Other deductions
The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- i the amount of any premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purposes of the business or profession ia the amount of any premium paid by a federal milk co- operative society to effect or to keep in force an insurance on the life of the cattle owned by a member of a co- operative society, being a primary society engaged in supplying milk raised by its members to such federal milk co- operative society ib the amount of any premium paid by cheque by the assessee as an employer to effect or to keep in force an insurance on the health of his employees under a scheme framed in this behalf by the General Insurance Corporation of India formed under section 9 of the General Insurance Business Nationalisation Act, 1972 57 of 1972 and approved by the Central Government ii any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission Omitted by the Direct Tax Laws Amendment Act, 1987 , w. e. f. 1- 4- 1989 . Omitted by the Direct Tax Laws Amendment Act, 1987 , w. e. f 1- 4- 1989 . iia a sum equal to one and one- third times the amount of the expenditure incurred on payment of any salary for any period of employment before the 1st day of March, 1984 to an employee who, as at the end of the previous year,- 1. Inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980. 2. Inserted by the Income- tax Amendment Act, 1986, w. e. f. 1- 4- 1987. 4. Prior to the omission, the first proviso, as inserted by the Payment of Bonus Amendment Act, 1976, w. r. e. f. 25- 9- 1975, read as under Provided that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 21 of 1965 apply shall not exceed the amount of bonus payable under that Act 5. Prior to the omission, the second proviso, as amended by the Payment of Bonus Amendment Act, 1976, w. r. e. f. 25- 9- 1975, read as under Provided further that the amount of the bonus not being bonus referred to in the first proviso or commission is reasonable with reference to- a the pay of the employee and the conditions of his service b the profits of the business or profession for the previous year in question and c the general practice in similar business or profession. 6. Inserted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 7. Inserted by the Finance Act, 1984, w. e. f. 1- 4- 1984. a is totally blind, or b is subject to or suffers from a permanent physical disability other than blindness which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation Provided that the assessee produces before the Assessing Officer, in respect of the first assessment for which deduction is claimed in relation to each employee under this clause,- i in a case referred to in sub- clause a , a certificate as to his total blindness from a registered medical practitioner being an oculist and ii in a case referred to in sub- clause b , a certificate as to the permanent physical disability referred to in the said sub- clause from a registered medical practitioner Provided further that nothing contained in this clause shall apply in the case of an employee whose income in the previous year chargeable under the head Salaries exceeds twenty thousand rupees. Explanation 1-In this clause, salary includes the pay, allowances, bonus or commission payable monthly or otherwise. Explanation 2.- For the removal of doubts, it is hereby declared that where a deduction under this clause is allowed for any assessment year in respect of any expenditure, deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year iii the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession. Explanation.- Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause iv any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual 1. Substituted for Income- tax by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1988. contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head Salaries or to the contributions or to the number of members of the fund v any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust va any sum received by the assessee from any of his employees to which the provisions of sub- clause x of clause 24 of section 2 apply, if such sum is credited by the assessee to the employee s account in the relevant fund or funds on or before the due date. Explanation. For the purposes of this clause, due date means the date by which the assessee is required as an employer to credit an employee s contribution to the employee s account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise vi in respect of animals which have been used for the purposes of the business or profession otherwise than as stock- in- trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realised in respect of the carcasses or animals Vii subject to the provisions of sub- section 2 , the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year Provided that in the case of a bank to which clause viia applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause viia in respect of any provision for bad and doubtful debts made by- 2. Inserted by the Finance Act, 1987, w. e. f. 1- 4- 1988. 4. Substituted for any debt, or part thereof, which is established to have become a bad debt in the previous year by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1989. 5. Inserted by the Finance Act, 1985, w. e. f. 1- 4- 1985. 6. Inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980. See rule 6A BA. 7. Substituted for in respect of any provision for bad and doubtful debts made by a scheduled bank not being a bank approved by the Central Government for the purposes of clause viiia or a bank incorporated by or under the laws of a country outside India or a non- scheduled bank, an amount not exceeding ten per cent of the total income income computed before making any deduction under this clause and Chapter a a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a nonscheduled bank, an amount not exceeding five per cent of the total income computed before making any deduction under this clause and Chapter VIA and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner b a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income computed before making any deduction under this clause and Chapter VIA . c a public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, an amount not exceeding five per cent of the total income computed before making any deduction under this clause and Chapter VIA . Explanation.- For the purposes of this clause,- i non- scheduled bank means a banking company as defined in clause c of section 5 of the Banking Regulation Act, 19495 10 of 1949 , which is not a scheduled bank ia rural branch means a branch of a scheduled bank or a non- scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ii scheduled bank means the State Bank of India 999999. VI- A or an amount not exceeding two per- cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher by the income- tax Amendment Act, 1986, w. e. f. 1- 4- 1987. Earlier, these words were substituted for in respect of any provision for bad and doubtful debts made by a scheduled bank or, a non- scheduled bank in relation to the advances made by its rural branches, an amount not exceeding one and a half per cent of the aggregate average advances made by such branches, computed in the prescribed manner by the Finance Act, 1985, w. e. f. 1- 4- 1985. The italicised words were inserted by the Finance Act, 1983, w. e. f. 1- 4- 1983. 