disallowed the accumulated income of 35% and taxed the same on
the ground that the trust has not made any application under Section 11(2) along with return of
income or even before the completion of assessment. Discuss the validity of the action of the
Assessing Officer in this case.
Answer
Section 11(2) provides that a charitable trust has to apply 85% of its income to charitable or religious
purposes and where 85% of its income is not applied in the aforesaid manner, the trust may accumulate or
set apart either the whole or part of its income for future application for such purposes in India. The
requirement of the Act is that the trust has to make an application/intimation in the prescribed form, for
accumulation of income, specifying the purpose and the period (not exceeding 5 years). The application
should be filed or furnished before the assessing authority on or before the due date specified under section
139(1). Further, the money so set apart or accumulated should be invested/deposited in any one or more of
modes or forms specified under section 11(5).
This requirement of filing application is mandatory and without those particulars, the assessing authority
cannot entertain the claim of the assessee under section 11. Further, any claim forgiving benefit of section 11
on the basis of information supplied subsequent to the completion of assessment would mean that the
assessment order will have to be reopened. The Act does not contemplate such reopening of the
assessment. Hence, furnishing of application for accumulation after completion of assessment cannot be
accepted.
Therefore, the action of the Assessing Officer is correct.
12. Work out, from the following particulars, the amount of capital gain which shall be deemed to have
been applied for charitable or religious purpose arising out of sale of a capital asset utilized for the
purposes of trust to the extent of 60%:
Particulars `
Cost of transferred asset 2,40,000
Sale consideration 3,60,000
Cost of new asset purchased 3,00,000
Answer
In this case, since the asset which is transferred is utilized for the purposes of the trust only to the extent of
60%, only the proportionate amount (i.e. 60%) of the capital gain would be regarded as having been applied
for charitable or religious purposes.
As per section 11(1A), where a capital asset held under trust is transferred, and only a part of the net
consideration is utilized for acquiring a new capital asset, only so much of the capital gain as is equal to the
amount, if any, by which the amount so utilized exceeds the cost of the transferred asset shall be considered
to have been applied for the objects of the trust.
In this case, only a part of the net consideration of ` 3,60,000 is utilized for acquiring the new capital asset
costing ` 3,00,000. The amount utilized in acquiring the new asset (i.e. ` 3,00,000) exceeds the cost of the
transferred asset (i.e. ` 2,40,000) by ` 60,000.
Therefore, only 60% of (` 3,00,000 – ` 2,40,000) = 60% of ` 60,000 = ` 36,000 is deemed to be applied for
the objects of the trust.
13. The following trusts claim that anonymous donations received by them during the financial year 2019-
20 are not liable to tax under section 115BBC:
(i) A charitable trust referred to in section 11 which applied the entire amount of anonymous
donations for purposes of the trust during the relevant financial year.
(ii) A trust established wholly for religious purposes which applied 75% of the amount of anonymous
donations for the purposes of the objects of the trust during the relevant financial year.
Examine the validity of the claim made by the trusts.

FINAL DT SATC 6B.6
Answer
(i) Section 115BBC provides for levy of tax @ 30% on anonymous donation received by, inter alia, charitable
trusts or institutions referred to in section 11 in the following manner:
(i) the amount of income-tax calculated @30% on the aggregate of anonymous donations received in
excess of 5% of the total donations received by the assessee or one lakh rupees, whichever is higher;
and
(ii) the amount of income-tax with which the assessee would have been chargeable had his total income
been reduced by the aggregate of the anonymous donations received in excess of 5% of the total
donations received by the assessee or ` 1 lakh, as the case may be.
Further, section 13(7) provides that the exemption provisions contained in sections 11 and 12 shall
not be applicable in respect of any anonymous donation liable to tax under section 115BBC. As such,
application of the anonymous donations received by the charitable trust for charitable purposes does
not confer any exemption from tax. Therefore, the claim for non-taxability under section 115BBC of
anonymous donations received by the charitable trust is not valid in law.
However, a view may be taken that anonymous donation upto higher of 5% of total donations or 1
lakh, which is taxable at normal rates would be eligible for application of income and thereby, the
benefit of exemption under section 11 would apply.
(ii) Section 115BBC(2) provides that the provisions contained in section 115BBC(1) relating to the taxability
of anonymous donations are not applicable to any trust or institution created or established wholly for
religious purposes. As such, the trust established wholly for religious purposes is not liable to be taxed in
respect of the anonymous donations received by it.
Therefore, the claim made by the trust is valid in law. The application or non-application of such
anonymous donation for the purposes of trust during the relevant financial year is not germane to the
issue of taxability under section 115BBC.
14. An institution operating for promotion of education claiming exemption under section 11 since
1994 furnishes the following data for the assessment year 2020-21:
S. No. Particulars ` in crores
(i) Fees collected from students 14
(ii) Expenses incurred to run the institution 4
(iii) Land acquired to be used as a cricket field for the students 2
(iv) Amount earmarked and set apart for construction of an arts
block within the next 4 years. 4
Compute the total income of the institution for the A.Y. 2020-21.
Answer
Computation of total income of the institution for the A.Y. 2020-21
Particulars ` (in crores)
Fees received 14.00
Less : Expenses incurred to earn the income 4.00
10.00
Less : 15% (exempt even if not spent for the objects of the institution) 1.50
8.50
Less : Accumulated for specified purpose (See Note 1) 4.00
Balance to be spent 4.50
Actual amount spent on purchase of land for cricket field (See Note 2) 2.00
Total income 2.50
Notes –
1. Section 11(2) provides that a trust/institution can accumulate or set apart its income for a specified
purpose by furnishing statement in prescribed format to the concerned Assessing Officer. However, the
period for which the funds can be accumulated cannot exceed 5 years. The amount so accumulated
should be invested in the specified forms and modes.
In this case, the institution has to furnish statement in Form 10 on or before the due date of filing return of
income to the Assessing Officer, stating the purpose for which the income is being accumulated or set
apart and the period for which the income is being accumulated or set apart, which shall, in no case,
exceed five years.

FINAL DT SATC 6B.7
Further, the institution has to invest ` 4 crore in the specified forms and modes.
2. The institution must utilise 85% of its income within the previous year for the objects of the institution. The
institution can apply its income either for revenue expenditure or for capital expenditure provided the
expenditure is incurred for promoting the objects of the institution.
Land acquired and meant for use as cricket field for students is a capital expenditure incurred for
promoting the objects of the institution and hence eligible for deduction.
15. A public charitable trust registered under Section 12AA, for the previous year ending 31.3.2020,
derived gross income of ` 21 Lacs, which consists of the following: (`
` in Lacs)
(a) Income from properties held by trust (net) 10
(b) Income (net) from business (incidental to main objects) 4
(c) Voluntary contributions from public 7
The trust applied a sum of ` 11.60 lacs towards charitable purposes during the year which includes
repayment of loan taken for construction of orphanage ` 3.60 lacs. Determine the taxable income of
the trust for the assessment year 2020-21.
Answer
Computation of taxable income of public charitable trust
Particulars `
(i) Income from property held under trust (net) 10,00,000
(ii) Income (net) from business (incidental to main objects) 4,00,000
(iii) Voluntary contributions from public 7,00,000
Voluntary contribution made with a specific direction towards corpus are
alone to be excluded under section 11(1)(d). In this case, there is no
such direction and hence, included. ----------------
21,00,000
Less: 15% of the income eligible for retention / accumulation without any
Conditions 3,15,000
17,85,000
Less: Amount applied for the objects of the trust
(i) Amount spent for charitable purposes (` 11,60,000 - ` 3,60,000) 8,00,000
(ii) Repayment of loan for construction of orphan home 3,60,000
16. Gangaram Public Charitable Trust runs a hospital. The gross receipts from its operational activities is
` 250 Lacs and expenses incurred are ` 55 Lacs. Out of income of ` 250 Lacs, the amount accrued but
not received as on 31-03-2020 is ` 20 Lacs. The institution earmarked and set apart ` 30 Lacs in
March, 2020 to give as advance for a building intended to be taken on lease for expansion of the
hospital, but the amount was paid on 7th April, 2020, as the lease agreement could not be signed by
31st March, 2020. The trust has got an ERP package developed and installed by an IT company during
the year. The total cost to the trust on account of the ERP package was ` 85 Lacs.
Advise the trust on its total income, if the trust has incurred ` 12 Lacs for purchase of a number of
desktop and laptop computers for use in the hospital.
Answer
The total income of the trust for the A.Y. 2020-21 is computed hereunder:
Particulars ` (in Lacs)

Gross receipts from Trust 250.00
Less: Expenses incurred thereto 55.00
Income derived from property held under trust 195.00
Less: 15% eligible for blanket exemption without any conditions (15% of ` 195 Lacs) 29.25
165.75
Less: Income not received during the year, which can be spent in
the year of receipt or in the immediately following year 20.00
145.75
Less: Non-application of income due to delay in signing lease
agreement [The amount was applied on 7th April in the
immediately following year – Option to be exercised in writing
before the expiry of the time allowed under section 139(1) for

FINAL DT SATC 6B.8
furnishing the return of income] 30.00
Amount to be applied for the objects of the trust by 31.3.2020 115.75

Less: Amount applied for the objects of the trust
(i) For development and installation of ERP package for the purpose of the trust 85.00
(ii) For purchase of desktop and laptop computers for the purposes of the trust 12.00
Taxable Income 18.75
Notes:
(i) Where the cost of assets is claimed as application, no other deduction for depreciation or otherwise would
be allowed as an application of income in respect of such asset for the same or any other previous year.
(ii) If the income applied to charitable purposes in India falls short of 85% of the income derived during the
year from property held under trust for the reason that the whole or any part of its income has not been
received during that year, then such income, at the option of the person in receipt of income, can be
applied during the previous year in which the income is received or in the immediately following previous
year. The option is to be exercised in writing before expiry of the time allowed under section 139(1) for
filing return of income.
(iii) The word "applied" used in section 11 means that the income is actually applied for the charitable
purposes of the trust. The word "applied" does not necessarily imply "spent". Even if a certain amount is
irretrievably earmarked and allocated for charitable purposes, the said amount can be deemed to
have been applied for charitable purposes.
(iv) The cost of getting an ERP package developed and installed is a capital expenditure. A charitable trust
can apply its income either for revenue expenditure or for capital expenditure provided the expenditure is
incurred for promoting the objects of the trust. Purchase of a fixed asset to be utilised for the purpose of
the trust amounts to application of income for charitable purposes as held by the Supreme Court in
S.RM.M.CT.M. Tiruppani Trust vs. CIT.
17. A public charitable trust, created under a trust deed for providing relief to disabled persons,
registered under section 12AA, furnishes the following particulars of its receipts during the year
ended 31st March, 2020 -
Particulars ` (in Lacs)

(i) Income from properties held by trust (net) 20
(ii) Income (net) from business (incidental to main objects) 17
(iii) Voluntary contributions from public (including the corpus donation of ` 5 Lacs) 11
The trust applied ` 20 lacs towards various activities and programmes undertaken for the benefit of
autistic persons during the year. The trust has also paid ` 10 lacs towards repayment of a loan taken a
year back for the purpose of construction of its centre for training the disabled persons in various
handicraft works.
Determine the tax liability, if any, of the trust for the assessment year 2020-21.
Answer
Computation of total income of the trust for the A.Y. 2020-21
Particulars `. `.
Income from properties held by trust 20,00,000
Income from business incidental to the main objects of the trust 17,00,000
Voluntary Contribution other than corpus donation (Note 1) 6,00,000 43,00,000
Less: 15% of income accumulated or set apart under section 11(1)(a) 6,45,000
36,55,000
Less: Amount applied for charitable purposes
Activities and programmes for the benefit of autistic persons 20,00,000
Repayment of loan taken for construction of training centre (Note 2) 10,00,000 30,00,000

FINAL DT SATC 6B.9
Computation of tax liability of the trust for the A.Y. 2020-21
Particulars `. `.
Upto ` 2,50,000 Nil
` 2,50,000 – ` 5,00,000 12,500
` 5,00,000 – ` 6,55,000 31,000 43,500
Add: Health & Education cess @ 4% 1,740
Total tax liability 45,240
Notes:
(1) Section 11(1)(d) excludes from the total income of the person, any income in the form of voluntary
contributions made with a specific direction that they shall form part of the corpus of the trust or institution.
(2) Where a debt is incurred for the purpose of the trust, the repayment of the debt would amount to an
application of the income for the purpose of the trust. Therefore, repayment of loan taken for construction
of training centre for disabled persons is to be considered as application for charitable purpose.
18. Ramamurty Public Charitable Trust (Registered under section 12AA of the Income-tax Act, 1961)
furnishes the following data for the financial year ending 31.3.2020.
S.No. Particulars `. (in Lacs)
(i) Income from Engineering College 10
(Gross receipts ` 100 Lacs)
(ii) Income from properties held in trust (out of this ` 2 Lacs was not
received during the year and ` 2 Lacs was received only on the last
day of the year) 26
(iii) Net income from business held under trust (As incidental to the main
objects) as per books 2
(iv) Amount spent on free scholarship, free meals and fee medical relief 9
(v) Repayment of loan taken for construction of Health Care Centre 3
You are required to:

(a) Compute the taxable income of the Trust for the assessment year, 2020-21. Assume that option is
exercised under explanation to section 11(1) of the Act.
(b) Advise how the taxability on the computed income could be minimized or reduced.
Answer
(a) Computation of total income of Shri Ramamurthy Public Charitable Trust for A.Y. 2020-21
Particulars ` ( in Lacs)
(i) Income from Engineering College – exempt under section
10(23C) (iiiad) as gross receipts do not exceed ` 1 crore. Nil
(ii) Income from properties held under trust 26.00
(iii) Income from business undertaking held under trust (assumed that
the business is incidental to the attainment of objectives of the
trust and separate books are maintained satisfying section 11(4A)) 2.00
28.00
85% of the income required to be spent (85% of ` 28 Lacs) 23.80

Less: Option exercised under Explanation 2 to section 11(1)
(i) Amount not received during the previous year 2.00
(ii) Income received on the last day to be spent in the next year 2.00
19.80
Less : Amount spent on free scholarship, free meals and free
medical centre 9.00
Repayment of loans for construction of health centre (this
is utilized for the fulfillment of the objects of the trust) 3.00
Income of the trust liable to tax 7.80
(b) In order to minimize and / or reduce the tax liability, the trustees may give a notice in writing to the
Assessing Officer in the prescribed manner about their intention to accumulate minimum of ` 5.30 lacs [`
7.80 lacs minus ` 2.50 lacs (basic exemption limit)] specifying the period and the purpose for which the
accumulation is proposed to be made and invest such sum in specified assets as per section 11(5).
This accumulation would be in compliance with section 11(2) and in such case, no tax will be payable on
the whole sum of ` 7.80 lacs.

FINAL DT SATC 6B.10
19. A public charitable trust registered under section 12AA runs a hospital and also a medical college. It
furnishes you the following information for the year ended 31st March, 2020:
(i) Gross receipt from Hospital ` 425 lakhs
(ii) Income from business - incidental to main objects ` 2 lakhs.
(iii) Voluntary contributions received from public ` 32 lakhs. It include corpus donation of ` 3 lakhs
and anonymous donation of ` 5 lakhs.
Note: Voluntary contributions are included in Gross receipt given in (i) above.
(iv) Hospital operational expenses incurred ` 105 lakhs. (This does not include capital expenditures
and depreciation)
(v) Income from Medical College (solely for education purpose) ` 10 lakhs. Gross receipts of college
for the year ` 90 lakhs.
(vi) Gross receipt given in (i) above includes a sum of ` 55 lakhs which has accrued but not received.
Further, a sum of ` 18 lakhs was received only on 31st day of March, 2020.
(vii) The trust set apart ` 80 lakhs for acquiring a building to expand its hospital. But the amount was
paid in December, 2020 when sale deed was registered in its name.
(viii) In June, 2019, the trust purchased and installed new computer software for ` 28 lakhs. The rate
of depreciation is 40% as per Income-tax Act, 1961.
(ix) The trust incurred ` 35 lakhs towards purchase of laptops, computers and printers for the
hospital.
(x) It repaid loan of ` 15 lakhs taken earlier for construction of hospital building.
Compute the total income of the trust for the assessment year 2020-21 in order to avail maximum benefits
within the four comers of law.
Answer
Computation of total income of the trust for the A.Y. 2020-21
Particulars (` in lacs) (` in lacs)

Gross receipts from Hospital (other than voluntary contribution of 393.00
` 32 lakhs) [`
` 425 lacs – ` 32 lacs]
Less: Hospital operational expenses 105.00
288.00
Income from business – incidental to main object 2.00
290.00
Add: Voluntary contributions other than corpus donations of ` 3 29.00
lakhs 319.00
Less: Anonymous donation taxable@30% under section 115BBC 3.40

[See Note 1] 315.60
Less: 15% of income eligible for accumulation or being set apart 47.34
without any condition under section 11(1)(a)
268.26
Less: Deemed application as per Explanation 2 to section 11(1)
(i) Amount accrued but not received during the previous year 55.00
(ii) Income received on 31st March 2020 18.00 73.00
195.26
Less: Amount applied for the purposes of hospital [See Note 2]
- Cost of new computer software [Assuming that the same was 28.00
purchased for the purposes of the hospital]
- Cost of laptops, computers and printers purchased for the hospital 35.00

FINAL DT SATC 6B.11
[Capital expenditure can be claimed as application of income.
- Repayment of loan taken earlier for construction of hospital building -

repayment of a debt incurred for the purpose of trust is application of 78.00
income. 15.00
117.26
Less: Amount set apart for acquisition of a building to expand its
hospital [See Note 3]
[The amount spent in December, 2020 in the immediately following
year can be treated as application in the P.Y. 209-20, provided the
statement in prescribed form (i.e., Form 10) is given to the Assessing
Officer on or before the due date under section 139(1)]. 80.00
37.26
Income of ` 10 lakhs from Medical College – exempt under section
10(23C)(iiiad) as gross receipts do not exceed ` 1 crore. Nil
Total income [other than anonymous donation taxable under 37.26

section 115BBC]
Add: Anonymous donation taxable @30% 3.40
Total Income of the trust (including anonymous donation 40.66
taxable@30%)
In order to minimize and / or reduce the tax liability, the trustees may
give a notice in writing to the Assessing Officer in the prescribed
manner about their intention to accumulate minimum of ` 34.76 lakhs [`
37.26 lakhs minus ` 2.50 lakhs (basic exemption limit)] specifying the
period and the purpose for which the accumulation is proposed to be
made and invest such sum in the modes specified under section 11(5).
This accumulation would be in compliance with section 11(2) and in

such a case, no tax will be payable on the total income (other than
anonymous donations taxable@30% under section 115BBC) of
` 37.26 lakhs.
Notes:
(1) As per section 115BBC(1), the anonymous donations in excess of the higher of the following
would be subject to tax @30%;
` 1.60 lakh, being 5% of the total donations received i.e., 5% of ` 32 lakh; or
` 1 lakh
Therefore, anonymous donations of ` 3.4 lakh (` 5 lakh – ` 1.60 lakh) would be subject to tax @30%
under section 115BBC.
As per section 13(7), such anonymous donations are not eligible for the benefit of exclusion from total
income under sections 11 and 12.
(2) As per section 11(6), where the cost of assets is claimed as application, no deduction for depreciation on
such assets would be allowed in determining income for the purposes of application.
Therefore, since cost of new computer software, laptops, computers and printers purchased for the
hospital has been claimed as application of income, no depreciation would be allowed on these assets
while determining income for the purposes of application.
(3) The word "applied" used in section 11 does not necessarily imply "spent". Even if a certain amount is
irretrievably earmarked and allocated for charitable purposes, the said amount can be deemed to
have been applied for charitable purposes.
(4) A view is taken that 15% of ` 1.60 lakhs, representing the amount of anonymous donations exempt from
the applicability of tax@30% (and hence, chargeable to tax at normal rates), is also eligible for retention/
accumulation without conditions in line with other voluntary contributions. The above solution has been
worked out on the basis of this view.