1. The words a bank approved by the Central Government for the purposes of clause viiia or omitted by the Finance Act, 1994, w. e. f. 1- 4- 199. 5. 2. Substituted for four by the Finance Act, 1994, w. e. f. 1- 4- 199. 5. Earlier, four was substituted for two by the Finance Act, 1993, w. e. f. 1- 4- 1994. 3. Inserted by the Finance No. 2 Act, 1991, w. e. f. 1- 4- 1992. 4. Inserted by the Finance Act, 1982, w. e. f. 1- 4- 1983. 6. Relettered by the Finance Act, 1982, w. e. f. 1- 4- 1983. 7. Inserted, ibid. 8. Substituted by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1989. Prior to the substitution, clause ii , as amended by the Finance Act, 1985, w. e. f. 1- 4- 1985, read as under ii scheduled bank has the same meaning as in the Explanation to clause iii of sub- section 5 of section 11, but does not include a co- operative bank constituted under the State Bank of India Act, 1955 23 of 1955 , a subsidiary bank as defined in the State Bank of India Subsidiary Banks Act, 1959 38 of 1959 , a corresponding new bank constituted under section 3 of the Banking Companies Acquisition and Transfer of Undertakings Act, 1970 1 5 of 1970 , or under section 3 of the Banking Companies Acquisition and Transfer of Undertakings Act, 19802 40 of 1980 , or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 2 of 1934 , but does not include a co- operative bank iii Public Financial Institution shall have the meaning assigned to it in section 4A of the Companies Act, 19564 1 of 1956 iv State Financial Corporation means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 19515 63 of 1951 v State Industrial Investment Corporation means a Government company within the meaning of section 617 of the Companies Act, 19566 1 of 1956 , engaged in the business of providing long- term finance for industrial projects and approved by the Central Government under clause viii of this sub- section Viii in respect of any special reserve created by a financial corporation which is engaged in providing long- term finance for industrial or agricultural development in India or by a public company formed and 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, an amount not exceeding forty per cent of the total income computed before making any deduction under this 3. Inserted by the Finance No. 2 Act, 1991, w. e. f. 1- 4- 1992. 5. Ibid. 6. Ibid. 7. Substituted by the Finance Act, 1966, w. e. f. 1- 4- 1966 and amended by the Finance No.- 2 Act, 1967, w. e. f. 1- 4- 1968 the Finance No. 2 Act, 1971, w. e. f. 1- 4- 1972-and the Finance Act, 1974, w. e. f. 1- 4- 1975. 8. Being substituted by industrial or agricultural development or development of infrastructure facility in India or by a public company formed and 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, an amount not exceeding forty per cent of the profits derived from such business of providing longterm finance computed under the head Profits and gains of business or profession before making any deduction under this section carried to such reserve account by the Finance Act, 1995, w. e. f. 1- 4- 1996. 5. Substituted by the Finance Act, 1979, w. e. f. 1- 4- 1980. 10. Inserted by the Finance Act, 1985, w. e. f. 1- 4- 1985. clause and Chapter VIA carried to such reserve account Provided that the corporation or, as the case may be, the company is for the time being approved by the Central Government for the purposes of this clause Provided further that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid- up share capital excluding the amounts capitalised from reserves of the corporation or, as the case may be, the company, no allowance under this clause shall be made in respect of such excess. Explanation.- In this clause,- a financial corporation shall include a public company and a Government company b public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 6 1 of 1956 c Government company shall have the meaning assigned to it in section 617 of the Companies Act, 19567 1 of 1956 d infrastructure facility shall have the meaning assigned to it in section 80- 1A. viiia Omitted by the Finance Act, 1994 , w. e. f. 1- 4- 1995 . 1. Inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980. 3. Inserted by the Finance Act, 1981, w. e. f. 1- 4- 1982. 4. Inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980. 5. Substituted by the Finance Act, 1992, w. r. e. f. 1- 4- 1987. Earlier, an Explanation was substituted by the Finance No. 2 Act, 1991, also w. r. e. f. 1- 4- 1987. Prior to the substitution, the Explanation, as inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980, read as under- Explanation.- In this clause, public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 1 of 1956 Originally, it was inserted by the Finance Act, 1970, w. r. e. f. 1- 4- 1966 and omitted by the Finance Act, 1974, w. e. f. 1- 4- 1975. 7. Ibid. 8. Being inserted by the Finance Act, 1995, w. e. f. 1- 4- 1996. 9. Prior to the omission, clause viiia , as amended by the Finance Act, 1982, w. e. f. 1- 4- 1983 and Finance Act, 1985, w. e. f. 1- 4- 1985, read as under viiia in respect of any special reserve created by a scheduled bank other than a bank incorporated by or under the laws of a country outside India which is engaged in banking operations outside India, an amount not exceeding forty per cent of the total income computed before making any deduction under this clause and Chapter VIA carried to such reserve account Provided that, having regard to its capital structure, the extent of its banking operations outside India, its need for resources for such operations outside India and other relevant factors, the bank is, for the time being, approved by the Central Government for the purposes of this clause. Explanation.- For the purposes of this clause, scheduled bank has the same meaning as in clause ii of the Explanation to clause viia ix any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its employees Provided that where such expenditure or any part thereof is of a capital nature, one- fifth of such expenditure shall be deducted for the previous year in which it was incurred and the balance thereof shall be deducted in equal instalments for each of the four immediately succeeding previous years Provided further that the provisions of sub- section 2 of section 32 and of sub- section 2 of section 72 shall apply in relation to deductions allowable under this clause as they apply in relation to deductions allowable in respect of depreciation Provided further that the provisions of clauses ii , iii , iv and v of sub- section 2 and sub- section 5 of section 35, of sub- section 3 of section 41 and of Explanation 1 to clause 1 of section 43 shall, so far as may be, apply in relation to an asset representing expenditure of a capital nature for the purposes of promoting family planning as they apply in relation to an asset representing expenditure of a capital nature on scientific research X any sum paid by a public financial institution by way of contribution towards any funds specified under clause 23E of section 10. Explanation.- For the purposes of this clause, public financial institution shall have the meaning assigned to it in section 4A of the Companies Act, 1956 4 1 of 1956 .