FINAL DT SATC 6B.12
However, it is possible that the language used in section 13(7) may also be interpreted to mean
that anonymous donations chargeable to tax at normal rates are not eligible for
retention/accumulation. In such a case, the whole of the anonymous donations of ` 5 lakhs has to
be deducted from ` 319 lakhs to arrive at ` 314 lakhs and 15% of ` 314 lakhs, being ` 47.10 lakhs,
would be eligible for accumulation under section 11(1)(a) without any condition.
(5) It is assumed that separate books of account are maintained by the trust in respect of such business
(6) It is assumed that an option has been exercised in writing before the expiry of the time allowed under
section 139(1) to treat such income as deemed application of income in the previous year in which the
income is derived.

DEDUCTION SATC 7.1
DEDUCTIONS FROM GROSS TOTAL INCOME
[Section 80C to 80U]
Section 80A - Deductions to be made in computing Total Income
(1) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the
GTI of the assessee.
(2) Where, in computing the TI of an AOPs or a BOIs, any deduction is admissible under section
80GGA or section 80GGC or section 80-IA or section 80-IB or section 80-IC or section 80-
ID or section 80-IE, no deduction under the same section shall be made in computing the
total income of a member of the AOPs or BOIs in relation to the share of such member in the
income of the AOPs or BOIs.
(3) Notwithstanding anything to the contrary contained in Section 10AA or in any provisions of this
Chapter under the heading "C.—Deductions in respect of certain incomes", where, in the case of
an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible
business is claimed and allowed as a deduction under any of those provisions for any
assessment year, deduction in respect of, and to the extent of, such profits and gains shall
not be allowed under any other provisions of this Act for such assessment year and shall in
no case exceed the profits and gains of such undertaking or unit or enterprise or eligible
business, as the case may be.
(4) Where the assessee fails to make a claim in his return of income for any deduction
under section 10AA or under any provision of this Chapter under the heading "C.—Deductions in
respect of certain incomes", no deduction shall be allowed to him thereunder.
(5) Notwithstanding anything to the contrary contained in Section 10AA or in any provisions of this
Chapter under the heading "C.—Deductions in respect of certain incomes", where any goods or
services held for the purposes of the undertaking or unit or enterprise or eligible business are
transferred to any other business carried on by the assessee or where any goods or services
held for the purposes of any other business carried on by the assessee are transferred to the
undertaking or unit or enterprise or eligible business and, the consideration, if any, for such
transfer as recorded in the accounts of the undertaking or unit or enterprise or eligible business
does not correspond to the market value of such goods or services as on the date of the
transfer, then, for the purposes of any deduction under this Chapter, the profits and gains of
such undertaking or unit or enterprise or eligible business shall be computed as if the
transfer, in either case, had been made at the market value of such goods or services as on
that date.
(6) Where a deduction under any provision of this Chapter under the heading "C. Deductions in
respect of certain incomes" is claimed and allowed in respect of profits of any of the specified
business referred in section 35AD for any assessment year, no deduction shall be allowed
under the provisions of section 35AD in relation to such specified business for the same or
any other assessment year.

DEDUCTION SATC 7.2
Section 80AB - Deductions to be made with reference to the income
included in the gross total income.
Where any deduction is required to be made or allowed under any section included in this Chapter
under the heading "C.—Deductions in respect of certain incomes" in respect of any income of the
nature specified in that section which is included in the gross total income of the assessee, then,
notwithstanding anything contained in that section, for the purpose of computing the deduction under
that section, the amount of income of that nature as computed in accordance with the provisions
of this Act (before making any deduction under this Chapter) shall alone be deemed to be the
amount of income of that nature which is derived or received by the assessee and which is
included in his gross total income.
Section 80AC - Deduction not to be allowed unless return furnished.

Where in computing the total income of an assessee of the previous year, any deduction is admissible
under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-
ID or section 80-IE, no such deduction shall be allowed to him unless he furnishes a return of his
income for such assessment year on or before the due date specified under sub-section (1)
of section 139.
As amended by Finance Act 2018, w.e.f. AY 2018-19, Benefit of deduction from 80-IA to 80RRB
will not be available if return is not filed within due date of Section 139(1).
No deduction from certain Incomes:

No deduction is allowed in respect of the following incomes:
(a) Long Term Capital Gains referred u/s 112 [20% or 10%(in specified cases)] or u/s
112A, and Short Term Capital gains referred u/s 111A [15%].
(b) Winnings from lotteries, races, etc. as referred to in Section 115BB [30%].
(c) Income referred u/s 115A (Except Royalty/FTS Income & Section 80LA) to 115AD
(d) Income referred u/s 115BBA & u/s 115D

DEDUCTION SATC 7.3
Deduction in respect of investment in specified assets
[Section 80C]
Applicability: Individual or HUF.
Maximum Qualifying Amount: ` 1,50,000
The following are the investments/contributions eligible for deduction –
Name of the investment / payment Payment made by the

Individual HUF
Subscription to NSC Self Any member

(including Interest Accrued thereon)
Note: Interest will first added as Income u/h IOS)
Tuition Fees (only) paid at the time of Admission or otherwise to any Maximum
university/college/educational institution in India for full time up to 2 child
education. NA
Contribution to Unit-Linked Insurance Plan (ULIP) of UTI Self, Spouse Any member
Contribution to Unit-Linked Insurance Plan (ULIP) of LIC-Mutual Fund & Child
Contribution to Units of Mutual Funds or UTI Self Any member
Contribution to Notified Annuity Plan of LIC or other approved Self Any member
insurer.
Life Insurance Premium on Life Policy or Endowment Policy Self, Spouse Any member
& child
Maximum Amount of Deduction:
 10% of Sum Assured in case of policy issued on or after April

1, 2012
[15% of sum assured in case of policy issued on or after April

1, 2013 on life of any person with disability (u/s 80U) or any
person suffering from specified disease (u/s 80DDB)]
 20% of Sum Assured in case of policies issued before April 1,

2012.
Contribution towards
 Statutory Provident Fund/Recognized Provident Fund Self NA

 PPF – Minimum: Rs. 500 & Maximum: ` 150,000 Self, Spouse Any member
& Child
 Approved Superannuation Fund (ASF) Self NA
Contribution to Notified Pension Fund of Mutual fund or UTI Self NA

DEDUCTION SATC 7.4
Term Deposit of 5 year or more with a scheduled bank; Self NA
Subscription to 5 year Time Deposit in an a/c under the Post Office; Self Any member
Subscription to an account under the Senior Citizens Saving Self Any member
Scheme;
Subscription to notified NABARD Bonds Self Any member
Any sum paid to any scheme of-
 PSU/PSC engaged in providing Long Term finance for Self Any member
construction of residential houses in India
 Housing board for the purpose of planning, development or

improvement Self Any Member
Any payment towards the cost of purchase/construction of a

residential property where loan is taken from Self Any Member
 Govt., bank, co-operative bank, LIC, NHB
 Assessee’s employer where such employer is public Co./public

sector Co./university/co-operative society
Note:
1. Income from such property should be chargeable to tax

under the head House Property.
2. Payment through installment under Self financing scheme is also

covered.
3. Stamp Duty payment, Registration Fee etc are eligible for

deduction.
Amount invested in
 Approved debentures/ equity shares in a public Co. engaged in Self Any Member
infrastructure facility; or
 Units of MF proceeds of which are utilized for the developing,

maintaining, etc., of a new infrastructure facility. Self Any Member
Amount deposited in Sukanya Samriddhi Account Scheme Self, Girl Child or Girl Child
for whom Individual is a
Legal Guardian.

DEDUCTION SATC 7.5
NEW: Contribution to additional account under NPS Contribution by a Central
Inserted by Finance (No. 2) Act 2019 – W.e.f. AY 20-21 Government employee to
additional account under
There are two types of NPS account i.e., Tier I and Tier II, to which NPS (specified account)
an individual can contribute. referred to in section
80CCD for a fixed period of
Section 80CCD provides deduction in respect of contribution to not less than 3 years and
individual pension account [Tier I account] under the NPS which is in accordance
[referred to in section 20(2)(a) of the Pension Fund Regulatory and with the scheme notified by
Development Authority Act, 2013 (PFRDA)] whereas deduction the Central Government for
under section 80C is allowable in respect of contribution by this purpose qualifies for
Central Government employee to additional account [Tier II deduction under section
account] of NPS [referred to in section 20(3) of the PFRDA], which 80C.
does not qualify for deduction under section 80CCD.
It may be noted that only
Thus, Tier II account is the additional account under NPS, the contribution to the
contribution to which would qualify for deduction under section additional account under
80C only in the hands of a Central Government employee. NPS will qualify for
deduction under section
80C.
Note: Child may be Dependent/Independent/Male/Female/Minor/Major/Married/Unmarried.

DEDUCTION SATC 7.6
Amount paid on Life Insurance Policies – Exempt [Section 10(10D)]
1) As per Section 10(10D), any sum received on maturity of life insurance policy (including bonus) is not
chargeable to tax.
2) Exemption is not available in respect of:
a) Any Sum received under Section 80DD

b) Any Sum received under a Keyman Insurance Policy
3) Exemption u/s 10(10D) for insurance policies issued on or after 1.4.2012 would only be available for policies
where the premium payable for any of the years during the term of the policy does not exceed 10% of the
actual capital sum assured (as against 20%upto 31.03.2012)
[If the premium payable during any PY for a policy issued on or after 1.4.2012 exceeds 10% of the
actual capital sum assured, the entire amount received under such policy shall be taxable.]
However, the above provision shall not apply to any sum received on the death of a person.
4) The limit of 10% has been increased to 15 per cent for insurance (if policy is issued on or after
1.4.2013) on the life of any person who is
a. a person with disability or a person with severe disability as referred to in section 80U; or
b. suffering from disease or ailment as specified in the rules made under section 80DDB.

DEDUCTION SATC 7.7
Contribution to certain Pension Funds [Section 80CCC]
1) Applicability: ANY INDIVIDUAL Maximum Limit: ` 150,000
2) Amount paid or deposited for any annuity plan of LIC/ Any other Insurer for receiving Pension
from the Pension Fund,
3) Taxable as Income on Withdrawal:
 Where any amount standing to the credit of the assessee in a PENSION FUND in respect
of which a deduction has been allowed,
 together with interest or bonus accrued or credited to the assessee’s account is received
by the assessee or his nominee
 on account of the surrender of the annuity plan in any previous year or as pension
received from the annuity plan,
 such amount will be deemed to be the income of the assessee or the nominee in that
previous year in which such withdrawal is made or pension is received.
Contribution to NPS of Central Government [Section 80CCD]

1) Applicability: ANY INDIVIDUAL [Employed (CG or any other employer) or Self Employed]
2) Nature of Payment: Employee’s Contribution (including Self employed) as well as Employer
Contributions to New Pension Scheme [NPS]
3) Quantum of Deduction:
(A) In Case of Employment:
a. Contribution made by the employee or 10% of Salary whichever is lower [80CCD(1)]
AND
b. Contribution made by the employer or 10% of Salary (14% of salary, in case of
contribution made by the Central Government - NEW) whichever is lower [80CCD(2)]
(B) In Case of Self Employment: Contribution made or 20% of GTI, whichever is less [80CCD(1)]
4) The entire employer’s contribution would be included in the Salary of the employee. However,
deduction under section 80CCD would be restricted to 10% of salary.
5) “Salary” includes Dearness Allowance, if the terms of employment so provide, but excludes all
other allowances and perquisites. [Basic Salary + DA (R)]
6) 80CCD(1B) – An Individual is eligible for additional deduction of upto ` 50,000 in respect of the
whole of the amount paid or deposited under NPS, whether or not any deduction is allowed
under section 80CCD(1).
7) Any amount received from Pension account shall be taxed as income in the year of receipt in the
hands of the assessee. However, amount received by nominee on the death of the assessee
shall not be taxable.
8) However, amount received on maturity will not be taxable if the same is used for purchasing
an annuity plan in the same previous year. Pension received from such annuity plan will be
taxable to assessee/nominee
9) FA 19: Any payment from NPS to assessee on closure of account/scheme as referred in
Section 80CCD, to the extent of 60% 40% amount payable is Exempt. [Sec 10(12A)]
10) Any payment from NPS to an Employee on partial withdrawal made out of his account, to
the extent it does not exceed 25% of the amount of contributions made by him is Exempt.
[Section 10(12B)]

DEDUCTION SATC 7.8
Limit on deductions under sections 80C, 80CCC & 80CCD
[Section 80CCE]
This section restricts the aggregate amount of deduction under section 80C, 80CCC and 80CCD
(1) to ` 1,50,000 lakh.
Consequently, deduction to assessee in relation to employer’s contribution to pension scheme

shall be available over and above ` 1,50,000 lakh limit.
Further, Assessee’s contribution to CG Pension fund as per section 80CCD(1B) is also not
covered in limit specified in Section 80CCE.

DEDUCTION SATC 7.9
Deduction in respect of Health insurance premium [Section 80D]
1. Applicability: INDIVIDUAL or HUF
2. Nature of payment:
(a) Premium towards Mediclaim Health Insurance Policy taken
a. In case of an Individual: In the name of Individual, Spouse, Parents and dependent

children
b. In case of HUF: In the name of any Member
(b) In case of Senior Citizen, Medical expenditure incurred if no payment is made for health
insurance premium. (HUF – Any Member being Senior Citizen)
(c) Contribution to Central Government Health Scheme [CGHS] or other health scheme as
notified by CG is also eligible for deduction if it is taken in the name of Individual, Spouse
or Dependent Children.
(d) Any payment made by an individual on account of preventive health check up of self, spouse,
dependent children or parent(s) during the PY [maximum amount – ` 5,000 within overall limit]
3. Maximum Amount of Deduction:
Particulars Individual HUF
Premium/Contribution Individual, Spouse & Parents (Whether Any Member

for Dependent Children dependent or not)
Deduction being a. Amount Paid, or a. Amount Paid, or a. Amount Paid, or

lower of
b. ` 25,000 p.a. b. ` 25,000 p.a. b. ` 25,000 p.a.
Additional Deduction
for Senior Citizen
` 25,000 ` 25,000 ` 25,000
[The person who is
insured]
4. Senior Citizen means an Individual + Resident in India + the age of 60 years or more
5. Payment shall be made
a. by any mode, including cash, in respect of any sum paid on account of preventive health
check up (maximum limit – ` 5,000);
b. by any mode, other than cash, in all other cases.
6. In case of single premium health insurance policies having cover of more than one year,
Deduction under section 80D shall be allowed on proportionate basis for the number of
years for which health insurance cover is provided, subject to the specified monetary limit.

DEDUCTION SATC 7.10
Example:
Mr. Arjun (42 years old) furnishes the following particulars in respect of the following payments:
S. No. Particulars Amount (`)
1. Premium paid for insuring the health of -
 Self 10,000
 spouse 8,000
 dependant son 4,000
 mother 18,000
2. Paid for Preventive Health Check up of
 himself 2,000
 spouse 1,500
 mother 4,000
3. Incurred medical expenditure of ` 25,000 and ` 15,000 for his mother,
aged 61 years and father, aged 65 years. Both mother and father are
resident in India.
Compute the deduction available to Mr. Arjun under section 80D for the A.Y. 2020-21
Solution
Computation of deduction under section 80D for the A.Y. 2020-21
S. Particulars Amount (`) Amount (`)
No.
1. In respect of premium paid for insuring the health of -
 Self 10,000
 spouse 8,000
 dependant son 4,000
22,000
Paid for Preventive Health Check up of
 self 2,000
 spouse 1,500
3,500
Restricted to [` 25,000 – ` 22,000, since maximum deduction 3,000
is ` 25,000]
Aggregate of deduction (I+II) under (1) restricted to 25,000
2. (i) In respect of payment towards health insurance premium 18,000

for his mother
(ii) In respect of preventive health check up of his mother 2,000
[` 4,000, restricted to ` 2,000, (` 5,000 – ` 3,000), since
maximum deduction for preventive health check up under
section 80D is ` 5,000]
(iii) Medical expenditure for father would only be eligible for 15,000
deduction [See Note below] 35,000
Amount of deduction under (2) restricted to 35,000
Total deduction under section 80D [(1) + (2)] 60,000
Note: Irrespective of the fact that the mother of Arjun is a senior citizen the deduction under section
80D would not available to him in respect of the medical expenditure incurred for his mother, since
Mr. Arjun has taken a health insurance policy for his mother.

DEDUCTION SATC 7.11
Deduction in respect of maintenance including medical treatment
of a dependent disabled [Section 80DD]
1) Applicability: Resident INDIVIDUAL OR RESIDENT HUF.
2) Assessee must have a Dependent Disabled Relative:

Situation Relative Includes
In case of Individual Spouse, Children, Parents, Brothers & Sisters of the Individual
In case of HUF Any Member
1. Dependents means who is wholly or mainly dependent on the assessee and has not
claimed any deduction under section 80U in the computation of his income.
2. Disability includes Blindness, Low Vision, Hearing impairment, mental illness etc.
3) Nature of Expenditure on Such Relative: Assessee has

 paid any amount for the medical treatment (including nursing), training and rehabilitation of
a dependant, being a person with disability, or
 any amount paid or deposited under a scheme of LIC or any other insurer for the
maintenance of a dependant, being a person with disability, qualifies for deduction.
4) Quantum of Deduction:
Relative suffering with Disability ` 75,000
Relative suffering with Severe Disability [80% or more] ` 125,000
Tax Point: Deduction shall be irrespective of actual expenditure incurred.
5) CERTIFICATE: The assessee shall have to furnish a copy of the certificate issued by the
medical authority in respect of the assessment year for which the deduction is claimed. Where the
condition of disability requires reassessment, a fresh certificate is required.
6) Where the Assessee has deposited any amount in annuity plan of LIC or UTI etc for the
benefit of disabled person and such person predeceases – than any amount received from
such annuity plan shall be deemed to be income of the assessee of the previous year in which
such amount is received by the assessee.
Deduction in the case of a Person with Disability [Section 80U]

1) ELIGIBLE ASSESSEE: Applicable to a RESIDENT INDIVIDUAL, who, at any time during the
previous year, is certified by the medical authority to be a person with disability (Blindness,
Low Vision, Hearing impairment etc.).
2) FIXED DEDUCTION: In case of

Person with Disability - ` 75,000
Person with severe disability - ` 1,25,000
[Irrespective of any expenditure]
3) Individuals also include persons suffering from autism, cerebral palsy and multiple
disabilities.
4) CERTIFICATE: The assessee shall have to furnish a copy of the certificate issued by the
medical authority in respect of the assessment year for which the deduction is claimed. Where
the condition of disability requires reassessment, a fresh certificate is required.

DEDUCTION SATC 7.12
Deduction in respect of medical treatment etc. [Section 80DDB]
1) Applicability: RESIDENT INDIVIDUAL & RESIDENT HUF
2) Nature of Expenditure:
The assessee has actually paid any amount for the medical treatment of such disease or
ailment as may be specified in the rules made in this behalf by the Board [Specified Disease] for
Situation Relative Includes
In case of Individual Himself/Herself or for dependent relative being Spouse,
Children, Parents, Brothers & Sisters of that Individual
In case of HUF Any Member
Dependents means who is wholly or mainly dependent on the assessee for his support and
maintenance
3) Quantum of Deduction: Lower of the Two:

(a) Amount actually paid or
(b) ` 40,000 / In case of Senior Citizen – ` 100,000 (W.e.f. - AY 19-20)
4) Senior Citizen means an Individual + Resident in India +the age of 60 years or more
5) Certificate: No such deduction shall be allowed unless the assessee furnishes a certificate
from specialist working in a Government hospital.
6) The final deduction under this section shall be reduced by the amount received, if any,
under insurance from an insurer, or reimbursed by an employer, for the medical treatment
of the assessee or the dependent.[Amount derived as above Less Insurance claim received]
Question: Find the amount of deduction u/s 80DDB for the following cases:
Name of the Assessee P Q R S T
Residential status of the assessee Ordinarily Not Non Resident but Resident
resident ordinarily Resident not Indian
resident Citizen
Expenditure incurred for medical ` 6,000 ` 80,000 ` 1,00,000 ` 72,000 ` 80,000
treatment (specified disease) of
dependent brother
Age of Brother 28 62 62 64 52
Residential status of dependent Resident Non resident Resident Resident Resident
Medical Insurance claim received. - - - - Rs.8000
Solution:
Amount of deduction available u/s 80DDB shall be as under:
Particulars P Q R s T
Deduction u/s 80DDB 6,000 40,000 1 -- 2 72,0003 32,000 4
Notes
1. As the brother is non-resident, therefore, senior citizen benefit is not available.
2. As the assessee himself is a non-resident, hence no deduction u/s 80DDB is available.
3. As the brother is resident having age of 64 years, hence he is a senior citizen. However, actual expenditure
incurred by the assessee is less than ` 100,000, therefore deduction shall be restricted to actual expenditure
incurred.
4. As the medical insurance claim is received, hence the amount of deduction (i.e. ` 40,000) shall be reduced
by the amount of claim received.

DEDUCTION SATC 7.13
Interest on loan taken for Higher Education [Section 80E]
1) Applicability: Individual
2) Nature of Payment:
He has paid any interest on loan taken by him from any Financial Institution or Approved
Charitable Institution.
3) Purpose of Loan:
The loan must have been taken for the purpose of pursuing his/her own higher education or for
higher education of his or her relative. Relative means:
(a) Spouse or
(b) Children (Dependent or Independent) or
(c) the student for whom the individual is the legal guardian.
4) Quantum of Deduction: Amount of Interest paid during the PY
5) Maximum Permissible Period: 8 Assessment Years

Deduction is available for 8 Assessment years starting from the AY in which the assessee starts
paying the interest on loan OR until the interest is paid by the assessee in full, whichever is
earlier.
6) “Higher Education” means any course of study (including vocational studies) pursued after
passing the Senior Secondary Examination or its equivalent.
Deduction in respect of interest on loan taken for residential

house property [Sec. 80EE] w.e.f. AY 2017-18
 Conditions - The following conditions should be satisfied in order to claim deduction
under section 80EE -
1. The assessee is an Individual. He may be resident or non-resident.
2. He has taken a loan.
3. Loan is taken for acquisition of residential house property.
4. Loan is taken from Financial Institution (includes Banks/Housing finance Companies).
5. Loan has been sanctioned during April 1, 2016 and March 31, 2017.
6. The amount of loan sanctioned for residential house property does not exceed ` 35 lakh.
7. The value of residential house property does not exceed ` 50 lakh.
8. The assessee does not own any residential house property on the date of sanction of
loan.
 Amount of Deduction:
Deduction will be available in respect of interest payable on the above loan or ` 50,000,
whichever is less.
 Double deduction not possible - If deduction is claimed under section 80EE, no deduction will be
allowed in respect of such income under any other provision of the Act for the same or any other
assessment year.
NO DEDUCTION FROM AY 18-19 IN RESPECT ON NEW LOAN.

[If loan is sanctioned in PY 16-17 & above conditions are satisfied then assessee is eligible for
deduction in PY 17-18 or other succeeding years.]
DEDUCTION SATC 7.14
Deduction in respect of interest payable on loan taken for
acquisition of residential house property [Section 80EEA] - NEW
Inserted by Finance (No. 2) Act 2019 – W.e.f. AY 20-21
Eligible assessee: An individual who has taken a loan for acquisition of residential house property
from any financial institution. Interest payable on such loan would qualify for deduction under this
section.
Conditions: The conditions to be satisfied for availing this deduction are as follows –
1) the loan has been sanctioned by the financial institution during the
period beginning on the 1st day of April, 2019 and ending on the 31st
day of March, 2020;
2) the stamp duty value of residential house property does not exceed 45 lakh rupees;
3) the assessee does not own any residential house property on the date of sanction of loan.
4) The individual is not eligible to claim deduction under section 80EE,
Period of benefit: The benefit of deduction under this section would be available from A.Y. 2020-21
and subsequent assessment years till the repayment of loan continues.
Quantum of deduction: The maximum deduction allowable is ` 1,50,000.
The deduction of upto ` 1,50,000 under section 80EEA is over and above the deduction available
under section 24(b) in respect of interest payable on loan borrowed for acquisition of a residential
house property.
In respect of self-occupied house property, interest deduction under section 24(b) is restricted to
` 2,00,000. In case of let out or deemed to be let out property, even though there is no limit under
section 24(b), section 71(3A) restricts the amount of loss from house property to be set-off against
any other head of income to ` 2,00,000.
Accordingly, if interest payable in respect of acquisition of eligible house property is more than `
2,00,000, the excess can be claimed as deduction under section 80EEA, subject to fulfilment of
conditions.
No deduction under any other provision:

The interest allowed as deduction under section 80EEA will not be allowed as deduction under any
other provision of the Act for the same or any other assessment year.
Meaning of “Financial Institution”

 A banking company to which the Banking Regulation Act, 1949 applies; or
 Any bank or banking institution referred to in section 51 of the Banking Regulation Act, 1949; or
 A housing finance company. It means

A public company formed or registered in India with the main object of carrying on the business
of providing long-term finance for construction or purchase of houses in India for residential
purposes.

DEDUCTION SATC 7.15
Deduction in respect of interest payable on loan taken for
purchase of electric vehicle [Section 80EEB] - NEW
Inserted by Finance (No. 2) Act 2019 – W.e.f. AY 20-21
Eligible Assessee:
An Individual who has taken a loan for purchase of an electric vehicle from any financial institution,
Interest payable on such loan would qualify for deduction under this section.
Conditions:
 The assessee should be an individual.
 Loan should be taken for purchase of an electric vehicle
 loan has been sanctioned by the financial institution during the period
beginning on the 1st day of April, 2019 and ending on the 31st day of
March, 2023.
Period of benefit: The benefit of deduction under this section would be available from A.Y.2020-21
and subsequent assessment years till the repayment of loan continues.
Quantum of deduction: Interest payable, subject to a maximum of ` 1,50,000.
No deduction under any other provision:

The interest allowed as deduction under section 80EEB will not be allowed as deduction under any
other provision of the Act for the same or any other assessment year.
Financial institution
- A banking company to which the Banking Regulation Act, 1949 applies; or
- Any bank or banking institution referred to in section 51 of the Banking Regulation Act, 1949; or
- Any deposit taking NBFC
- A systemically important non-deposit taking NBFC i.e., a NBFC which is not accepting or
holding public deposits and having total assets of not less than ` 500 crore as per the last
audited balance sheet and is registered with the RBI.
Electric Vehicle
A vehicle which is powered exclusively by an electric motor whose traction energy is supplied
exclusively by traction battery installed in the vehicle. The vehicle should have electric regenerative
braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical
energy.

DEDUCTION SATC 7.16
Example:
The following are the particulars relating to Mr. A, Mr. B, Mr. C and Mr. D, salaried individuals,
for A.Y. 2020-21:
Particulars Mr. A Mr. B Mr. C Mr. D
Amount of loan taken 43 lakhs 45 lakhs 20 lakhs 15 lakhs
Loan taken from HFC Deposit Deposit Public

taking NBFC taking sector
NBFC bank
Date of sanction of 1.4.2019 1.4.2019 1.4.2019 30.3.2019
Loan
Date of disbursement 1.5.2019 1.5.2019 1.5.2019 1.5.2019

of loan
Purpose of loan Acquisition Acquisition Purchase of Purchase of

of residential of residential electric electric
house house vehicle for vehicle for
property for self property for self personal use personal
occupation occupation use
Stamp duty value of 45 lakhs 48 lakhs

house property
Cost of electric 22 lakhs 18 lakhs

Vehicle
Rate of interest 9% p.a. 9% p.a. 10% p.a. 10% p.a.
Compute the amount of deduction, if any, allowable under the provisions of the Income-tax Act,
1961 for A.Y. 2020-21 in the hands of Mr. A, Mr. B, Mr. C and Mr. D. Assume that there has been
no principal repayment during the P.Y. 2019-20.
SOLUTION:
Mr. A
Interest deduction for A.Y. 2020-21
Deduction allowable while computing income under the head “Income from house property”
Deduction u/s 24(b) ` 3,54,750
[` 43,00,000 × 9% x 11/12]
Restricted to ` 2,00,000
Deduction under Chapter VI-A from Gross Total Income

Deduction u/s 80EEA ` 1,54,750
(` 3,54,750 – ` 2,00,000)
Restricted to ` 1,50,000
Mr. B
Interest deduction for A.Y. 2020-21
Deduction allowable while computing income under the head “Income from house property”
Deduction u/s 24(b) ` 3,71,250 Restricted to ` 2,00,000
[` 45,00,000 × 9% x 11/12]

DEDUCTION SATC 7.17
Deduction under Chapter VI-A
Deduction u/s 80EEA is not permissible since:
i. loan is taken from NBFC
ii. stamp duty value exceeds ` 45 lakh.
Deduction under section 80EEA would not be permissible due to either violation listed above.
Mr. C
Deduction u/s 80EEB for interest payable on loan taken for purchase of electric vehicle ` 20 lakhs x
10% x 11/12 = ` 1,83,333, restricted to ` 1,50,000, being the maximum permissible deduction.
Mr. D
Deduction u/s 80EEB is not permissible since loan was not sanctioned in the P.Y. 2019-20.

DEDUCTION SATC 7.18
Donation [Section 80G] - Applicability: All assessee
Nature: Donation in Kind is not eligible.
No deduction shall be allowed u/s 80G in respect of donation exceeding ` 2,000 if paid in cash.
A. No ceiling limit for amount of donation and deduction of such donation

(1) Deduction = 100% of donation (2) Deduction = 50% of donation
1. The National Defence Fund 1. The Jawaharlal Nehru

2. Prime Minister’s National Relief Fund Memorial Fund
3. The National Foundation for Communal Harmony
2. Prime Minister’s Drought Relief
4. Approved University or educational institution of national
eminence Fund
5. Maharashtra Chief Minister’s Earthquake Relief Fund 3. Indira Gandhi Memorial Trust
6. Gujarat Relief Fund for earthquake victims
4. Rajiv Gandhi Foundation
7. Zila Saksharta Samiti
8. National Blood Transfusion Council
9. Any State Government Fund set up to provide medical relief
to the poor
10. The National illness Assistance Fund
11. The Chief Minister’s Relief Fund or Lieutenant Governor’s
Relief Fund
12. National Sports Fund
13. National Cultural Fund
14. Fund for Technology Development and Application
15. National Trust for welfare of persons with Autism, Cerebral
Palsy, Mental Retardation and Multiple Disabilities
16. The National Children’s Fund
17. National Fund for Control of Drug Abuse
18. Swachh Bharat Kosh
19. Clean Ganga Fund
[Point 18 & 19: Donation does not qualify for deduction if
it is a Part of CSR Expenses]
B. Deduction of some donation is subject to QUALIFYING AMOUNT [In aggregate]

3) 100% deduction shall be allowed 4) 50% deduction shall be allowed subject to the
subject to the qualifying amount if qualifying amount if the donation are made-
the donation are made –
 To Govt., or local authority, for charitable purpose
 To Govt., or any approved except for promoting family planning;
association / institution for
 To Approved Charitable Institution u/s. 80G.
promoting family planning;
 To any authority or corporation for the benefit of
 By company to the Indian minority community.
Olympic Association or Notified  For renovation or for repair of any temple, mosque,
association / institution in India Gurudwara, church, or other place notified to be of
for the development of historic / archeological / artistic importance or as a
Infrastructure for sports & games place of public worship of renown;
or the sponsorship for sports &  To housing development authority constituted in
games in India. India.

DEDUCTION SATC 7.19
QUALIFYING AMOUNT: It means 10% of Adjusted GTI or the Donations given [in Aggregate]
whichever is less.
[Adjusted GTI means: GTI – LTCG – STCG u/s 111A – All deduction of Chapter VIA except 80G]
WORKING FORMAT:
Donation to - Qualifying Sum % Eligible Deduction
Rs.
(A) Donation without any qualifying limit:
1. PMNRF 100%
2. Zila Saksharta Samiti 100%
3. Indra Gandhi Memorial Trust 50%
(B) Donation subject to qualifying limit of total donation of 10% of Adjusted GTI:
1. Government for the promotion of family planning. 100%
2. An approved charitable institution (the qualifying 50%
amount = 10% of Adj. GTI - Donation for family
planning, which is eligible for 100% deduction)
Qualifying amount under (B) = 10% of Adj. GTI
Total Deduction u/s 80G
**Adjusted GTI = GTI - Deduction u/s 80C to 80G – STCG referred u/s 111A -
LTCG
Deduction in respect of Rent paid [Section 80GG]

1) Applicability: In respect of RENT paid by an Individual.
2) The following conditions have to be satisfied for claiming deduction under section 80GG:
a) No House Rent Allowances [HRA] or No Rent Free Accommodation [RFA]: The assessee
should not be receiving any HRA exempt u/s 10(13A) and also should not be provided with
RFA.
b) No House at Place of Employment:
The Individual or his spouse or his minor child or an HUF of which he is a member
should not own any accommodation at the place where he ordinarily resides or perform duties
of his office or employment or carries on his business or profession.
c) No Claim for the benefit of Self-occupied House Property:
Assessee should not treat any residential house situated at other places as Self-occupied
Property u/s 23 i.e. Annual Value = NIL.
d) Rent: The assessee must be paying rent for the Residential Accommodation occupied by him
for the purposes of his own residence.
e) Proof of Rent Payment is required to file.
3) Quantum of deduction: Least of the following DON’T

a) Actual rent paid minus 10% of the Adjusted GTI, or FORGET ME
b) 25% of the Adjusted GTI, or
c) ` 5,000 p.m.
Adjusted GTI means Gross Total Income XXX

Less: LTCG u/s 112 & 112A (XXX)
Less: STCG u/s 111A (XXX)
Less: Deduction u/s 80C to 80U except 80GG (XXX)

DEDUCTION SATC 7.20
Question:
Rohit, a Doctor in Delhi, furnishes following particulars relevant to PY 2019-20
(a) Income from Profession 1,26,000
(b) Short-Term Capital Gains on sale of Shares (listed & STT Paid) 20,000
(c) Long-Term Capital Gains on sale of Land 25,000
(d) Interest on Government securities (Gross) 14,000
(e) Repayment of loan (Principal Only) taken from a Bank for higher studies 15,000
(f) Payment made for Mediclaim Policy on his health and the health of his wife 6,000
(g) Rent paid for a house in Delhi 25,000
Determine his Total Income for the AY 2020-21
Assessee: Rohit . Previous Year: 2019-20 Assessment Year: 2020-21