the amount of any premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purposes of the business or profession ia the amount of any premium paid by a federal milk co- operative society to effect or to keep in force an insurance on the life of the cattle owned by a member of a co- operative society, being a primary society engaged in supplying milk raised by its members to such federal milk co- operative society ib the amount of any premium paid by cheque by the assessee as an employer to effect or to keep in force an insurance on the health of his employees under a scheme framed in this behalf by the General Insurance Corporation of India formed under section 9 of the General Insurance Business Nationalisation Act, 1972 57 of 1972 and approved by the Central Government
ia the amount of any premium paid by a federal milk co- operative society to effect or to keep in force an insurance on the life of the cattle owned by a member of a co- operative society, being a primary society engaged in supplying milk raised by its members to such federal milk co- operative society
ib the amount of any premium paid by cheque by the assessee as an employer to effect or to keep in force an insurance on the health of his employees under a scheme framed in this behalf by the General Insurance Corporation of India formed under section 9 of the General Insurance Business Nationalisation Act, 1972 57 of 1972 and approved by the Central Government
any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission Omitted by the Direct Tax Laws Amendment Act, 1987 , w. e. f. 1- 4- 1989 . Omitted by the Direct Tax Laws Amendment Act, 1987 , w. e. f 1- 4- 1989 .
iia a sum equal to one and one- third times the amount of the expenditure incurred on payment of any salary for any period of employment before the 1st day of March, 1984 to an employee who, as at the end of the previous year,- 1. Inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980. 2. Inserted by the Income- tax Amendment Act, 1986, w. e. f. 1- 4- 1987. 4. Prior to the omission, the first proviso, as inserted by the Payment of Bonus Amendment Act, 1976, w. r. e. f. 25- 9- 1975, read as under Provided that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 21 of 1965 apply shall not exceed the amount of bonus payable under that Act 5. Prior to the omission, the second proviso, as amended by the Payment of Bonus Amendment Act, 1976, w. r. e. f. 25- 9- 1975, read as under Provided further that the amount of the bonus not being bonus referred to in the first proviso or commission is reasonable with reference to- a the pay of the employee and the conditions of his service b the profits of the business or profession for the previous year in question and c the general practice in similar business or profession. 6. Inserted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 7. Inserted by the Finance Act, 1984, w. e. f. 1- 4- 1984. a is totally blind, or b is subject to or suffers from a permanent physical disability other than blindness which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation Provided that the assessee produces before the Assessing Officer, in respect of the first assessment for which deduction is claimed in relation to each employee under this clause,-
a is totally blind, or
b is subject to or suffers from a permanent physical disability other than blindness which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation Provided that the assessee produces before the Assessing Officer, in respect of the first assessment for which deduction is claimed in relation to each employee under this clause,-
in a case referred to in sub- clause a , a certificate as to his total blindness from a registered medical practitioner being an oculist and
in a case referred to in sub- clause b , a certificate as to the permanent physical disability referred to in the said sub- clause from a registered medical practitioner Provided further that nothing contained in this clause shall apply in the case of an employee whose income in the previous year chargeable under the head Salaries exceeds twenty thousand rupees. Explanation 1-In this clause, salary includes the pay, allowances, bonus or commission payable monthly or otherwise. Explanation 2.- For the removal of doubts, it is hereby declared that where a deduction under this clause is allowed for any assessment year in respect of any expenditure, deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year
the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession. Explanation.- Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause
any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual 1. Substituted for Income- tax by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1988. contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head Salaries or to the contributions or to the number of members of the fund
any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust
va any sum received by the assessee from any of his employees to which the provisions of sub- clause x of clause 24 of section 2 apply, if such sum is credited by the assessee to the employee s account in the relevant fund or funds on or before the due date. Explanation. For the purposes of this clause, due date means the date by which the assessee is required as an employer to credit an employee s contribution to the employee s account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise
in respect of animals which have been used for the purposes of the business or profession otherwise than as stock- in- trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realised in respect of the carcasses or animals
Vii subject to the provisions of sub- section 2 , the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year Provided that in the case of a bank to which clause viia applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause
viia in respect of any provision for bad and doubtful debts made by- 2. Inserted by the Finance Act, 1987, w. e. f. 1- 4- 1988. 4. Substituted for any debt, or part thereof, which is established to have become a bad debt in the previous year by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1989. 5. Inserted by the Finance Act, 1985, w. e. f. 1- 4- 1985. 6. Inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980. See rule 6A BA. 7. Substituted for in respect of any provision for bad and doubtful debts made by a scheduled bank not being a bank approved by the Central Government for the purposes of clause viiia or a bank incorporated by or under the laws of a country outside India or a non- scheduled bank, an amount not exceeding ten per cent of the total income income computed before making any deduction under this clause and Chapter a a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a nonscheduled bank, an amount not exceeding five per cent of the total income computed before making any deduction under this clause and Chapter VIA and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner b a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income computed before making any deduction under this clause and Chapter VIA . c a public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, an amount not exceeding five per cent of the total income computed before making any deduction under this clause and Chapter VIA . Explanation.- For the purposes of this clause,-
a a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a nonscheduled bank, an amount not exceeding five per cent of the total income computed before making any deduction under this clause and Chapter VIA and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner
b a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income computed before making any deduction under this clause and Chapter VIA .