Computation of Total Income
Particulars ` `
Profits and Gains of Business or Profession: Profession of Medicine 1,26,000
Capital Gains: Short-term 20,000
Long-term 25,000 45,000
Income from Other Sources: Interest on Government Securities 14,000
Less: Deduction under Chapter VI-A
80D Medical Insurance Premium 6,000
80E Repayment of Education Loan (Repayment of Principal not eligible) Nil
80GG Deduction for Rent Paid (See W.N. 2) 11,600 (17,600)
Computation of Deduction u/s 80GG:

1. Computation of Adjusted Total Income:
Particulars ` `
Less: Long-Term Capital Gain 25,000
Short-Term Capital Gain on Sale of Shares 20,000
Deduction u/s 80CCC to 80U 6,000 (51,000)
Adjusted Total Income 1,34,000
2. Deduction u/s 80GG

Particulars `
(a) Rent paid Less 10% Adjusted Total Income = ` 25,000 Less 10% of ` 1,34,000 11,600
(b) 25% of Adjusted Total Income = ` 1,34,000 x 25% 33,500
(c) ` 5,000 p.m. x 12 Months 60,000
Permissible Deduction = Least of the above 11,600
Note: STCG on sale of shares assumed to be covered u/s 111A.
Deduction in respect of profits and gains from business of

collecting and processing of bio-degradable waste [Sec 80JJA]
1) Applicability: ALL ASSESSEES
2) Conditions: The deduction is allowable where the assessee is engaged in business of
collecting and processing or treating of bio-degradable waste for:
a) Generating Power, or
b) Producing bio-fertilizers, bio-pesticides or other biological agents, or
c) Producing bio-gas, or 100%
d) Making pellets or briquettes for fuel or organic manure. for 5 AYs
3) Quantum & Period of Deduction: [100% for 5 AYs]

100% of the profits derived from such business for a period of 5 consecutive previous year in
which the business commences.
4) No deduction shall be allowed if the deduction has not been claimed in the ROI.
DEDUCTION SATC 7.21
DEDUCTION IN RESPECT OF ROYALTY INCOME ON BOOKS [Sec 80QQB]
1. ELIGIBLE ASSESSEE:
Resident individual being an author who’s GTI includes INCOME in the nature of
(a) Lump sum consideration for his interests in the copyright of any book being a work of
literary, artistic, scientific nature or
(b) Royalty or copyright fees in respect of such book.
2. Books shall not include brochures, guides, journal, diaries, commentaries, magazines,
newspapers, pamphlets, textbooks for schools / tracts & other publications of similar nature.
3. DEDUCTION: LOWER OF
a) 100% of such lump sum income [15% of the value of books in case of Royalty]
(Less: Related Expenses)
OR
RESIDENT INDIVIDUAL BEING AUTHORS (Royalty Income)
b) ` 3,00,000
DEDUCTION IN RESPECT OF ROYALTY INCOME ON PATENTS

[Sec 80RRB]
1. ELIGIBLE ASSESSEE:
RESIDENT Individual whose GTI includes Royalty Income from Patent.
2. The deduction shall not be available on
a. any capital sum received for sale of patent, which is chargeable u/h Capital Gains
b. any consideration for sale of product manufactured with the use of the patented article
3. DEDUCTION: lower of -
a. 100% of such income; or RESIDENT INDIVIDUAL BEING PATENTEE (Royalty Income)
b. ` 3,00,000
COMMON FOR 80QQB/80RRB BOTH
If income earned from foreign sources: Deduction is allowed to the extent the income is brought into
India in Convertible Foreign Exchange within 6 months from end of Previous Year or such extended
period as allowed by RBI / competent authority.
Claim in Return of Income: Mandatory for deduction
Deduction in respect of interest on deposits in saving accounts to the

extent of ` 10,000 [Section 80TTA]
1. Applicability: Individual or HUF
(Other than senior citizen covered u/s 80TTB)
2. Maximum Qualifying Amount of deduction under section 80TTA: ` 10,000
3. GTI includes interest on deposits including recurring deposits (not being time deposit) in a
Saving Bank Account with
a) Banks,
b) Co-operative society into Banking Business or
c) Post Office.
4. However, where such income is derived by Firm/AOPs/BOIs, no deduction shall be allowed to
any partner/member as the case may be.
DEDUCTION SATC 7.22
Deduction in respect of interest on deposits to the extent of ` 50,000
[Section 80TTB] W.e.f. AY 19-20
1. Applicability: Senior Citizen
2. Maximum Qualifying Amount of deduction under section 80TTB: ` 50,000
3. GTI includes interest on deposits with

a) Banks,
b) Co-operative society into Banking Business or
c) Post Office.
4. However, where such income is derived by Firm/AOPs/BOIs, no deduction shall be allowed to

any partner/member as the case may be.

FINAL DT - DEDUCTION SATC 7.23
Deduction to Newly Established Units in SEZs [SECTION 10AA]
A deduction of profits and gains which are derived by an assessee being an entrepreneur from the export of
articles or things or providing any service, shall be allowed from the TOTAL INCOME of the assessee.
(1) Eligible Assessees: All categories of Assessees
(2) Conditions:
i) It has begun or begins to manufacture or produce articles or things including computer software or
provide any service on or after 1.4.2005 (PY 05-06) in any SEZ but before the 01.04.2021.
[No Deduction from AY 21-22]

ii) The sale proceeds from exports should be received in or brought into India, in convertible foreign
exchange, within a period of 6 months from the end of the Previous Year or within extended
period allowed by RBI.
(3) New Business / New Plant & Machinery:
i) It should not be formed by splitting up or reconstruction of a existence business
[Provided that nothing contained in this clause shall apply in respect of a business which is formed as
a result of re-establishment, reconstruction or revival by the assessee of the business in the
circumstances and within the period specified in Section 33B]
ii) It should not be formed by transfer of plant and machinery previously used for any purpose
exceeding 20% of the total value of machinery and plant used in the business. [20% old –
Allowed]
For this purpose, any machinery or plant which was used outside India by any person other than the
assessee shall not be regarded as machinery or plant previously used for any purpose if the
following conditions are fulfilled:
(a) such machinery or plant was not at any time used in India;
(b) such machinery or plant is imported into India from any country outside India; and
(c) no deduction on account of depreciation has been allowed in respect of such machinery or plant
to any person earlier.
(4) Quantum and Period of Deduction:

i) For First 5 AYs : 100% of the profits derived from exports.
ii) For next 5 Consecutive AYs : 50% of such profits
iii) For next 5 Consecutive AYs : Least of the below two:
(a) 50% of Such Profits
(b) Reserve credited to SEZ Re-Investment Allowance
Reserve Account
Following Explanation shall be inserted in Section 10AA(1) by the Finance Act, 2017, w.e.f. 1-4-2018:
Explanation: For the removal of doubts, it is hereby declared that the amount of deduction under this
Section shall be allowed from the Total Income of the assessee computed in accordance with the
provisions of this Act, before giving effect to the provisions of this section and the deduction under
this section shall not exceed such total income of the assessee.
(5) Conditions to be satisfied for claiming deduction for further 5 years (after 10 years):
The amount credited to the Special Economic Zone Re-investment Reserve Account is utilized-
a) for the purposes of acquiring machinery or plant which is first put to use before the expiry of a period
of three years following the previous year in which the reserve was created; and
b) until the acquisition of the machinery or plant as aforesaid, for the purposes of the business of the
undertaking. However, it should not be utilized for
i. distribution by way of dividends or profits; or
ii. for remittance outside India as profits; or
iii. for the creation of any asset outside India;

(6) CONSEQUENCES OF MIS-UTILISATION / NON-UTILISATION OF RESERVE:
(a) Mis-Utilised amount shall be deemed to be the profits in the year in which the amount was so
utilised; or
(b) Unutilised amount shall be deemed to be the profits in the year immediately following the said
period of three years.
(7) Computation of Exemption u/s 10AA:

The profits derived from export of articles/things or services (including computer software) shall be:
Export Turnover
Profits of the Business of the undertaking X ———————————————
(Excludes Export Incentives) Total Turnover
Note:
1. “Export Turnover” means the consideration received in or brought into India by the assessee in
convertible foreign exchange but does not include:
a) Freight, Telecommunication Charges and Insurance attributable to the delivery of the
articles or things outside India; or
b) Expenses incurred in foreign exchange in providing the technical services outside India.
2. Here, profits includes profits derived from on-site development of computer software (including
services for development of software) outside India for the purpose of determining profits derived
from export of computer software outside India
(8) OTHER COMMON POINTS:
a) AUDIT: Accounts of the assessee for the relevant year should be audited.
b) INTER-UNIT TRANSFER: Where any goods or services of eligible business are transferred to
any other business (or vice versa) otherwise than at Market Value on date of transfer, then the
profits and gains of the eligible business shall be computed as if the transfer was made at
market value.
c) NO DOUBLE OR EXCESS DEDUCTION: The deductions claimed and allowed under this section
shall not exceed the profits and gains of the eligible business. Further, profits and gains
allowed as deduction under this section will not be considered for deduction under any other
provisions of the Act.
d) EXCESSIVE PROFITS: Where it appears to the AO that the assessee derives more than
ordinary profits from the eligible business due to close connection between the assessee and any
other person, the AO may consider such profits as may be reasonable for the purpose of computing
deduction under this section.
e) AMALGAMATION/DEMERGER:
INDIAN COMPANY INDIAN COMPANY

In the case of any amalgamation or demerger, by virtue of which the Indian company carrying
on the eligible business is transferred to another Indian company:
(i) No deduction will be available to the amalgamating company/demerged company, in the year
of amalgamation/demerger.
(ii) The deduction will be available to the amalgamated/resulting company for unexpired
period.
f) Where a deduction under this section is claimed and allowed in relation to any specified business
eligible for investment-linked deduction under section 35AD, no deduction shall be allowed under
section 35AD in relation to such specified business for the same or any other assessment
year.

(9) Few Points:
A. Sale proceeds referred shall be deemed to have been received in India where such sale proceeds are
credited to a separate account maintained for the purpose by the assessee with any bank outside India
with the approval of the RBI
B. Section 10AA is a deduction and not an exemption. Therefore, losses and depreciation of the
undertaking to which Section 10AA applies shall be carried forward normally.
C. In case of LIBERTY India, SC held that EXPORT INCENTIVE like
(a) Cash Compensatory Support
(b) Duty Drawback
(c) Profit on sale of import entitlement licenses
(d) Duty Exemption Pass Book
Shall NOT form part of profit of the eligible undertaking for the purpose of Section 10AA / Section
80-IA to 80-IE
Amendment in Section 10AA – SEZ Units

Before amendment, key issue was whether provision of Section 10AA are deduction provision or exemption
provision & if this is deduction, at what stage one will get the benefit of deduction (under PGBP Head, After
GTI before chapter VIA deduction etc)
To resolve above controversy, following Explanation shall be inserted in sub-section (1) of Section 10AA by the
Finance Act, 2017, w.e.f. AY 2018-19:
For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed
from the total income of the assessee computed in accordance with the provisions of this Act, before
giving effect to the provisions of this section and the deduction under this section shall not exceed such total
income of the assessee.
“It means Deduction u/s 10AA will be available after deduction under chapter VIA”
[As amended by Finance Act 2016, Deduction under Section 10AA will not be available w.e.f. AY 21-22]
Circular 4/2018
CBDT has clarified that freight, telecommunication charges & insurance expenses are to be excluded both
from “Export Turnover” and “Total turnover” while working out deduction admissible under Section 10AA to
the extent they are attributable to the delivery of articles or things outside India.
Similary expenses incurred in foreign exchange for rendering services outside India are to be excluded from
both “Export Turnover” and “Total Turnover” while computing deduction admissible u/s 10AA.

PRACTICAL QUESTIONS – Section 10AA
1) PR Industries Ltd., a unit established in Special Economic Zone, for providing various services
furnishes the following particulars of its first year of its operation ended on 31.03.2020 (amounts in
` Lakhs):
Total receipts from provisions of services 50
Receipts from export of services 40
Profits of business 5
Out of the total export, ` 8 lakhs could not be realized on account of death of the Foreign Service
recipient. The plant and machinery used in the business had been depreciated @ 25% on SLM basis
and depreciation of ` 2 lakhs was charged in the P&L A/c. Compute the taxable income of the
company.
Solution:
The assessee is eligible for the deduction u/s 10AA for the AY 2020-21
Thus, its total income shall be calculated as follows –
Computation of taxable income of the company (All amount in `)
Net Profit as per P&L A/c 5,00,000
Add: Depreciation as per books 2,00,000
7,00,000
Less: Depreciation as per IT Rules (15% of 8 lakhs) [Cost of machinery = 2 lakhs / 25%] 1,20,000
Profits and Gains of Business / GTI 5,80,000
Less: Deduction u/s 10AA [100% of {(5,80,000 / 50,00,000) X 32,00,000}] 3,71,200
2) A company is engaged in the development and sale of computer software applications. It has started a new
undertaking in SEZ. It furnishes the following data and requests you to compute the deduction
allowable to it under Sec. 10AA is respect of AY 2020-21
Particulars (` in lakhs)
Total profit of the company for the previous year 50
Total turnover, i.e. Export sales and Domestic sales for the previous year 550
Consideration received in respect of export of software received in convertible 250
foreign exchange within 6 months of the end of the previous year
Sale proceeds credited to a separate account in a bank outside India with the 50
approval of RBI
Telecom and insurance charges attributable to export of software 10
Staff costs and travel expenses incurred in foreign exchange to provide technical 40
assistance outside India to a client
Solution:
Computation of income of an undertaking in SEZ: AY 2020-21
Particulars (` in lakh)
Total profit / GTI 50
Less: Deduction under Sec. 10AA: = 25
Taxable Income 25
Note :
Export turnover (` in lakhs)
(i) Sale proceeds of software received in convertible foreign exchange within 250
the prescribed period
(ii) Sale proceed in convertible foreign exchange kept outside India with the 50
approval of RBI 300
Less: (i) Telecom and insurance attributable to export turnover (-) 10
(ii) Expenses incurred in foreign exchange outside India to provide (-) 40
technical assistance to a client there
Export turnover 250

3) From the following particulars compute the deduction u/s 10AA and the taxable profit:
A Ltd. B Ltd.
Particulars
` in lakhs
Export Turnover 125 240
Domestic Turnover 68 42
Profits of the business 21 28
Additional information: The export turnover of A Ltd. includes charges received from on site development of
computer software outside India to the extent of ` 30 Lakhs. B Ltd. has realized only 90% of its Export
turnover and the remaining 10% has become irrecoverable.
4) Nathan Aviation Ltd. is running two industrial undertakings, one in a SEZ (Unit S) and another in a
normal area (Unit N). The brief summarized details for the year ended 31-3-2020 are as under:
(` in lakhs)
S N
Domestic turnover 10 100
Export turnover 120 Nil
Gross profit 20 10
Less: Expenses and depreciation 7 6
Profits derived from the unit 13 4
The brought forward business loss pertaining to Unit N is ` 2 lakhs. Briefly compute the business
income of the assessee.
Solution:
Computation of income of Nathan Aviation Ltd.
Unit S (SEZ) Unit N (Outside SEZ)
` `
Profit derived from the unit 13,00,000 4,00,000
Less: Brought forward loss of unit N Nil (2,00,000)
Less: Deduction under section 10AA [` 13 Lakh × ` 120 lakh
÷ ` 130 lakh] 12,00,000 Nil
Total Income 1,00,000 2,00,000
The following assumptions have been made-
a. Unit S satisfies all conditions of Section 10AA and it was set up on or after April 1, 2015 (100% deduction
is available only in first 5 years); and
b. Brought forward loss of unit N pertains to the AY 2012-13 (or any subsequent assessment year) (loss can
be carried forward only for 8 years).

Section 80-IA: Deductions in respect of profits and gains from industrial
undertakings or enterprises engaged in infrastructure development, etc.
1. A deduction of an amount equal to 100% of the profits and gains derived from business (as
discussed later) for 10 consecutive AYs.
2. Above deduction may, at the option of the assessee, be claimed by him for any 10 consecutive
assessment years out of fifteen years beginning from the year in which the undertaking or the
enterprise develops and begins to operate any infrastructure facility or generates power or
commences transmission or distribution of power or undertakes substantial renovation and
modernisation of the existing transmission or distribution lines.
Further, where the assessee develops or operates and maintains or develops, operates and
maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (c) of
the Explanation to clause (i) of sub-section (4), the provisions of this sub-section shall have
effect as if for the words "fifteen years", the words "twenty years" had been substituted.
3. This section applies to an power undertaking which fulfils all the following conditions,
namely:-
i. It is not formed by splitting up, or the reconstruction, of a business already in existence.

However, this condition shall not apply in respect of a start-up which is formed as a result of
the re-establishment, reconstruction or revival by the assessee of the business of any such
undertaking as referred to in section 33B, in the circumstances and within the period specified
in that section;
ii. It is not formed by the transfer to a new business of machinery or plant previously used
for any purpose.
(a) 20% old machinery is permitted:
If the value of the transferred assets does not exceed 20% of the total value of the
machinery or plant used in the business, this condition is deemed to have been satisfied.
(b) Second-hand imported machinery is treated as new:
Any machinery or plant which was used outside India by any person (other than the
assessee) shall not be regarded as machinery or plant previously used for any purpose, if
the following conditions are fulfilled-
(i) Such machinery or plant was never used in India.
(ii) Such machinery or plant is imported into India from any other Country.
(iii) No deduction on account of depreciation in respect of such machinery or plant has
been allowed to any assessee previously.