c a public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, an amount not exceeding five per cent of the total income computed before making any deduction under this clause and Chapter VIA . Explanation.- For the purposes of this clause,-
non- scheduled bank means a banking company as defined in clause c of section 5 of the Banking Regulation Act, 19495 10 of 1949 , which is not a scheduled bank ia rural branch means a branch of a scheduled bank or a non- scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year
ia rural branch means a branch of a scheduled bank or a non- scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year
scheduled bank means the State Bank of India 999999. VI- A or an amount not exceeding two per- cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher by the income- tax Amendment Act, 1986, w. e. f. 1- 4- 1987. Earlier, these words were substituted for in respect of any provision for bad and doubtful debts made by a scheduled bank or, a non- scheduled bank in relation to the advances made by its rural branches, an amount not exceeding one and a half per cent of the aggregate average advances made by such branches, computed in the prescribed manner by the Finance Act, 1985, w. e. f. 1- 4- 1985. The italicised words were inserted by the Finance Act, 1983, w. e. f. 1- 4- 1983. 1. The words a bank approved by the Central Government for the purposes of clause viiia or omitted by the Finance Act, 1994, w. e. f. 1- 4- 199. 5. 2. Substituted for four by the Finance Act, 1994, w. e. f. 1- 4- 199. 5. Earlier, four was substituted for two by the Finance Act, 1993, w. e. f. 1- 4- 1994. 3. Inserted by the Finance No. 2 Act, 1991, w. e. f. 1- 4- 1992. 4. Inserted by the Finance Act, 1982, w. e. f. 1- 4- 1983. 6. Relettered by the Finance Act, 1982, w. e. f. 1- 4- 1983. 7. Inserted, ibid. 8. Substituted by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1989. Prior to the substitution, clause ii , as amended by the Finance Act, 1985, w. e. f. 1- 4- 1985, read as under ii scheduled bank has the same meaning as in the Explanation to clause iii of sub- section 5 of section 11, but does not include a co- operative bank constituted under the State Bank of India Act, 1955 23 of 1955 , a subsidiary bank as defined in the State Bank of India Subsidiary Banks Act, 1959 38 of 1959 , a corresponding new bank constituted under section 3 of the Banking Companies Acquisition and Transfer of Undertakings Act, 1970 1 5 of 1970 , or under section 3 of the Banking Companies Acquisition and Transfer of Undertakings Act, 19802 40 of 1980 , or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 2 of 1934 , but does not include a co- operative bank
Public Financial Institution shall have the meaning assigned to it in section 4A of the Companies Act, 19564 1 of 1956
State Financial Corporation means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 19515 63 of 1951
State Industrial Investment Corporation means a Government company within the meaning of section 617 of the Companies Act, 19566 1 of 1956 , engaged in the business of providing long- term finance for industrial projects and approved by the Central Government under clause viii of this sub- section
Viii in respect of any special reserve created by a financial corporation which is engaged in providing long- term finance for industrial or agricultural development in India or by a public company formed and 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, an amount not exceeding forty per cent of the total income computed before making any deduction under this 3. Inserted by the Finance No. 2 Act, 1991, w. e. f. 1- 4- 1992. 5. Ibid. 6. Ibid. 7. Substituted by the Finance Act, 1966, w. e. f. 1- 4- 1966 and amended by the Finance No.- 2 Act, 1967, w. e. f. 1- 4- 1968 the Finance No. 2 Act, 1971, w. e. f. 1- 4- 1972-and the Finance Act, 1974, w. e. f. 1- 4- 1975. 8. Being substituted by industrial or agricultural development or development of infrastructure facility in India or by a public company formed and 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, an amount not exceeding forty per cent of the profits derived from such business of providing longterm finance computed under the head Profits and gains of business or profession before making any deduction under this section carried to such reserve account by the Finance Act, 1995, w. e. f. 1- 4- 1996. 5. Substituted by the Finance Act, 1979, w. e. f. 1- 4- 1980. 10. Inserted by the Finance Act, 1985, w. e. f. 1- 4- 1985. clause and Chapter VIA carried to such reserve account Provided that the corporation or, as the case may be, the company is for the time being approved by the Central Government for the purposes of this clause Provided further that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid- up share capital excluding the amounts capitalised from reserves of the corporation or, as the case may be, the company, no allowance under this clause shall be made in respect of such excess. Explanation.- In this clause,- a financial corporation shall include a public company and a Government company b public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 6 1 of 1956 c Government company shall have the meaning assigned to it in section 617 of the Companies Act, 19567 1 of 1956 d infrastructure facility shall have the meaning assigned to it in section 80- 1A. viiia Omitted by the Finance Act, 1994 , w. e. f. 1- 4- 1995 . 1. Inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980. 3. Inserted by the Finance Act, 1981, w. e. f. 1- 4- 1982. 4. Inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980. 5. Substituted by the Finance Act, 1992, w. r. e. f. 1- 4- 1987. Earlier, an Explanation was substituted by the Finance No. 2 Act, 1991, also w. r. e. f. 1- 4- 1987. Prior to the substitution, the Explanation, as inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980, read as under- Explanation.- In this clause, public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 1 of 1956 Originally, it was inserted by the Finance Act, 1970, w. r. e. f. 1- 4- 1966 and omitted by the Finance Act, 1974, w. e. f. 1- 4- 1975. 7. Ibid. 8. Being inserted by the Finance Act, 1995, w. e. f. 1- 4- 1996. 9. Prior to the omission, clause viiia , as amended by the Finance Act, 1982, w. e. f. 1- 4- 1983 and Finance Act, 1985, w. e. f. 1- 4- 1985, read as under viiia in respect of any special reserve created by a scheduled bank other than a bank incorporated by or under the laws of a country outside India which is engaged in banking operations outside India, an amount not exceeding forty per cent of the total income computed before making any deduction under this clause and Chapter VIA carried to such reserve account Provided that, having regard to its capital structure, the extent of its banking operations outside India, its need for resources for such operations outside India and other relevant factors, the bank is, for the time being, approved by the Central Government for the purposes of this clause. Explanation.- For the purposes of this clause, scheduled bank has the same meaning as in clause ii of the Explanation to clause viia
a financial corporation shall include a public company and a Government company
b public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 6 1 of 1956
Government company shall have the meaning assigned to it in section 617 of the Companies Act, 19567 1 of 1956
d infrastructure facility shall have the meaning assigned to it in section 80- 1A.
viiia Omitted by the Finance Act, 1994 , w. e. f. 1- 4- 1995 . 1. Inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980. 3. Inserted by the Finance Act, 1981, w. e. f. 1- 4- 1982. 4. Inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980. 5. Substituted by the Finance Act, 1992, w. r. e. f. 1- 4- 1987. Earlier, an Explanation was substituted by the Finance No. 2 Act, 1991, also w. r. e. f. 1- 4- 1987. Prior to the substitution, the Explanation, as inserted by the Finance Act, 1979, w. e. f. 1- 4- 1980, read as under- Explanation.- In this clause, public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 1 of 1956 Originally, it was inserted by the Finance Act, 1970, w. r. e. f. 1- 4- 1966 and omitted by the Finance Act, 1974, w. e. f. 1- 4- 1975. 7. Ibid. 8. Being inserted by the Finance Act, 1995, w. e. f. 1- 4- 1996. 9. Prior to the omission, clause viiia , as amended by the Finance Act, 1982, w. e. f. 1- 4- 1983 and Finance Act, 1985, w. e. f. 1- 4- 1985, read as under viiia in respect of any special reserve created by a scheduled bank other than a bank incorporated by or under the laws of a country outside India which is engaged in banking operations outside India, an amount not exceeding forty per cent of the total income computed before making any deduction under this clause and Chapter VIA carried to such reserve account Provided that, having regard to its capital structure, the extent of its banking operations outside India, its need for resources for such operations outside India and other relevant factors, the bank is, for the time being, approved by the Central Government for the purposes of this clause. Explanation.- For the purposes of this clause, scheduled bank has the same meaning as in clause ii of the Explanation to clause viia
any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its employees Provided that where such expenditure or any part thereof is of a capital nature, one- fifth of such expenditure shall be deducted for the previous year in which it was incurred and the balance thereof shall be deducted in equal instalments for each of the four immediately succeeding previous years Provided further that the provisions of sub- section 2 of section 32 and of sub- section 2 of section 72 shall apply in relation to deductions allowable under this clause as they apply in relation to deductions allowable in respect of depreciation Provided further that the provisions of clauses ii , iii , iv and v of sub- section 2 and sub- section 5 of section 35, of sub- section 3 of section 41 and of Explanation 1 to clause 1 of section 43 shall, so far as may be, apply in relation to an asset representing expenditure of a capital nature for the purposes of promoting family planning as they apply in relation to an asset representing expenditure of a capital nature on scientific research
X any sum paid by a public financial institution by way of contribution towards any funds specified under clause 23E of section 10. Explanation.- For the purposes of this clause, public financial institution shall have the meaning assigned to it in section 4A of the Companies Act, 1956 4 1 of 1956 .