4. This section applies to-
A. any enterprise carrying on the business of (i) developing or (ii) operating and
maintaining or (iii) developing, operating and maintaining any infrastructure facility
which fulfils all the following conditions, namely :—
a. it is owned by a company registered in India or by a consortium of such companies or

by an authority or a board or a corporation or any other body established or constituted
under any Central or State Act;
b. it has entered into an agreement with the Central Government or a State Government
or a local authority or any other statutory body for (i) developing or (ii) operating and
maintaining or (iii) developing, operating and maintaining a new infrastructure facility;
c. it has started or starts operating and maintaining the infrastructure facility on or after
the 1st day of April, 1995:
Provided that where an infrastructure facility is transferred on or after the 1st day of April,
1999 by an enterprise which developed such infrastructure facility to another enterprise for
the purpose of operating and maintaining the infrastructure facility on its behalf in
accordance with the agreement with the Central Government, State Government, local
authority or statutory body, the provisions of this section shall apply to the transferee
enterprise as if it were the enterprise to which this clause applies and the deduction
from profits and gains would be available to such transferee enterprise for the
unexpired period during which the transferor enterprise would have been entitled to the
deduction, if the transfer had not taken place.
Provided further that nothing contained in this section shall apply to any enterprise
which starts the development or operation and maintenance of the infrastructure facility
on or after the 1st day of April, 2017.
For the purposes of this clause, "infrastructure facility" means-
a. a road including toll road, a bridge or a rail system;
b. a highway project including housing or other activities being an integral part of the
highway project;
c. a water supply project, water treatment system, irrigation project, sanitation and
sewerage system or solid waste management system;
d. a port, airport, inland waterway, inland port or navigational channel in the sea;
Note – Any enterprise which starts the development or operation and maintenance of the infrastructure
facility on or after 1.4.2017 will not be eligible for deduction under section 80-IA. Instead they would be
eligible for investment-linked tax deduction under section 35AD

B. an undertaking which,-
(a) is set up in any part of India for the generation or generation and distribution of power
if it begins to generate power at any time during the period beginning on the 1st day of
April, 1993 and ending on the 31st day of March, 2017
(b) starts transmission or distribution by laying a network of new transmission or

distribution lines at any time during the period beginning on the 1st day of April, 1999
and ending on the 31st day of March, 2017:
(c) undertakes substantial renovation and modernisation of the existing network of

transmission or distribution lines at any time during the period beginning on the 1st day of
April, 2004 and ending on the 31st day of March, 2017
Explanation-
For the purposes of this sub-clause, "substantial renovation and modernisation" means an
increase in the plant and machinery in the network of transmission or distribution lines by
at least 50% of the book value of such plant and machinery as on the 1st day of
April, 2004;
5. The profits and gains of an eligible business shall, for the purposes of determining the quantum of
deduction under that sub-section for the assessment year be computed as if such eligible
business were the only source of income of the assessee during the previous year
6. The deduction shall not be admissible unless the accounts of the undertaking for the previous year
have been audited and report is furnished.
7. Where any goods or services held for the purposes of the eligible business are transferred to any
other business carried on by the assessee, or where any goods or services held for the
purposes of any other business carried on by the assessee are transferred to the eligible
business and, in either case, the consideration, if any, for such transfer as recorded in the accounts
of the eligible business does not correspond to the market value of such goods or services as
on the date of the transfer, then,
for the purposes of the deduction under this section, the profits and gains of such eligible business
shall be computed as if the transfer, in either case, had been made at the market value of such
goods or services as on that date :
Explanation- For the purposes of this sub-section, "market value", in relation to any goods or
services, means—
i. the price that such goods or services would ordinarily fetch in the open market; or
ii. the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods
or services is a specified domestic transaction referred to in section 92BA.
8. Where any amount of profits and gains of an undertaking or of an enterprise in the case of an
assessee is claimed and allowed under this section for any assessment year, deduction to the
extent of such profits and gains shall not be allowed under any other provisions of this
Chapter under the heading "C.—Deductions in respect of certain incomes", and shall in no case
exceed the profits and gains of such eligible business of undertaking or enterprise, as the
case may be.

9. Where it appears to the Assessing Officer that, owing to the close connection between the
assessee carrying on the eligible business to which this section applies and any other person, or
for any other reason, the course of business between them is so arranged that the business
transacted between them produces to the assessee more than the ordinary profits which
might be expected to arise in such eligible business, the Assessing Officer shall, in computing
the profits and gains of such eligible business for the purposes of the deduction under this section,
take the amount of profits as may be reasonably deemed to have been derived therefrom:
Provided that in case the aforesaid arrangement involves a specified domestic transaction referred
to in section 92BA, the amount of profits from such transaction shall be determined having
regard to arm's length price as defined in clause (ii) of section 92F.
10. The Central Government may, after making such inquiry as it may think fit, direct, by notification in
the Official Gazette, that the exemption conferred by this section shall not apply to any class
of industrial undertaking or enterprise with effect from such date as it may specify in the
notification.
11. Where any undertaking of an Indian company which is entitled to the deduction under this section
is transferred, before the expiry of the period specified in this section, to another Indian company
in a scheme of amalgamation or demerger-
a. no deduction shall be admissible under this section to the amalgamating or the demerged
company for the previous year in which the amalgamation or the demerger takes place; and
b. the provisions of this section shall, as far as may be, apply to the amalgamated or the
resulting company as they would have applied to the amalgamating or the demerged
company if the amalgamation or demerger had not taken place.
This provision is not applicable to any enterprise or undertaking which is transferred in a

scheme of amalgamation or demerger on or after the 1st day of April, 2007.
12. Nothing contained in this section shall apply in relation to a business referred to in sub-section (4)
which is in the nature of a works contract awarded by any person (including the Central or
State Government) and executed by the undertaking or enterprise referred to in sub-section
(1).

Deduction to Developers of SEZ [Section 80-IAB]
1) Eligible Assessee:
a) Available to an assessee, being a Developer,
b) Whose GTI includes any profits derived by an undertaking or an enterprise from any business of
developing a SEZ.
2) QUANTUM AND PERIOD OF DEDUCTION:
100% of profits for any 10 consecutive years out of 15 years beginning from the year in which a
SEZ has been notified by the CG.
[FA 16: Deduction shall not apply to an assessee, being a developer, where the development of
Special Economic Zone begins on or after the 1st day of April, 2017.]
3) TRANSFER OF THE BUSINESS: In a case where an undertaking, being a Developer, who develops a
SEZ and transfers the operation and maintenance of such SEZ to another Developer, the deduction
shall be allowed to such transferee Developer for the unexpired period.
4) AMALGAMATION/DEMERGER: In the case of any amalgamation or demerger, by virtue of which the

Indian company carrying on the eligible business is transferred to another Indian company:
(i) No deduction will be available to the amalgamating company/demerged company, in the year
of amalgamation/demerger.
(ii) The deduction will be available to the amalgamated/resulting company for unexpired
period.

Tax incentives for new start-ups [Section 80-IAC]
 Objective:
In order to provide an incentive to start-ups and aid their growth in the early phase of their
business, new section 80-IAC has been inserted.
 Quantum of deduction:
Accordingly, a deduction of 100% of the profits and gains derived by an eligible start-up from an
eligible business is allowed for any 3 consecutive assessment years out of 7 years beginning
from the year in which the eligible start up is incorporated.
 Eligible Startup means a company or a LLP engaged in eligible business which fulfils the
following conditions, namely:—
i. it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April,
2021;
ii. the total turnover of its business does not exceed 25 crore rupees in any of the previous
year relevant to the Assessment year for which deduction is claimed under section
80-IAC; and
iii. it holds a certificate of eligible business from the Inter-Ministerial Board of Certification
as notified in the Official Gazette by the Central Government
 "Eligible Business" means a business engaged in innovation, development or improvement

of products or processes or services, or a scalable business model with a high potential of
employment generation or wealth creation;
 Conditions to be fulfilled:
This incentive is available to an eligible start-up which fulfils the following conditions:
i. It is not formed by splitting up, or the reconstruction, of a business already in

existence.
However, this condition shall not apply in respect of a start-up which is formed as a result of
the re-establishment, reconstruction or revival by the assessee of the business of any such
undertaking as referred to in Section 33B, in the circumstances and within the period
specified in that section;
ii. It is not formed by the transfer to a new business of machinery or plant previously
used for any purpose.
(a) 20% old machinery is permitted
(b) Second-hand imported machinery is treated as new:
iii. Eligible business to be considered as the only source of income:

For the purpose of computing deduction under this section, the profits and gains of the
eligible business shall be computed as if such eligible business were the only source of
income of the assessee during the relevant previous years.

iv. Audit of Accounts:
The deduction shall be allowed only if the accounts of the start-up for the relevant previous
year have been audited by a chartered accountant and the assessee furnishes the audit
report in the prescribed form, duly signed and verified by such accountant along with his
return of income.
v. Transfer of goods/services between eligible business and other business of the

assessee:
Where any goods or services held for the purposes of the eligible business are transferred to
any other business carried on by the assessee, or vice versa, and if the consideration for
such transfer does not correspond with the market value of the goods or services, then, the
profits and gains of the eligible business shall be computed as if the transfer was made at
market value. However, if, in the opinion of the Assessing Officer, such computation presents
exceptional difficulties, the Assessing Officer may compute the profits on such reasonable
basis as he may deem fit.
vi. Deduction not to exceed profits of eligible business:

The deduction claimed and allowed under this section shall not exceed the profits and gains
of the eligible business.
Further, where deduction is claimed and allowed under this section for any assessment year,
no deduction in respect of such profits will be allowed under any other section under this
chapter.
vii. Assessing Officer empowered to make adjustment in case any transaction produces
excessive profits to eligible business:
The Assessing Officer is empowered to make an adjustment while computing the profit and
gains of the eligible business on the basis of the reasonable profit that can be derived from
the transaction, in case the transaction between the assessee carrying on the eligible
business under section 80-IAC and any other person is so arranged that the transaction
produces excessive profits to the eligible business.
However, if the arrangement involves a specified domestic transaction referred to in

section 92BA, the amount of profits from such transaction shall be determined having
regard to the arm's length price.
viii. Central Government empowered to deny deduction to any class of start-up:

The section empowers the Central Government to declare any class of start-up as not being
entitled to deduction under this section.

NEW EXAMPLE:
A (P) Ltd. was incorporated on 1.4.2017 and it holds a certificate of eligible business from the
notified IMBC. It is engaged in innovation of new products.
Its total turnover and profits and gains from such business for the P.Y. 2017-18 to P.Y. 2023-24
are as follows:
Particulars P.Y. P.Y. P.Y. P.Y. P.Y. P.Y. P.Y.

2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
(` in crores)
Total turnover 15.42 18.36 20.21 22.72 24.95 23.52 24.68
Profits/Losses (2.52) (1.37) 6.52 8.13 9.87 7.59 9.42
Is A (P) Ltd. eligible for any tax benefit under the provisions of the Income-tax Act, 1961 for A.Y.
2020-21? If yes, what is the benefit available?
SOLUTION
A (P) Ltd. is an eligible start-up, since –
1. it is a company engaged in eligible business of innovation of new products.
2. it is incorporated during the period 1.4.2016 to 31.3.2021.
3. its total turnover does not exceed ` 25 crores in the relevant previous years for which deduction
is claimed (i.e., P.Y. 2019-20 to P.Y. 2021-22 (or) P.Y. 2020-21 to P.Y. 2022-23 (or) P.Y. 2021-
22 to P.Y. 2023-24)
4. it holds a certificate of eligible business from the notified IMBC
Therefore, A (P) Ltd., being an eligible start-up, is eligible for deduction under section 80-IAC of 100%
of the profits and gains derived by it from an eligible business for any three consecutive assessment
years out of seven years beginning from the year in which the eligible start up is incorporated i.e., P.Y.
2017-18.
In the first and second year i.e., P.Y. 2017-18 and P.Y. 2018-19, A (P) Ltd. has incurred a loss. In the
current previous year i.e., P.Y. 2019-20, A (P) Ltd. has earned profits from eligible business and can
hence, claim 100% of its profits as deduction for any three consecutive assessment years under section
80-IAC from the P.Y. 2019-20 to P.Y. 2023-24.
However, for P.Y. 2019-20, the profits eligible for deduction would be the profits after set-off of brought
forward losses of P.Y. 2017-18 and P.Y. 2018-19.

Section 80-IBA: Deductions in respect of profits and gains from housing projects
1. Where the GTI of an assessee includes any profits and gains derived from the business of
developing and building housing projects, a deduction of an amount equal to 100% of the
profits and gains derived from such business will be allowed.
2. A housing project shall be a project which fulfils the following conditions, namely:—
(a) the project is approved by the competent authority after the 1st day of June, 2016, but on
or before the 31st day of March, 2019 2020;
(b) the project is completed within a period of 5 years from the date of approval by the
competent authority:
Provided that,-
(i) where the approval in respect of a housing project is obtained more than once, the
project shall be deemed to have been approved on the date on which the building
plan of such housing project was first approved by the competent authority; and
(ii) the project shall be deemed to have been completed when a certificate of completion
of project as a whole is obtained in writing from the competent authority;
(c) the built-up area of the shops and other commercial establishments included in the housing
project does not exceed 3% of the aggregate built-up area;
(d) the project is on a plot of land measuring not less than-
(i) 1000 square metres, where the project is located within the cities of Chennai, Delhi,
Kolkata or Mumbai [for housing project approved on or after 01-09-2019; within
the metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region
(limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad),
Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region)]; or
(ii) 2000 square metres, where the project is located in any other place;
Note: the project is the only housing project on the plot of land;
(e) the Carpet Area of the residential unit comprised in the housing project does not exceed-
(i) 30 square metres, where the project is located within the cities of Chennai, Delhi,
Kolkata or Mumbai (w.e.f. 01/09/2019; 60 square metres, where the project is
located within the metropolitan cities of Bengaluru, Chennai, Delhi National
Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram,
Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan
Region); or
(ii) 60 square metres (90 square metres from 01/09/2019), where the project is
located in any other place;
(f) where a residential unit in the housing project is allotted to an individual, no other
residential unit in the housing project shall be allotted to the individual or the spouse or the
minor children of such individual;

(g) the assessee maintains separate books of account in respect of the housing project.
(h) w.e.f. 01/09/2019, the stamp duty value of a residential unit in the housing project does
not exceed ` 45 lakhs.
(i) the project utilises -
i. not less than ninety per cent of the floor area ratio permissible in respect of the plot
of land under the rules to be made by the Central Government or the State Government
or the local authority, as the case may be, where such project is located within the
metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to
Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad,
Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or
ii. not less than eighty per cent of such floor area ratio where such project is located in
any place other than the place referred to in sub-clause (i)
3. Nothing contained in this section shall apply to any assessee who executes the housing project
as a works-contract awarded by any person (including the Central Government or the State
Government).
4. Where the housing project is not completed within the period specified under clause (b) of sub-
section (2) and in respect of which a deduction has been claimed and allowed under this section,
the total amount of deduction so claimed and allowed in one or more previous years, shall be
deemed to be the income of the assessee chargeable under the head "Profits and gains of
business or profession" of the previous year in which the period for completion so expires.
5. For the purposes of this section:

"Housing Project" means a project consisting predominantly of residential units with such
other facilities and amenities as the competent authority may approve subject to the
provisions of this section;

Section 80-IB: Deduction to certain industrial undertakings other than
infrastructure development undertakings.
[NO DEDUCTION FOR NEW BUSINESS FROM AY 18-19]
The amount of deduction to an undertaking shall be 100% of the profits for a period of 7
consecutive assessment years, including the initial assessment year, if industrial undertaking
fulfils any of the following, namely-
i. is located in any part of India and has begun or begins commercial production of mineral
oil on or after the 1st day of April, 1997 but not later than the 31st day of March, 2017.
Further, the provisions of this clause shall not apply to blocks licensed under a contract awarded
after the 31st day of March, 2011.
ii. is engaged in refining of mineral oil and begins such refining on or after the 1st day of
October, 1998 but not later than the 31st day of March, 2012;
iii. is engaged in commercial production of natural gas in blocks licensed under the VIII Round
of bidding for award of exploration contracts (hereafter referred to as "NELP-VIII") under the New
Exploration Licencing Policy and begins commercial production of natural gas on or after the 1st
day of April, 2009 but not later than the 31st day of March, 2017;
iv. is engaged in commercial production of natural gas in blocks licensed under the IV Round of
bidding for award of exploration contracts for Coal Bed Methane blocks and begins commercial
production of natural gas on or after the 1st day of April, 2009 but not later than the 31st day
of March, 2017

80-IC: Special provisions in respect of certain undertakings or enterprises
in certain special category States.
1. This section applies to any undertaking or enterprise,-
a. which has begun or begins to manufacture or produce any article or thing, not being any article or
thing specified in the Thirteenth Schedule, or undertakes substantial expansion during the period
beginning-
on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any notified area,
in the State of Himachal Pradesh or the State of Uttaranchal;
b. which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth
Schedule or commences any operation specified in that Schedule, or undertakes substantial expansion
during the period beginning-
on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of
Himachal Pradesh or the State of Uttaranchal; or
2. The deduction referred to in sub-section (1) shall be-

100% of such profits and gains for 5 assessment years commencing with the initial assessment
year and thereafter, 25% (or 30% where the assessee is a company) of the profits and gains.
Section 80-ID: Deduction in respect of profits and gains from business of

hotels and convention centres in specified area.
This Section is now not relevant.

Section 80-IE: Deduction to certain undertakings in North-Eastern States
1. This section applies to any undertaking which has, during the period beginning on the 1st day of
April, 2007 and ending before the 1st day of April, 2017, begun or begins, in any of the North-Eastern
States,-
i. to manufacture or produce any eligible article or thing;
ii. to undertake substantial expansion to manufacture or produce any eligible article or thing;
iii. to carry on any eligible business.
2. Deduction: A deduction of an amount equal to 100% of the profits and gains derived from above
business for 10 consecutive AYs commencing with the initial assessment year.
3. "North-Eastern States" means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim and Tripura;
4. "substantial expansion" means increase in the investment in the plant and machinery by at least 25% of
the book value of plant and machinery (before taking depreciation in any year), as on the first day of the
previous year in which the substantial expansion is undertaken;
5. "eligible article or thing" means the article or thing other than the following :—
a. tobacco and manufactured tobacco substitutes;
b. pan masala
c. plastic carry bags of less than 20 microns
d. Specified goods produced by petroleum oil or gas refineries
6. "eligible business" means the business of:

a. Hotel (not below two star category);
b. Adventure and leisure sports including ropeways;
c. Providing medical & health services in the nature of nursing home with a minimum capacity of 25 beds;
d. Running an old-age home;
e. Operating vocational training institute for hotel management, catering and food craft, entrepreneurship
development, nursing and para-medical, civil aviation related training, fashion designing and industrial
training;
f. Running information technology related training centre;
g. Manufacturing of information technology hardware; and
h. Bio-technology.

Deduction in respect of employment of new Employees [Section 80JJAA]
1. Where the GTI of an assessee to whom section 44AB applies, includes any profits and gains
derived from business, a deduction of an amount equal to 30% of additional employee cost incurred in the
course of such business in the previous year shall be allowed, for 3 assessment years including the
assessment year relevant to the previous year in which such employment is provided.
2. No deduction under sub-section (1) shall be allowed:

(a) if the business is formed by splitting up, or the reconstruction, of an existing business:
Provided that nothing contained in this clause shall apply in respect of a business which is formed as
a result of re-establishment, reconstruction or revival by the assessee of the business in the
circumstances and within the period specified in Section 33B;
(b) if the business is acquired by the assessee by way of transfer from any other person or as a result of
any business reorganisation;
(c) unless the assessee furnishes alongwith the return of income the report of the accountant, as defined
in the Explanation to section 288 giving such particulars in the report as may be prescribed.
NOTE:
A. "Additional Employee Cost" means total emoluments paid or payable to additional employees employed
during the previous year:
Provided that in the case of an existing business, the additional employee cost shall be NIL, if-
(a) there is no increase in the number of employees from the total number of employees employed as
on the last day of the preceding year;
(b) emoluments are paid otherwise than by an account payee cheque or account payee
bank draft or by use of electronic clearing system through a bank account or through
any other prescribed electronic mode.:
Provided further that in the first year of a new business, emoluments paid or payable to employees
employed during that previous year shall be deemed to be the additional employee cost;
B. "Additional Employee" means an employee who has been employed during the previous year and whose
employment has the effect of increasing the total number of employees employed by the employer as on the
last day of the preceding year, but does not include,-
(d) an employee whose total emoluments are more than ` 25,000 per month; or
(e) an employee for whom the entire contribution is paid by the Government under the Employees'
Pension Scheme; or
(f) an employee employed for a period of less than 240 days during the previous year (150 days in case
of business of manufacturing of Apparel, footwear or leather products); or
(g) an employee who does not participate in the recognised provident fund;
where an employee is employed during the previous year for a period of less than two hundred and
forty days or one hundred and fifty days, as the case may be, but is employed for a period of two
hundred and forty days or one hundred and fifty days, as the case may be, in the immediately
succeeding year, he shall be deemed to have been employed in the succeeding year and the
provisions of this section shall apply accordingly
C. "emoluments" means any sum paid or payable to an employee in lieu of his employment by whatever
name called, but does not include-
(a) any contribution paid or payable by the employer to any pension fund or provident fund or any other
fund for the benefit of the employee under any law for the time being in force; and
(b) any lump-sum payment paid or payable to an employee at the time of termination of his service or
superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary
retrenchment benefits, commutation of pension and the like.
D. From A.Y. 2017-18, it is not necessary that the employee should qualify as a “workman” under the
Industrial Disputes Act, 1947 for the employer to avail benefit under section 80JJAA.

Section 80PA - Deduction in respect of certain income of Producer
Companies
1. Where the gross total income of an assessee, being a Producer Company having a total turnover of
less than ` 100 crores in any previous year, includes any profits and gains derived from eligible
business, there shall, in accordance with and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction of an amount equal to 100% of the profits
and gains attributable to such business for the previous year relevant to an assessment year
commencing on or after the 1st day of April, 2019, but before the 1st day of April, 2025.
2. In a case where the assessee is also entitled to deduction under any other provision of this Chapter,
the deduction under this section shall be allowed with reference to the income, if any, as referred to
in this section included in the gross total income as reduced by the deductions under such other
provision of this Chapter.
3. "eligible business" means—

a) the marketing of agricultural produce grown by the members; or
b) the purchase of agricultural implements, seeds, livestock or other articles intended for
agriculture for the purpose of supplying them to the members; or
c) the processing of the agricultural produce of the members;

Deduction in respect of certain income of Offshore Banking Units and
International Financial Services Centre [Section 80LA]
A. Eligible assessee:
This section is applicable to the following assessees -
a. a scheduled bank having an Offshore Banking Unit in a SEZ; or
b. any bank, incorporated by or under the laws of a country outside India, and having an
Offshore Banking Unit in a SEZ; or
c. a Unit of an International Financial Services Centre (IFSC).
B. Eligible income qualifying for deduction:

The deduction will be allowed on account of the following income included in the gross total
income of such assessees -
a. income from an Offshore Banking Unit in a SEZ; or
b. income from the business referred to in section 6(1) of the Banking Regulation Act, 1949,
with -
1. an undertaking located in a SEZ or
2. any other undertaking which develops, develops and operates or develops, operates and
maintains a SEZ; or
c. income from any Unit of the IFSC from its business for which it has been approved for setting
up in such a Centre in a SEZ.
C. Quantum and period of deduction:
S. Eligible assessee Quantum and period Relevant previous year from

No. of deduction which deduction is allowed
(a) a scheduled bank having an 100% of such income Beginning with the
Offshore Banking Unit in a for 5 consecutive AYs. assessment year relevant to
SEZ, whose GTI includes any the previous year in which:
income referred to in (ii) above Thereafter, 50% of such
income for the next 5 1. the permission under
(b) any bank, incorporated by or consecutive AYs. section 23(1)(a) of the
under the laws of a country Banking Regulation Act,
outside India, and having an 1949 was obtained; or
Offshore Banking Unit in a
SEZ, whose GTI includes any 2. the permission or
income referred to in (ii) above registration under the SEBI
Act, 1992 was obtained; or
(c) Unit of an International 100% of such income
Financial Services Centre for any 10 3. the permission or
(IFSC), whose GTI includes consecutive AYs at registration under any other
any income referred to in (ii) the option of the relevant law was obtained.
above assessee, out of 15
years.
D. Conditions:
The following conditions have to be fulfilled for claiming deduction under this section-
a. The report of a Chartered Accountant in the prescribed form certifying that the deduction has
been correctly claimed in accordance with the provisions of this section, should be submitted
along with the return of income.
b. A copy of the permission obtained under section 23(1)(a) of the Banking Regulation Act,
1949 should also be furnished along with the return of income.
Class Notes

FINAL DT - DEDUCTION SATC 7A.1
“PRACTICAL QUESTIONS – SET A”
1) From the following particulars in respect of Adarsh, an author of books, find out the deduction
allowable to him under section 80C for the AY 2020-21 (amounts in `):
Life insurance premium (on his own life) 22000
Sum assured on the above policy 300000
Contribution to unrecognised provident fund 1000
Contribution to public provident fund 25000
Subscription to National Savings Certificates VIII issue 8000
Accrued interest for one year completed National Savings Certificates VIII issue 8000
Life insurance premium on his mother's life policy 5000
Repayment of bank loan borrowed for the construction of the house 21000
2) Mr. A, aged about 66 years, has earned a lottery income of ` 1,20,000 (gross) during the PY 2019-20. He
also has a business income of ` 30,000. He invested an amount of ` 10,000 in Public Provident Fund
account and ` 24,000 in National Saving Certificates. What is the total taxable income of Mr. A for the AY
2020-21?
3) X (age : 26 years), a resident individual, has income of ` 6,95,000 [i.e., ` 4,10,000 from a business in Delhi
and ` 2,85,000 from a property in Bombay) during the previous year 2019-20. Find out his net income for
the assessment year 2020-21 taking into consideration the following payments —
`
1. Life insurance premium on own-life paid by X in cash on March 31, 2020 33,334
(sum assured ` 4,00,000)
2. Contribution towards pension fund of LIC 11,000
3. Mediclaim insurance premium on the life of dependent father (age : 67 years and last
foreign travel : during 1994-95) paid by cheque on April 20, 2019 19,000
4. Medical treatment of dependent brother (being a person with disability) 5,000
5. Deposit with LIC for the maintenance of the dependent brother (being a person with
disability) 20,000
4) Discuss the allowability of the following:
i) Rajan has to pay to a Hospital for treatment ` 42,000 and spent nothing for Life Insurance or for
maintenance of dependant (being a person with disability).
ii) Rajan has incurred for treatment Rs. Nil in the previous year and deposited ` 25,000 with LIC for
maintenance of dependants (being persons with severe disability).
iii) Rajan has incurred ` 20,000 for treatment and ` 25,000 was deposited with LIC for maintenance of
dependants, (being person with disability)
5) A submits the following information regarding his income for the previous year 2019-20.
`
1. Salary Income (computed) 1,90,000
2. Rent received from property in Delhi (per month) 4,000
3. Winning from lottery (Gross) 15,000
He makes the following deposits / payments during the year

1. Contribution towards PPF 10,000
2. Premium paid in cash on Mediclaim policy of his dependant father 8,000
He has a son being a person with disability, dependent on him, for whom he incurs expenses of his
medical treatment and rehabilitation. He also deposits a sum of ` 25,000 for the benefit of his son under a
scheme framed by the UTI for such a purpose.
Compute his total income for the assessment year 2020-21.
6) Mr. X is a resident individual. He deposits a sum of ` 25,000 with Life Insurance Corporation every year for
the maintenance of his handicapped grandfather who is wholly dependent upon him. The disability is one
which comes under the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995. A copy of the certificate from the medical authority is submitted. Compute the
amount of deduction available under section 80DD for the A.Y. 2020-21. What will be the deduction if
Mr. X had made this deposit for his dependant father?
7) The Gross Total Income of A for the Previous Year 2019-20 as computed is ` 2,50,000 which includes
` 1,65,000 Long-Term Capital Gain and ` 10,000 on account of Short-Term Capital Gain. Besides the
above he provides you the following information –
(a) He has deposited ` 12,000 to effect a contract for annuity plan of LI.C.
(b) He paid the following premium to the New India Assurance Co. Ltd for Mediclaim scheme for himself &
his relatives. `.
(i) his own health 1,000
(ii) for health of spouse 600
(iii) Major son not dependent on him 800
(iv) Mother dependent on him 1,200
(v) Brother dependent on him 1,100
(c) One of his brothers is totally blind and dependent on him for medical treatment and ` 10,000
rehabilitation. A spends on his blind brother.
(d) He has also deposited ` 25,000 in a Scheme framed by UTI for maintenance of his handicapped
dependent brother.
Compute his Total Income for the Assessment Year 2020-21
8) X, suffers from disability duly certified by a specialist. X is employed as personal assistant to the Managing
Director in a private company on a monthly salary of ` 12,000. Besides, X submits the following particulars of
income for the year ending 31.3.2020:
Interest from Indian companies ` 5,000
Dividend from UTI ` 3,000
Interest from bank FD ` 5,000
Determine the taxable income for the assessment year 2020-21
9) X is a Personal Secretary of a Managing director in a Public sector undertaking. X suffers from severe
physical disability, Monthly salary drawn is ` 12,000/-. Further, interest is earned on Fixed deposits with
banks ` 15,000/-, from private companies ` 7,000/- income from UTI ` 2,000. You are required to compute
the taxable income of X for A.Y. 2020-21
10) Compute the total income of Mr. Sonu (blind from birth) for the AY 2020-21, after taking into account
the following information:
(1) Salary from a publishing house for working as an artist (no allowances received) 1,36,000p.a.
(2) Income from sale of paintings made by self 3,25,000
(3) Winnings from lottery 60,000
(4) Dividend from a foreign company 10,000
(5) Fixed deposit with scheduled Bank in accordance with notified scheme 10,000
(6) Payment of rent of self-occupied house 50,000
(7) Donation to PM's National Relief Fund 4,000
It was found during the year that he is suffering from cancer. Sonu spent ` 30,000 for treatment of
cancer, out of which ` 10,000 were reimbursed by his employer.
11) X (35 years) is a resident individual. During the PY 2019-20, he incurs the following expenditure—
Actual reimbursed by Amount re-
Amount insurance imbursed by
expenditure company ` employer of
X`
`
Medical treatment (specified disease) of X in a 30,000 Nil 28,000
Government hospital
Medical treatment (specified disease) of Mrs. X in a 14,000 3,000 6,000
hospital recognised by Chief Commissioner
Salary of X is ` 4,50,000 p.a. In the two cases, disease is specified in the rules made by the Board. Find out
the net income of X for the AY 2020-21.
12) Mr. B has taken three education loans on April 1, 2019, the details of which are given below:
Loan 1 Loan 2 Loan 3
For whose education loan was taken B Son of B Daughter of B
Purpose of loan MBA B. Sc. B.A.
Amount of loan (`) 5,00,000 2,00,000 4,00,000
Annual repayment of loan (`) 1,00,000 40,000 80,000
Annual repayment of interest (`) 20,000 10,000 18,000
Compute the amount deductible under section 80E for the AY 2020-21
13) X (34 years), a resident ind, submits the following particulars of his income for the PY 2019-20:
Business income 83,000
Interest on debentures 49,000
Long-term capital gains on transfer of gold 4,10,000
Short-term capital gain on sale of shares taxable under section 111A 20,000
Other short-term capital gain 10,000
Contribution towards public provident fund 40,000
Payment of medical insurance premium on own life 3,000
Donation to the National Trust for welfare of persons with Autism 4,000
Donation to the fund set up by the Gujarat Government for providing relief to victims of 3,000
earthquake in Gujarat
Donation to Rajiv Gandhi Foundation 1,000

Donation to the Prime Minister's Drought Relief Fund 5,000
Donation to approved public charitable institution 11,000
Donation to a poor boy for higher education 5,000
Donation of clothes to an approved institution 12,000
Donation to a charitable institution for construction of a rest house only for a particular
religious community 8,000
Determine the net income of X for the AY 2020-21
14) X, an Indian citizen, gives the following particulars of his income and expenditure of the previous
year-2019-20:
Business income 11,05,500
Winnings from lottery 1,04,500
Contribution towards public provident fund 70,000
Donation to the Prime Minister's National Relief Fund 51,000
Donation to the Government of India for promotion of family planning 33,000
Donation to a public charitable institute (being an approved institution for section 80G) 1,12,000
Determine the net income of X for the AY 2020-21.
15) Mr. Brown supplies you the following information for the year ended 31.3.2020.
`
Interest on bank deposits (Time) 59,000
Dividend on shares of foreign companies received abroad 50,000
Interest from deposits in Indian Companies (gross) 30,000
Income from horse races in India 17,500
Mr. Brown is a non-resident. He has donated a sum of ` 15,000 to Municipal Corporation of Delhi for family
planning. He has paid ` 2,000 by cheque to New India Assurance Company for mediclaim for himself. He has
also spent ` 6,000 on medical treatment of his minor son who is physically handicapped.
Compute total income of Mr. Brown for the assessment year 2020-21.
16) A has computed his income under various heads for the previous year 2019-20 as under:
`
(a) Income under the head salary (computed) 2,51,000
(b) Income under the head house property (-) 10,000
(c) Profits and Gains of business or profession 40,000
(d) Capital Gains - Short-term 20,000
- Long-term 30,000 50,000

(e) Income from other sources
- Winnings of lotteries 10,000
- Interest on Government Securities 12,000 22,000
A also submits the following information :

(1) Payment made by cheque for Mediclaim policy 6,000
(2) Expenses on Medical treatment of dependent son being a person 15,000
with disability
(3) Payment of interest to Canara Bank, which was taken for pursuing
approved higher education 25,000
(4) Donations to :
Prime Minister's Drought Relief Fund 1,000
National Fund for Communal Harmony 2,000
Jawaharlal Nehru Memorial Fund . 2,000
Prime Minister's National Relief Fund 1,200
Government for Family Planning 27,000
Approved Charitable Institution 3,000
Compute the Total Income for assessment year 2020-21 if he deposits ` 20,000 in his PPF Account
during the previous year.
17) Compute the total income of Mr. Kamal for the assessment year 2020-21 (All Amounts in `) :
Salary received 2,55,000

Rent received from let out property 1,20,000
Long term capital gains 2,40,000
Short term capital loss 80,000
Agricultural income from Nepal 1,00000
He has made the following payments :