In making any deduction for a bad debt or part thereof, the following provisions shall apply- i no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money- lending which is carried on by the assessee ii if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made 1. Inserted by the Finance Act, 1965 w. e. f. 1- 4- 1965. 2. Inserted by the Finance No. 2 Act, 1967, w. e. f. 1- 4- 1967. 3. Inserted by the Finance Act, 1989, w. e. f. 1- 4- 1988. 5. Substituted by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1989. Prior to the substitution, clause i read as under i no such deduction shall be allowed unless such debt or part thereof- a has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money- lending which is carried on by the assessee, and b has been written off as irrecoverable in the accounts of the assessee for that previous year iii any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year being a previous year relevant to the assessment year commencing on the 1st day of April, 1988 , or any earlier assessment year , but the Assessing Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year iv where any- such debt or part of debt is written off as irrecoverable in the accounts of the previous year being a previous year relevant to the assessment year commencing on the 1st day of April, 1988 , or any earlier assessment year and the Assessing Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub- section 6 of section 155 shall apply v where such debt or part of debt relates to advances made by a bank to which clause viia of sub- section 1 applies, no such deduction shall be allowed unless the bank has debited the amount of such debt or part of debt in that previous year to the provisions for bad and doubtful debts account made under that clause. 1. Inserted by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1989. 2. Substituted for Income- tax, ibid, w. e. f. 1- 4- 1988. 3. Inserted by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1989. 4. Substituted for Income- tax, ibid, w. e. f. 1- 4- 1988. 5. Inserted by the Finance Act, 1985, w. e. f. 1- 4- 1985. lie. The trust deeds containing such a provision should therefore not be refused recognition if the other conditions prescribed under the rules are satisfied. vi Winding up of superannuation fund.- An approved superannuation fund cannot be wound up unless necessitated by the winding up or discontinuance of the employer s trade or under- taking. vii A superannuation fund where rules provide for pension benefits in the form of annuity certain is not entitled for approval, as the same is not covered under rule 89 of the Income- tax Rules. viii The limit mentioned in rule 80 is in respect of the salary of each employee taken separately and also in respect of each year of his service taken separately. ix Approval of superannuation funds which provide for payment of annuities to an employee or transfer of equitable interest to another approved superannuation fund when the employee leaves the services voluntarily before he attains the specified age of retirement may not be refused merely on the ground that he left the service voluntarily before he reached the age of normal retirement. x The words pay and salary should be interpreted alike for all purposes of the PF Rules since the word salary has been defined in the Act and since contributions to the fund are also being made by the employee members on this basis, the word pay occurring in the Rules relating to withdrawals should also be interpreted to have the same meaning as salary. xi Gratuity funds.- Initial contributions to approved gratuity funds may be permitted to be made in not more than five annual instalments commencing from the year in which the employee has been admitted to the benefits of the fund. An application for approval of Gratuity Fund may be made three years after the establishment of the gratuity fund. In order that the benefits of approval for the intervening period may not be denied to bona fide funds Commissioners may after considering all the relevant facts of the case accord approval with effect from the date from which it satisfies the conditions laid down in rule 3 of Part C of the Fourth Schedule. xii Bad debts.- The suggestion of Chambers of Commerce and the Indian Banks Association that in the case of Banks the bad debts claimed should be automatically allowed in their entirety in the assessments of the banks was not acceptable. Where accounts are kept on mercantile basis, interest thereon is taxable irrespective of whether the interest is credited to suspense account or to interest account. The amount of such interest is therefore includible in the taxable income. Instruction No. 1186, dated 20th June, 1978 3. The words and section 80VV omitted by the Finance Act, 1985 w. e. f. 1- 4- 1986. Earlier, they were inserted by the Finance Act, 1985, w. e. f. 1- 4- 1986. 1. Substituted for sub- sections 2 and 2A by the Finance Act, 1992, w. e. f. 1- 4- 1993. Prior to the substitution, sub- section 2 , as originally enacted and amended by the Finance No. 2 Act, 1962, w. e. f. 1- 4- 1962 and Finance Act, 1965, w. e. f. 1- 4- 1965, read as under 2 Notwithstanding anything contained in sub- section 1 , no expenditure in the nature of entertainment expenditure shall be allowed in the case of a company, which exceeds the aggregate amount computed as hereunder- i on the first Rs. 10, 00, 000 of the profits at the rate 1 per- and gains of the business computed before cent or Rs. 5, 0000, making any allowance under section 33 or whichever is higher section 33A or in respect of entertainment expenditure ii on the next Rs. 40, 00, 000 of the profits at the rate of 1 2 and gains of the business computed in the per cent manner aforesaid iii on the next Rs. 1, 20, 00, 000 of the pro- at the rate 1 4 fits and gains of the business computed in per cent the manner aforesaid iv on the balance of the profits and gains nil. of the business computed in the manner aforesaid . Sub- section 2 A , as inserted by the Taxation Laws Amendment Act, 1967, w. e. f. 1- 10- 1967 and amended by the Finance Act, 1968, w. e. f. 1- 4- 1968 Finance Act, 1970, w. e. f. 1- 4- 1970 Finance Act, 1976, w. e. f. 1- 4- 1976 1- 4- 1977 and Finance Act, 1983, w. r. e. f. 1- 4- 1976 w. e. f. 1- 4- 1984, read as under 2A Notwithstanding anything contained in sub- section 1 or sub- section 2 , no allowance shall be made in respect of so much of the expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year which expires after the 30th day of September, 1967, as is in excess of the aggregate amount computed as hereunder- i on the first Rs. 10, 00, 000 of the at the rate of 1 2 per profits and gains of the business or cent or Rs. 5, 000, profession computed before making any whichever is higher. allowance under section 32A or section 33 or section 33A or in respect of entertainment expenditure ii on the next Rs. 40, 00, 000 of the at the rate of 1 4 per profits and gains of the business or cent profession computed in the manner aforesaid iii on the balance of the profits and at the rate of 1 8 per gains of the business or profession cent. computed in the manner aforesaid so, however, that the allowance shall in no case exceed Rs. 50, 000 Provided that where the previous year of any assessee falls partly before and partly after the 30th day of September, 1967, the allowance in respect of such expenditure incurred during the previous year shall not exceed- a in the case of a company- i in respect of such expenditure incurred before the 1st day of October, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in sub- section 2 , the same proportion as the number of days comprised in the period commencing on the 1st day of such previous year and ending with the 30th day of September, 1967, bears to the total number of days in the previous year ii in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub- section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to 999999. -- the total number of days in the previous year b in any other case- i in respect of such expenditure incurred before the 1st day of October, 1967, the amount admissible under sub- section 1 ii in respect of such expenditure incur- red after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub- section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year. Explanation I.- For the purposes of this sub- section, entertainment expenditure includes- i the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person after the 29th day of February, 1968 ii the amount of any expenditure in the nature of entertainment expenditure not being expenditure incur- red out of an allowance of the nature referred to in clause i incurred after the 29th day of February, 1968, for the purposes of the business or profession of the assessee by any employee or other person. Explanation 2.- For the removal of doubts, it is hereby declared that for the purposes of this sub- section and sub- section 2B , as it stood before the 1st day of April, 1977 , entertainment expenditure includes- expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work. 1. Inserted by the Finance Act, 1994, w. r. e. f. 1- 4- 1993. 1. Inserted by the Taxation Laws Amendment Act, 1978, w. e. f. 1- 4- 1979. Earlier, the original sub- section 2B was inserted by the Finance Act, 1970, w. e. f. 1- 4- 1970 and omitted by the Finance Act, 1976, w. e. f. 1- 4- 1977. 2. Inserted by the Finance Act, 1964, w. e. f. 1- 4- 1964. 4. Prior to the omission, sub- section 3A , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3A Notwithstanding anything contained in sub- section 1 , where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub- section 3B exceeds one hundred thousand rupees, twenty per cent of such excess shall not be allowed as deduction in computing the income chargeable under the head Profits and gains of business or profession. Earlier, sub- section 3A was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 5. Prior to the omission, sub- section 3B , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3B The expenditure, referred to in sub- section 3A is that incurred on- i advertisement, publicity and sales promotion or ii running and maintenance of aircraft and motor cars or iii payments made to hotels. Explanation.- For the purposes of sub- sections 3A and 3B - a the expenditure specified in clause i to clause iii of sub- section 3B shall be the aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provision of this Act b expenditure on advertisement, publicity and sales promotion shall not include remuneration paid to employees of the assessee engaged in one or more of the said activities c expenditure on running and maintenance of aircraft and motor cars shall include,- i expenditure incurred on chartering any air- craft and expenditure on hire charges for engaging cars plied for hire ii conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also. Earlier, sub- section 3B was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 1. Prior to the omission, sub- section 3C , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3C Nothing contained in sub- section 3A shall apply in respect of expenditure incurred by an assessee, being a domestic company as defined in clause 2 of section 80B, or a person other than a company who is resident in India in respect of expenditure incurred wholly and exclusively on- i advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities Which the assessee deals in or provides in the course of his business ii running and maintenance of motor cars in any branch, office or agency maintained outside India, for the promotion of the sale outside India of such goods, services or facilities. Earlier, it was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 2. Prior to the omission, sub- section 3D , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3D No disallowance under sub- section 3A shall be made- i in the case of an assessee engaged in the business of operation of aircraft, in respect of expenditure incurred on running and maintenance of such aircraft ii in the case of an assessee engaged in the business of running motor cars on hire, in respect of expenditure incurred in running and maintenance of such motor cars. Earlier, sub- section 3D was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and was omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 3. Inserted by the Finance Act, 1970, w. e. f. 1- 4- 1970. 1. Inserted by the Finance Act, 1983, w. r. e. f. 1- 4- 1979.
no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money- lending which is carried on by the assessee
if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made 1. Inserted by the Finance Act, 1965 w. e. f. 1- 4- 1965. 2. Inserted by the Finance No. 2 Act, 1967, w. e. f. 1- 4- 1967. 3. Inserted by the Finance Act, 1989, w. e. f. 1- 4- 1988. 5. Substituted by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1989. Prior to the substitution, clause i read as under i no such deduction shall be allowed unless such debt or part thereof- a has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money- lending which is carried on by the assessee, and b has been written off as irrecoverable in the accounts of the assessee for that previous year
any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year being a previous year relevant to the assessment year commencing on the 1st day of April, 1988 , or any earlier assessment year , but the Assessing Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year
where any- such debt or part of debt is written off as irrecoverable in the accounts of the previous year being a previous year relevant to the assessment year commencing on the 1st day of April, 1988 , or any earlier assessment year and the Assessing Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub- section 6 of section 155 shall apply
where such debt or part of debt relates to advances made by a bank to which clause viia of sub- section 1 applies, no such deduction shall be allowed unless the bank has debited the amount of such debt or part of debt in that previous year to the provisions for bad and doubtful debts account made under that clause. 1. Inserted by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1989. 2. Substituted for Income- tax, ibid, w. e. f. 1- 4- 1988. 3. Inserted by the Direct Tax Laws Amendment Act, 1987, w. e. f. 1- 4- 1989. 4. Substituted for Income- tax, ibid, w. e. f. 1- 4- 1988. 5. Inserted by the Finance Act, 1985, w. e. f. 1- 4- 1985. lie. The trust deeds containing such a provision should therefore not be refused recognition if the other conditions prescribed under the rules are satisfied.
Winding up of superannuation fund.- An approved superannuation fund cannot be wound up unless necessitated by the winding up or discontinuance of the employer s trade or under- taking.
A superannuation fund where rules provide for pension benefits in the form of annuity certain is not entitled for approval, as the same is not covered under rule 89 of the Income- tax Rules.
The limit mentioned in rule 80 is in respect of the salary of each employee taken separately and also in respect of each year of his service taken separately.
Approval of superannuation funds which provide for payment of annuities to an employee or transfer of equitable interest to another approved superannuation fund when the employee leaves the services voluntarily before he attains the specified age of retirement may not be refused merely on the ground that he left the service voluntarily before he reached the age of normal retirement.