Donation to Scientific research association 50,000
Repayment of loan taken for his higher education (Interest included ` 80,000) 1,24000
Donation to National Children's Fund 5,000
Donation to approved charitable institution 16000
Donation Prime Minister's National Relief Fund 8,000
Payment by cheque to General Insurance Corporation for insuring health of his 15,000
dependant father, being a senior citizen
Expenses on medical treatment of his dependant disabled mother (severe 3,000
disability)
18) X, a professional tax consultant, based at New Delhi furnishes the following particulars of his income/
expenditure relevant for the AY 2020-21:
`
Income from profession 6,80,000
Short-term capital gain (covered by section 111A) 4,000
Long-term capital gain 10,000
Winning from a camel race 1,700
Winning from a horse race 2,000
Winning from lottery 1,600
Income from other sources (except above) 10,000
`
Payment of medical insurance premium on own life 13,000
Payment of rent 80,000
Contributions towards public provident fund 70,000
Determine the amount deductible under section 80GG and the net income for the AY 2020-21
19) X, a Chartered Accountant, derives ` 1,63,000 as taxable professional income. Income of X from other
sources is ` 32,000. He pays Mediclaim insurance premium ` 2,000 for insuring-the health of his non -
dependant parents; ` 3,000 for self and spouse and ` 2,000 for his brother. He incurs ` 12,000 expenditure
on medical treatment of his dependant mentally retarded (severe disability) sister in approved hospital duly
certified. He pays rent of ` 2,500 per month. Calculate his TI for AY 2020-21 after claiming deductions u/c
VI-A
FINAL DT - DEDUCTION SATC 7B.1
SOLUTION - DEDUCTION
Solution 1:
Computation of deduction allowable to Adarsh under section 80C
Life insurance premium on his own life (fully allowed as premium is less than 10% of sum 22000
assured)
Contribution to PPF 25000
Subscription to National Savings Certificates VIII issue 8000
Accrued interest for one year completed NSC VIII issue - It is reinvested, hence, eligible 8000
Repayment of bank loan borrowed for the construction of the house 21000
Total 84000
Note: Life insurance premium on mother's life policy is not eligible for deduction u/s 80C.
Solution 2:
Computation of total taxable income of Mr. A for AY 2020-21
Particulars ` `
Profits and gains from business or profession 30,000
Income from other sources - lottery income 1,20,000
Less: Deductions under Chapter VIA [See Note below ]
Under section 80C - Deposit in Public Provident Fund 10,000
- Investment in National Saving Certificate 24,000
34,000
Restricted to 30,000
Note: Though the value of eligible investments is ` 34,000, however, deductions under chapter
VIA cannot exceed the Gross Total Income exclusive of Long Term Capital Gain, Short Term Capital Gain
covered under section 111A, winnings of lotteries etc of the assessee. Therefore maximum permissible deduction
under section 80C = ` 1,50,000 – ` 1,20,000 = ` 30,000.
Solution 3:
`
Property income 2,85,000
Less : Deductions under sections 80C to 80U
Under section 80C [payment of life insurance] 33,334
Under section 80CCC [contribution towards pension fund of LIC] 11,000
Under section 80D [mediclaim insurance premium on the health of dependent father ] 19,000
Under section 80DD [the amount of deduction is ` 75,000 irrespective of the amount
incurred or deposited under Option 1 and/or Option 2] 75,000
Net Income (Rounded off) 5,56,670
Solution 4:
i) The deduction of ` 75,000 under section 80DD is allowed in full irrespective of the expenditure actually
incurred/paid by the assessee.
ii) The assessee Rajan (assumed to be resident in India) has deposited ` 25,000 for maintenance of
handicapped dependent. The assessee is, however, eligible to claim ` 125,000, since the deduction of
` 125,000 allowed in full irrespective of the amount deposited with LIC in case of severe disability.
iii) Section 80DD allows a deduction of ` 75,000 irrespective of the actual amount spent on maintenance of
handicapped dependent and/or actual amount deposited with LIC. Therefore, the deduction will be ` 75,000
even though the total amount incurred/deposited is ` 45,000.
Solution 5:
Income from salary 1,90,000
Income from house property
Rent received ` 4,000 x 12 48,000
Less: 30% as standard deduction 14,400 33,600
Income from Other sources
Winnings from lotteries 15,000
Less deductions u/s 80C to 80U
i. 80C 10,000
ii. 80D(as payment is made in cash) Nil
iii. 80DD 75,000 85,000
Total income 1,53,600
Solution 6:
Since the amount deposited by Mr. X was for his grandfather, he will not be allowed any deduction under
section 80DD. The deduction is available if the individual assessee incurs any expense for a dependant
disabled relative. Grandfather does not come within the definition of dependant relative.
What will be the deduction if Mr. X had made this deposit for his dependant father?- Since the
expense was incurred for a dependant disabled relative, Mr. X will be entitled to claim a deduction of
` 75,000 under section 80DD, irrespective of the amount deposited. In case his father has severe
disability, the deduction would be ` 1,25,000.
Solution 7:
Computation of Total Income and Tax Payable
Particulars ` `
Gross Total Income (including LTCG of ` 1,65,000) 2,50,000
Less: Deduction Under Chapter VIA
U/s 80C – Annuity Plan of LIC 12,000
U/s 80D - Medical Insurance Premium paid (` 1,000 + ` 600 + ` 1,200) 2,800
U/s 80DD - Medical Expenditure on Dependent 1,25,000
Total 1,39,800
Deduction restricted to ` 85,000 [Gross Total Income of ` 2,50,000 Less (85,000)
LTCG of ` 1,65,000] since (a) LTCG is not eligible for Chapter VI-A
deduction, and (b) Deductions cannot exceed Gross Total Income
exclusive of LTCG]
Notes:
1. Mediclaim Premium:
(a) Premium paid on Major Son not dependent on the assessee is not eligible for deduction.
(b) Premium paid on dependent brother is not eligible for deduction.
(c) It is assumed that the premium is not paid in cash.
2. Certificate: It is assumed that Mr. A has obtained the certificate from the Medical Authority and the same is
furnished/ along with the Return of Income.

Solution 8: Computation of taxable income for the AY 2020-21
` `
I. Income from Salary: (12000 x 12 – 50,000) 94,000
II. Income from other sources:
- Interest from Companies 5,000
- UTI Income [Exempt u/s. 10(35)] Nil
- Interest from Bank FD 5.000 10,000
Less : Deduction under Chapter VI-A:
- Sec. 80U 75,000
Taxable Income 29,000
Solution 9:
GTI = (12,000 x 12 - 50,000) + 15,000 + 7,000 + NIL = ` 1,16,000
Deduction = 80U = ` 125000 maximum 116000.
Solution 10:
Computation of Net Income of Sonu for the Assessment Year 2020-21 (amounts in `)
Income from Salary (1,36,000 - 50,000) 86,000
Business Income (sale of paintings made by self) 3,25,000
Income from Other Sources:
Winnings from lottery 60,000
Dividend from a foreign company 10,000 70,000
Less: Deductions under Chapter VIA
Under section 80C (FD with Bank in accordance with notified scheme) 10,000
Under section 80DDB (Medical treatment of cancer) (` 30,000 - ` 10,000) 20,000
Under section 80G (100% of ` 4,000) 4,000
Under section 80GG (See Note) 17,800
Under section 80U 1,25,000 1,76,800
Note: Deduction under section 80GG shall be the least of the following -
a) 5,000 x 12 60,000
b) Rent paid - 10% of Adj. GTI = 50,000 - 10% of (4,81,000 - 10,000 - 20,000 –
4,000 -1,25,000) = 50,000 -10% of 322000= 17,800
c) 25% of Adj. GTI i.e. 3,22,000 80,500
Solution 11:
`
Salary 4,50,000
Perquisite in respect of medical treatment of X and his spouse Nil
Gross salary 4,50,000
Less : Standard deduction u/s 16(ia) 50,000
Salary 4,00,000
Any other income Nil
Less : Deduction under section 80DDB 3,000
Net income 3,97,000
Note - The amount deductible is as follows—
1. actual expenditure (i.e., ` 30,000 + ` 14,000); or
2. ` 40,000 (` 100,000 in the case of senior citizen), whichever is less.
` 40,000 is deductible if nothing is recovered from the insurance company or employer. From the amount
deductible (i.e., ` 40,000 in this case), the amount received from insurance company as well as employer shall be
deducted. Therefore, ` 40,000 - ` 3,000 - ` 28,000 - ` 6,000, i.e., ` 3,000 is deductible.
Solution 12:
Deduction under section 80E is available to an individual assessee in respect of any interest paid by him
in the previous year in respect of loan taken for pursuing his higher education or higher education of his
spouse or children. Higher education means any course of study pursued after senior secondary
examination. Therefore, interest repayment in respect of all the above loans would be eligible for
deduction.
Deduction under section 80E = ` 20,000 + ` 10,000 + ` 18,000 = ` 48,000

Solution 13:
Business Income 83,000
Long-term capital gains 4,10,000
Short-term capital gain under section 111A 20,000
Other short-term capital gain 10,000
Interest on debentures 49,000
Under section 80C in respect of public provident fund 40,000
Under section 80D in respect of medical insurance premium 3,000
Under section 80G in respect of donations [see Note 1] 14,950
Net income 5,14,050
Note 1 - computation of deduction under section 80G in respect of donations

Step 1 - Gross qualifying amount:
Donation to the National Trust for welfare of persons with Autism 4,000
Donation to the fund set up by the Gujarat Government for providing relief to victims of
earthquake in Gujarat 3,000
Donation to Rajiv Gandhi Foundation 1,000
Donation to the Prime Minister's Drought Relief Fund 5,000
Donation to public charitable institutions 11,000
Amount given to a poor student (*not eligible as the donee is not a public charitable institution) —*
Clothes to an institution (*donation in kind is not eligible) —*
Amount for construction of rest house (*not eligible as amount will be utilised for the
benefit of a particular community) —*
Gross qualifying amount 24,000
Step 2 - Net qualifying amount
Donation to the National Trust for welfare of persons with Autism (*without any maximum limit) 4,000*
Donation to the fund set up by the Gujarat Government for providing relief to victims of
earthquake in Gujarat (*without any maximum limit) 3,000*
Donation to Rajiv Gandhi Foundation (*without any maximum limit) 1,000*
Donation to the Prime Minister's Drought Relief Fund (*without any maximum limit) 5,000*
Donation to the public charitable institutions:
It is :
a. ` 11,000 (being amount of donation) ; or
b. ` 9,900 (being 10% of adjusted gross total income calculated under Note 2), whichever is lower.
` 9,900 is, therefore, eligible for net qualifying amount 9,900
Net qualifying amount 22,900
Step 3 - Amount deductible:
50% of ` 15,900 (1,000+5,000+9,900) + 100% of ` 7,000 14,950
Note 2 - adjusted gross total income is calculated as under:

Less : Long-term capital gains 4,10,000
Less: Short-term capital gain under section 111A 20,000
Less : Amount of deduction under sections 80C to 80U except section 80G 43,000
Adjusted gross total income 99,000
Solution 14:
Income from other sources 1,04,500
Less : Deductions
Under section 80C 70,000
Under section 80G [see Note 1] 1,24,500
Net income 10,15,500
Notes :
Computation of Deduction Under Section 80G
Step 1 - Gross qualifying amount
Donation to the Prime Minister's National Relief Fund 51,000
Donation for family planning 33,000
Donation to the public charitable institute 1,12,000
Gross qualifying amount 1,96,000
Step 2 - Net qualifying amount
Donation to the Prime Minister's National Relief Fund (*no maximum limit is prescribed) 51,000*
Donation for family planning and to public charitable institute, amount to be included in
net qualifying amount, is the lower of :
a) ` 1,45,000 (being amount of donation) ; or
b) ` 1,14,000 (being 10% of adjusted gross total income computed under Note 2),
` 1,14,000, being the least, is to be included.
As amount of ` 1,14,000 represents aggregate amount of net qualifying donation in respect
of donation for family planning and to public charitable institute, separate amount in respect
of these will be as follows :
Donation to the Government for promoting family planning 33,000
Donation to the public charitable institute (i.e., `1,14,000 - ` 33,000) 81,000
Net qualifying amount 1,65,000
Step 3 -Amount deductible
100% of amount qualified in respect of donation to the Prime Minister's National Relief
Fund and the Government for family planning 33,000
50% of remaining portion 40,500
Amount deductible under section 80G 1,24,500
2. Adjusted Gross Total Income is calculated as under:

Less: Amount of deductions under sections 80C to 80U (except section 80G) 70,000
Adjusted gross total income 11,40,000
Solution 15:-
Interest on bank deposits 59,000
Interest on deposits 30,000
Horse race 17,500
Gross Total income 1,06,500
Less : Deduction
U/s. 80D 2,000
U/s. 80DD Nil (as non resident)
U/s. 80G 100% of 10,450 [10% of (1,06,500- 2,000)] 12,450
Total Income 94,050
Solution 16:-
` `
Income from salary 2,51,000
Loss from house property (-) 10,000
Business income 40,000
Capital gain short-term 20,000
long-term 30,000 50,000
Income from other sources (10,000 + 12,000) 22,000
Less : Deduction u/s 80C to 80U
(i) U/s 80C 20,000
(ii) U/s. 80D 6,000
(iii) U/s. 80DD 75,000
(iv) U/s. 80E 25,000
(v) U/s. 80G (calculated as under) 25,400 1,51,400
(1) Donation to which qualifying limit is not applicable :

(a) Allowed® 100%
(i) National Fund for Communal Harmony 2,000
(ii) Prime Minister's National Relief Fund 1,200 3,200
(b) Allowed @ 50%
(i) Prime Minister's Drought Relief Fund (` 1,000) 500
(ii) Jawaharlal Nehru Memorial Fund (` 2,000) 1,000 1,500
(2) Donations to which qualifying limit is applicable :
(i) Government for family planning 27,000
(ii) Approved charitable institutions 3,000
30,000
Limited to 10% of Adjusted
Gross Total Income i.e., ` 2,07,000 and it shall be ` 20,700. Since 20,700 20,700
donations to Family Planning are more than the maximum allowable,
hence 100% of the qualifying amount will be allowable
Total deduction for donations u/s 80G. 25,400
Adjusted Gross Total Income is computed as under:

` `
(A) Gross Total Income 3,53,000
Less : (i) Long-term Capital Gain [` 30,000 – ` 10,000 {HP Loss Setoff}] 20,000
(ii) Deductions u/s 80C to 80U
(20,000 + 6,000 + 75,000 + 25,000) 1,26,000 1,46,000
2,07,000
Solution 17:
Computation of Total Income of Shri Kamal for the Assessment Year 2020-21
` `
Salary received (2,55,000 – 50,000) 205000
Income from House Property (` 1,20,000 - 30% of ` 1,20,000) 84000
Capital Gains:
Long term capital gains 240000
Short term capital loss 80000 160000
Income from Other Sources (Agricultural income from Nepal) 100000
Gross Total Income 549000
Less : Deductions under Chapter VIA
(a) 80D for payment to GIC 15000
(b) 80DD (medical treatment of disabled mother) 125000
(c) 80E (interest on loan taken for higher education) 80000
(d) 80GGA (Donation to scientific research association) 50000
(e) 80G (See Note) 18950 288950
Total Income 260050
Note: Deduction u/s 80G = 100% of 5,000 + 100% of 8,000 + {50% of lower of - (a) 16,000 or (b) 10% of
(5,49,000 -1,60,000 -15,000 -1,25,000 - 80,000.- 50,000)} = 5,000 + 8,000 + 50% of 11,900 = ` 18,950.
Solution 18:
` `
Professional income 6,80,000
Capital gains 14,000
Income from other sources :
Winnings from races including horse races 3,700
Winning from lottery 1,600
Other income 10,000 15,300
Under section 80C in respect of public provident fund 70,000
Under section 80D in respect of medical insurance premium 13,000
Under section 80GG in respect of rent paid being the least of the following :
a. ` 60,000 (being ` 5,000 x 12);
b. ` 1,53,075 (being 25% of ` 6,12,300);
c. ` 18,770 (being excess of rent paid over 10% of total income, i.e.,
` 80,000 - 10% of ` 6,12,300)
` 18,770, being the least, is, therefore, deductible 18,770
Net income 6,07,530
Note - "Total income" for the purpose of section 80GG is, ` 6,12,300, i.e., ` 7,09,300 - ` 4,000 -` 10,000 - `
70,000 - ` 13,000.

Solution 19: Computation of Total Income
Particulars ` `
Professional income 1,63,000
Income from other sources 32,000
Less : Deductions under Chapter VI-A
1. Mediclaim Insurance - 80D - (` 3,000 + ` 2,000) 5,000
2. Expenditure for dependant mentally retarded sister 1,25,000
-80DD
3. Rent paid - 80GG - least of the following is eligible
for deduction
i. Excess of Rent paid over 10% of Adjusted GTI
(` 30,000- ` 6,500) = ` 23,500
ii. 25% of Adjusted GTI = 16,250
iii. Ceiling limit ` 5,000 p.m. = ` 60,000 16,250 1,46,250
Total income ` 48,750
Note:
i) Mediclaim insurance for insuring health of X's brother does not qualify for deduction u/s 80D.
ii) Mediclaim insurance for non - dependant parents shall qualify for deduction U/s. 80D
iii) Deduction u/s. 80DD is a flat amount of ` 1,25,000 irrespective of the actual expenditure incurred (for
persons with severe disability).
iv) Total income for the purpose of Sec 80GG
Less: Deduction u/s 80D & 80DD 1,30,000
Adjusted GTI 65,000


FINAL DT - DEDUCTION SATC 7C.1
“PRACTICAL QUESTIONS – SET B”
1. Question:
Following issues have been raised by Navi Limited in connection with its eligibility for
claiming deduction under section 80-IB for your consideration and advice for the
assessment year 2020 21:
i. It operates two separate industrial units. One unit is eligible for deduction under section
80 IB, while the other unit is not eligible for such deduction. If the eligible unit has profit
and the other unit has loss, should it claim deduction after setting off the loss of the
other unit against profit of the eligible unit?
ii. Its profit from one unit includes sale of import entitlement, duty drawback and interest
from customers for delayed payment. Is it permissible to claim deduction on these
items of income?
Answer:
i. Section 80-IB(13) provides that the provisions contained in section 80-IA(5) shall, so far as may be,
apply to the eligible business under section 80-IB. Accordingly, for the purpose of computing the
deduction under section 80-IB, the profits and gains of an eligible business shall be computed as if
such eligible business was the only source of income of the assessee.
Therefore, Navi Limited should claim deduction under section 80-IB on profit from the eligible unit
without setting off loss suffered in the other unit. It may be noted that the aggregate deduction
under Chapter VI-A, however, cannot exceed the gross total income of the assessee.
ii. Under section 80-IB, where the gross total income of an assessee includes any profits and gains
derived from an industrial undertaking referred to in the section, there shall be allowed, in
computing the total income of the assessee, a deduction from such profits and gains at the
specified percentage and for such number of years as specified in the section.
In CIT vs. Sterling Foods (1999) 237 ITR 579 (SC) and Liberty India vs. CIT (2009) 317 ITR 218
(SC), it was held that sale of import entitlement and duty drawback cannot be construed as income
derived from industrial undertaking. Therefore, such income cannot be included in computing
income for the purpose of deduction under section 80-IB.
Interest income derived by an undertaking on delayed collection of sale proceeds shall be

treated as income derived from the industrial undertaking, and therefore, the same would be
eligible for deduction under section 80-IB. [Phatela Cotgin Industries Private Limited vs CIT
(2008) 303 ITR 411 (P & H)].
2. Question:
X Ltd. has two units, unit 'N' and unit 'Y'. Unit 'N' engaged in the business of power
generation installed a windmill in March, 2018 and had a profit of ` 100 lakhs in Assessment
Year 2020-21. X Ltd. claimed depreciation of ` 120 lakhs on windmill against the profit of `
100 lakhs from power generation business which was eligible for deduction under section
80-IA. Unit 'Y', engaged in manufacturing of wires, non-eligible business, had a profit of ` 70
lakhs for Assessment Year 2020-21.
The loss of ` 20 lakhs, i.e., balance depreciation not set off pertaining to unit 'N' was set-off
against the profits of unit 'Y' carrying on non-eligible business, by the assessee, X Ltd.

The Assessing Officer was of the view that depreciation relating to a business eligible for
deduction under section 80-IA cannot be set-off against non-eligible business income.
Hence, unabsorbed depreciation should be carried forward to the subsequent year to be set
off against eligible business income of the assessee of that year.
Examine the correctness of the action of the Assessing Officer.
Answer:
In CIT v. Swarnagiri Wire Insulations Pvt. Ltd. (2012) 349 ITR 245, the Karnataka High Court
observed that it is a generally accepted principle that the deeming provision of a particular section
cannot be breathed into another section. Therefore, the deeming provision contained in
section 80-IA(5) cannot override the provisions of section 70(1).
In this case, X Ltd. had incurred loss in eligible business (power generation) on account of claiming
depreciation of ` 120 lakhs. Hence, section 80-IA becomes insignificant, since there is no profit
from which this deduction can be claimed.
It is, thereafter, that section 70(1) comes into play, whereby an assessee is entitled to set off the
losses from one source against income from another source under the same head of income.
Accordingly, X Ltd. is entitled to the benefit of set off of loss of ` 20 lakhs (representing balance
depreciation not set-off) pertaining to Unit N engaged in eligible business of power generation
against profit of ` 70 lakhs of Unit Y carrying on non-eligible business. Therefore, the net profit of `
50 lakhs would be taxable in the A.Y. 2020-21.
However, once set-off is allowed under section 70(1) against income from another source under
the same head, a deduction to such extent is not possible in any subsequent assessment year i.e.,
the loss (arising on account of balance depreciation of eligible business) so set-off under section
70(1) has to be first deducted while computing profits eligible for deduction under section 80-IA in
the subsequent year.
Accordingly, in the A.Y. 2021-22, the net profits of Unit N has to be reduced by ` 20 lacs for
computing the profits eligible for deduction under section 80-IA in that year.
The action of the Assessing Officer in not permitting set-off of loss of eligible business against
profits of non-eligible business in this case is, therefore, not correct.
3. Lease rent from letting out buildings/developed space along with other amenities in an
Industrial Park /SEZ - to be treated as business income [Circular No. 16/2017, dated
25.04.2017]
The issue whether income arising from letting out of premises/developed space along with other
amenities in an Industrial Park/SEZ is to be charged under head 'Profits and Gains of Business' or
under the head 'Income from House Property' has been subject matter of litigation in recent years.
Assessees claim the letting out as business activity, the income arising from which to be charged to
tax under the head 'Profits and Gains of Business', whereas the Assessing Officers hold it to be
chargeable under the head 'Income from House Property'.
In the case of Velankani Information Systems Pvt Ltd (NJRS Citation [2013-LL-0402-44]), the
Karnataka High Court observed that any other interpretation would defeat the object of section 80-
IA and Government schemes for development of Industrial Parks in the country. SLPs filed in this
case by the Department have been dismissed by the Supreme Court.
In a subsequent judgment dated 30.04.2014 in ITA No. 76 & 78/2012 in the case of CIT v.
Information Technology Park Ltd. (NJRS Citation [2014-LL-0430-141], the Karnataka High Court
has reaffirmed its earlier views. It has held that, since the assessee-company was engaged in the
business of developing, operating and maintaining an Industrial Park and providing infrastructure
facilities to different companies as its business, the lease rent received by the assessee from letting
out buildings along with other amenities in a software technology park would be chargeable to tax
under the head "Profits and gains of business or profession" and not under the head "Income from
house property". The judgment has been accepted by the CBDT.
In view of the above, it is now a settled position that in the case of an undertaking which develops,
develops and operates or maintains and operates an industrial park/SEZ notified in accordance
with the scheme framed and notified by the Government, the income from letting out of
premises/developed space along with other facilities in an industrial park/SEZ is to be charged to
tax under the head 'Profits and Gains of Business'
4. IMP: Admissibility of deduction under Chapter VI-A on the profits enhanced due to
disallowance of expenditure related to business activity [Circular No. 37/2016, Dated
02.11.2016]
Chapter VI-A of the Income-tax Act, 1961, provides for deductions in respect of certain incomes. In
computing the profits and gains of a business activity, the Assessing Officer may make certain
disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the
Act. At times, disallowance out of specific expenditure claimed may also be made. The effect of
such disallowances is an increase in the profits.
The issue is whether such higher profits would also result in claim for a higher profit-linked
deduction under Chapter VI-A.
The courts have generally held that if the expenditure disallowed is related to the business activity
against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on
the enhanced profits.
Some illustrative cases upholding this view are as follows:

i. If an expenditure incurred by assessee for the purpose of developing a housing project was
not allowable on account of non-deduction of TDS under law, such disallowance would
ultimately increase assessee's profits from business of developing housing project. The
ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) would qualify
for deduction under section 80-IB.
ii. If deduction under section 40A(3) is not allowed, the same would have to be added to the
profits of the undertaking on which the assessee would be entitled for deduction under section
80-IB.
In view of the aforesaid judgements, the CBDT has accepted the settled position that the
disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. and other specific
disallowances, related to the business activity against which the Chapter VI-A deduction has been
claimed, result in enhancement of the profits of the eligible business, and that deduction under
Chapter VI-A is admissible on the profits so enhanced by the disallowance.
5. Transport, Power and Interest subsidies received by an Industrial Undertaking –

Eligibility for deduction under sections 80-IB, 80-IC etc., [Circular No. 39/2016, dated
29.11.2016]
The issue of whether revenue receipts such as transport, power and interest subsidies received by
an Industrial Undertaking/ eligible business are part of profits and gains of business derived from its
business activities within the meaning of sections 80-IB/ 80-IC of the Income-tax Act, 1961 and,
thus, eligible for claim of corresponding deduction under Chapter VI-A of the Act has been a
contentious one. Such receipts are often treated as 'Income from other sources' by the Assessing
Officers.

The Hon'ble Supreme Court in its judgment dated 9.3.2016 in the case of Meghalaya Steels Ltd
and other cases has held that the subsidies of transport, power and interest given by the
Government to the Industrial Undertaking are receipts which have been reimbursed for elements of
cost relating to manufacture/sale of the products. Thus, there is a direct nexus between profit and
gains of the industrial undertaking/business and reimbursement of such business subsidies.
Accordingly, such subsidies are part of profits and gains of business derived from the Industrial
Undertaking and are not to be included under the head 'Income from other sources'. Therefore,
deduction is admissible under section 80-1B/ 80-IC of the Act on such revenue receipts derived
from the Industrial Undertaking.
In view of the above, the CBDT has clarified that revenue subsidies received from the Government
towards reimbursement of cost of production/ manufacture or for sale of the manufactured goods
are part of profits and gains of business derived from the Industrial Undertaking/ eligible business,
and are thus, admissible for applicable deduction under Chapter VI-A of the Income-tax Act, 1961.
6. Gurudev Engineers Pvt. Ltd. is running an industrial undertaking whose profits are eligible for
deduction under section 80-IA of the Income-tax Act, 1961. During the year ended 31.03.2020, the
undertaking was engaged in eligible business referred to in section 80-IA(4), which however,
consisted solely of executing works contract awarded by the State Government. Is the assessee
eligible to claim deduction under section 80-IA(4) in respect of profits derived from this undertaking?
Answer
Section 80-IA(1) provides a ten year tax holiday in respect of profits and gains derived by an undertaking or
an enterprise from an eligible business i.e., business referred to in sub-section (4).The Explanation to the said
section clarifies that the tax holiday under section 80-IA would not be available in relation to a business
referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the
Central or State Government) and executed by the undertaking or enterprise referred to in section 80-IA(1).
Therefore, the assessee cannot claim deduction under section 80-IA(4) in respect of the profits derived from
this undertaking for the assessment year 2020-21, since, during the year ended 31.3.2020, the undertaking
was solely engaged in executing works contract awarded by the State Government.
7. CG Ltd. is engaged in the business of conversion of jumbo rolls of films into saleable packets/rolls of
standard size. The company seeks your opinion on whether the said process amounts to
“manufacture” for the purpose of claim deduction under Section 80-IB?
Answer
The issue in this case is whether conversion of jumbo rolls of films into saleable packets/rolls of standard size
would amount to “manufacture” of an article or thing for the purpose of claiming deduction under section 80-
IB.
As per section 2(29BA), “manufacture” with all its grammatical variations, means a change in a non-
living physical object or article or thing:-
(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing
having a different name, character and use; or
(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition
or integral structure.
The conversion of Jumbo rolls of films into rolls of standard size/saleable packets would not amount to
“manufacture”, as there is no transformation of the original article/thing i.e. jumbo rolls. Rolls of standard size
will not have a different character or use. Therefore, the activity of conversion of jumbo rolls of film into rolls of
standard size does not amount to “manufacture” for the purpose of deduction under section 80-IB.
Note - Deduction under section 80-IB is available to any industrial undertaking which, interalia, manufactures
or produces any article or thing. It is possible to take a view that even though conversion of jumbo rolls
of films into rolls of standard size does not fall within the meaning of “manufacture”, it may fall within
the meaning of production, which has a wider connotation than the word “manufacture”, hence, be
entitled to deduction under section 80-IB.

8. A company which is entitled to claim deduction under section 80-IB has received duty drawback
under a scheme framed by the Central Government under the Customs Act, 1962. Can such duty
drawback form part of the profit of eligible undertaking for the purpose of deduction under section
80-IB?
Answer
Section 80-IB provides for allowing deduction in respect of profits and gains derived from eligible business of
the industrial undertaking.
The issue under consideration is whether duty drawback can be regarded as “profits and gains derived from
eligible business of the industrial undertaking”.
For a receipt to be treated as having been “derived from” the industrial undertaking, the same should be
directly and inextricably connected with the business of the industrial undertaking. The connection should be
direct and not remote.
The facts of the case are similar to the facts of the case in Liberty India v. CIT (2009) 317 ITR 218, wherein
the Supreme Court observed that duty drawback is an incentive which flows from the schemes framed by the
Central Government or from the Customs Act, 1962. Profits derived by way of incentives such duty drawback
cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do
not fall within the expression “profits derived from industrial undertaking” under section 80-IB.
They belong to the category of ancillary profits of such undertaking. Hence, duty drawback receipts cannot
form part of the profits derived from the eligible business for the purpose of the deduction under section 80-IB.
Applying the same rationale to the present case, duty drawback would not form part of profit of eligible
undertaking for the purpose of deduction under section 80-IB.
9. ABC Ltd. raises the following issues in connection with its eligibility for claiming deduction under
section 80-IB for your consideration and advice for the A.Y. 2020-21:
(i) It operates two separate industrial units. One unit is eligible for deduction under section 80-IB,
while the other unit is not eligible for such deduction. If the eligible unit has profit and the
other unit has loss, should it claim deduction after setting offthe loss of the other unit against
profit of the eligible unit?
(ii) If the company had not claimed deduction under section 80-IB in the first three years, can it
claim the deduction for the remaining years during the period of eligibility?
(iii) Can DEPB benefit and Duty Drawback be treated as “profit derived from the business of the
industrial undertaking” to be eligible for deduction under section 80-IB?
Solution
(i) Section 80-IB(13) provides that the provisions contained in section 80-IA(5) shall, so far as may be,
apply to the eligible business under section 80-IB. Accordingly, for the purpose of computing the
deduction under section 80-IB, the profits and gains of an eligible business shall be computed as if
such eligible business was the only source of income of the assessee.
Therefore, ABC Limited should claim deduction under section 80-IB on profit from the eligible unit
without setting off loss suffered in the other unit. It may be noted that the aggregate deduction under
Chapter VIA, however, cannot exceed the gross total income of the assessee.
(ii) On this issue, the Delhi High Court, in Praveen Soniv. CIT (2011) 333 ITR 324, held that the
provisions of section 80-IB no where stipulated a condition that the claim for deduction under this
section had to be made from the first year of qualification of deduction failing which the claim will not
be allowed in the remaining years of eligibility.
Therefore, the deduction under section 80-IB should be allowed to the assessee for the remaining
years up to the period for which his entitlement would accrue, provided the conditions mentioned
under section 80-IB are fulfilled.
Accordingly, ABC Ltd. can claim deduction for the remaining years during the period of eligibility,
even if it has not claimed deduction in the first three years, subject to fulfilment of conditions
mentioned in section80-IB.

(iii) Under section 80-IB, where the gross total income of an assessee includes any profits and gains
derived from an industrial undertaking referred to in the section, there shall be allowed, in computing
the total income of the assessee, a deduction from such profits and gains at the specified percentage
and for such number of years as specified in the section.
In Liberty India vs. CIT (2009) 317 ITR 218 (SC), it was held that incentive profits are not profits
derived from eligible business under section 80-IB. They belong to the category of ancillary profits of
such undertaking.
Incentive profits such as DEPB/Duty drawback cannot be credited against the cost of manufacture of
goods debited in the profit and loss account and they do not fall within the expression "profits derived
from industrial undertaking" under section 80-IB. Hence, duty drawback receipts and DEPB benefits do
not form part of the profits derived from the eligible business for the purpose of deduction under section
80-IB.
Therefore, ABC Ltd. cannot treat DEPB benefit and duty drawback as “profit derived from the
industrial undertaking” for claiming benefit of deduction under section 80-IB.
10. PQR Ltd. is engaged in commercial production of mineral oil. It claimed deduction under section 80-
IB in respect of profits and gains derived by it from such business, including transport subsidy,
interest subsidy and power subsidy received from the Government.
The Assessing Officer disallowed the deduction in respect of these three subsidies contending that
such subsidies were not “derived” from the business of commercial production of mineral oil but
belonged to the category of ancillary profits and hence do not qualify for deduction under section 80-
IB. Discuss the correctness of the action of the Assessing Officer.
Solution:
As per section 80-IB(1) read with section 80-IB(9), where the gross total income of an assessee includes any
profits and gains derived from, inter alia, the business of commercial production of mineral oil, deduction will
be allowed at 100% of such profits for a period of seven consecutive assessment years.
The issue under consideration in this case is whether transport subsidy, interest subsidy and power subsidy
received from the Government can be treated as profits derived from business or undertaking to qualify for
deduction under section 80-IB.
This issue came up before the Supreme Court in CIT v. Meghalaya Steels Ltd. (2016) 383 ITR 217, wherein it
was observed that an important test to determine whether the profits and gains are derived from business or
an undertaking is that there should be a direct nexus between such profits and gains and the undertaking or
business. Such nexus should not be only incidental. The profits and gains referred to in section 80-IB has
reference to net profit, which can be calculated by deducting from the sale price of an article, all elements of
cost which go into manufacturing or selling it. Thus, the profits arrived at after deducting manufacturing costs
and selling costs reimbursed to the assessee by the Government, is the profits and gains derived from the
business of the assessee.
The Supreme Court observed that section 28(iiib) specifically states that income from cash assistance, by
whatever name called, received or receivable by any person against exports under any scheme of the
Government of India, will be income chargeable to income-tax under the head “Profits and gains of business
or profession”. The Apex Court further observed that if cash assistance received or receivable against exports
schemes are being included as income under the head “Profits and gains of business or profession”,
subsidies which go to reimbursement of cost in the production of goods of a particular business would also
have to be included under the head “Profits and gains of business or profession”, and not under the head
“Income from other sources”.
Accordingly, the Supreme Court held that transport subsidy, interest subsidy and power subsidy from
Government were revenue receipts which were reimbursed to the assessee for elements of cost relating to
manufacture or sale of their products. Therefore, there is a direct nexus between profits and gains of the
undertaking or business, and reimbursement of such subsidies. The subsidies were only in order to
reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its
products.

Applying the rationale of the Supreme Court ruling in the above case, the action of the Assessing
Officer in not allowing deduction under section 80-IB in respect of transport subsidy, interest subsidy
and power subsidy received by PQR Ltd. from the Government, is not correct.
11. Mr. A has commenced the business of manufacture of computers on 1.4.2019. He employed 350 new
employees during the P.Y. 2019-20, the details of whom are as follows –
No. of Date of Total monthly

employees employment Regular/Casual emoluments per
employee (``)
(i) 75 1.4.2019 Regular 24,000
(ii) 125 1.5.2019 Regular 26,000
(iii) 50 1.8.2019 Casual 25,500
(iv) 100 1.9.2019 Regular 24,000
The regular employees participate in recognized provident fund while the casual employees do not.
Compute the deduction, if any, available to Mr. A for A.Y. 2020-21, if the profits and gains derived from
manufacture of computers that year is ` 75 lakhs and his total turnover is ` 2.16 crores.
What would be your answer if Mr. A has commenced the business of manufacture of footwear on
1.4.2019?
SOLUTION
Mr. A is eligible for deduction under section 80JJAA since he is subject to tax audit under section 44AB for
A.Y. 2020-21, as his total turnover from business exceeds ` 1 crore and he has employed “additional
employees” during the P.Y. 2019-20.
1. If Mr. A is engaged in the business of manufacture of computers:

Additional employee cost = ` 24,000 × 12 × 75 [See Working Note below] = ` 2,16,00,000
Deduction under section 80JJAA = 30% of ` 2,16,00,000 = ` 64,80,000.
Working Note:
Number of additional employees
Particulars No. of workmen
Total number of employees employed during the year 350
Less: Casual employees employed on 1.8.2019 who do not participate in 50

recognized provident fund
Regular employees employed on 1.5.2019, since their total monthly

emoluments exceed ` 25,000 125
Regular employees employed on 1.9.2019 since they have been employed for 100
less than 240 days in the P.Y. 2019-20.
Number of “additional employees” 75
Notes –
(i) Since casual employees do not participate in recognized provident fund, they do not qualify as additional
employees. Further, 125 regular employees employed on 1.5.2019 also do not qualify as additional
employees since their monthly emoluments exceed ` 25,000. Also, 100 regular employees employed on
1.9.2018 do not qualify as additional employees for the P.Y. 2019-20, since they are employed for less
than 240 days in that year.

Therefore, only 75 employees employed on 1.4.2019 qualify as additional employees, and the total
emoluments paid or payable to them during the P.Y. 2019-20 is deemed to be the additional employee
cost.
(ii) As regards 100 regular employees employed on 1.9.2019, they would be treated as additional employees
for previous year 2020-21, if they continue to be employees in that year for a minimum period of 240
days. Accordingly, 30% of additional employee cost in respect of such employees would be allowable as
deduction under section 80JJAA in the hands of Mr. A for the A.Y. 2021-22.
2. If Mr. A is engaged in the business of manufacture of footwear

If Mr. A is engaged in the business of manufacture of footwear, then, he would be entitled to deduction
under section 80JJAA in respect of employee cost of regular employees employed on 1.9.2019, since
they have been employed for more than 150 days in the previous year 2019-20.
Additional employee cost = ` 2,16,00,000 + ` 24,000 × 7 × 100 = ` 3,84,00,000

Deduction under section 80JJAA = 30% of ` 3,84,00,000 = ` 1,15,20,000

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S. No. Particulars Page No.

1 Tax Rates 1.1 – 1.22

2 Agriculture Income 2.1 – 2.2