The words pay and salary should be interpreted alike for all purposes of the PF Rules since the word salary has been defined in the Act and since contributions to the fund are also being made by the employee members on this basis, the word pay occurring in the Rules relating to withdrawals should also be interpreted to have the same meaning as salary.
Gratuity funds.- Initial contributions to approved gratuity funds may be permitted to be made in not more than five annual instalments commencing from the year in which the employee has been admitted to the benefits of the fund. An application for approval of Gratuity Fund may be made three years after the establishment of the gratuity fund. In order that the benefits of approval for the intervening period may not be denied to bona fide funds Commissioners may after considering all the relevant facts of the case accord approval with effect from the date from which it satisfies the conditions laid down in rule 3 of Part C of the Fourth Schedule. xii Bad debts.- The suggestion of Chambers of Commerce and the Indian Banks Association that in the case of Banks the bad debts claimed should be automatically allowed in their entirety in the assessments of the banks was not acceptable. Where accounts are kept on mercantile basis, interest thereon is taxable irrespective of whether the interest is credited to suspense account or to interest account. The amount of such interest is therefore includible in the taxable income. Instruction No. 1186, dated 20th June, 1978 3. The words and section 80VV omitted by the Finance Act, 1985 w. e. f. 1- 4- 1986. Earlier, they were inserted by the Finance Act, 1985, w. e. f. 1- 4- 1986. 1. Substituted for sub- sections 2 and 2A by the Finance Act, 1992, w. e. f. 1- 4- 1993. Prior to the substitution, sub- section 2 , as originally enacted and amended by the Finance No. 2 Act, 1962, w. e. f. 1- 4- 1962 and Finance Act, 1965, w. e. f. 1- 4- 1965, read as under 2 Notwithstanding anything contained in sub- section 1 , no expenditure in the nature of entertainment expenditure shall be allowed in the case of a company, which exceeds the aggregate amount computed as hereunder- i on the first Rs. 10, 00, 000 of the profits at the rate 1 per- and gains of the business computed before cent or Rs. 5, 0000, making any allowance under section 33 or whichever is higher section 33A or in respect of entertainment expenditure ii on the next Rs. 40, 00, 000 of the profits at the rate of 1 2 and gains of the business computed in the per cent manner aforesaid iii on the next Rs. 1, 20, 00, 000 of the pro- at the rate 1 4 fits and gains of the business computed in per cent the manner aforesaid iv on the balance of the profits and gains nil. of the business computed in the manner aforesaid . Sub- section 2 A , as inserted by the Taxation Laws Amendment Act, 1967, w. e. f. 1- 10- 1967 and amended by the Finance Act, 1968, w. e. f. 1- 4- 1968 Finance Act, 1970, w. e. f. 1- 4- 1970 Finance Act, 1976, w. e. f. 1- 4- 1976 1- 4- 1977 and Finance Act, 1983, w. r. e. f. 1- 4- 1976 w. e. f. 1- 4- 1984, read as under 2A Notwithstanding anything contained in sub- section 1 or sub- section 2 , no allowance shall be made in respect of so much of the expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year which expires after the 30th day of September, 1967, as is in excess of the aggregate amount computed as hereunder- i on the first Rs. 10, 00, 000 of the at the rate of 1 2 per profits and gains of the business or cent or Rs. 5, 000, profession computed before making any whichever is higher. allowance under section 32A or section 33 or section 33A or in respect of entertainment expenditure ii on the next Rs. 40, 00, 000 of the at the rate of 1 4 per profits and gains of the business or cent profession computed in the manner aforesaid iii on the balance of the profits and at the rate of 1 8 per gains of the business or profession cent. computed in the manner aforesaid so, however, that the allowance shall in no case exceed Rs. 50, 000 Provided that where the previous year of any assessee falls partly before and partly after the 30th day of September, 1967, the allowance in respect of such expenditure incurred during the previous year shall not exceed- a in the case of a company- i in respect of such expenditure incurred before the 1st day of October, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in sub- section 2 , the same proportion as the number of days comprised in the period commencing on the 1st day of such previous year and ending with the 30th day of September, 1967, bears to the total number of days in the previous year ii in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub- section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to 999999. -- the total number of days in the previous year b in any other case- i in respect of such expenditure incurred before the 1st day of October, 1967, the amount admissible under sub- section 1 ii in respect of such expenditure incur- red after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub- section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year. Explanation I.- For the purposes of this sub- section, entertainment expenditure includes- i the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person after the 29th day of February, 1968 ii the amount of any expenditure in the nature of entertainment expenditure not being expenditure incur- red out of an allowance of the nature referred to in clause i incurred after the 29th day of February, 1968, for the purposes of the business or profession of the assessee by any employee or other person. Explanation 2.- For the removal of doubts, it is hereby declared that for the purposes of this sub- section and sub- section 2B , as it stood before the 1st day of April, 1977 , entertainment expenditure includes- expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work. 1. Inserted by the Finance Act, 1994, w. r. e. f. 1- 4- 1993. 1. Inserted by the Taxation Laws Amendment Act, 1978, w. e. f. 1- 4- 1979. Earlier, the original sub- section 2B was inserted by the Finance Act, 1970, w. e. f. 1- 4- 1970 and omitted by the Finance Act, 1976, w. e. f. 1- 4- 1977. 2. Inserted by the Finance Act, 1964, w. e. f. 1- 4- 1964. 4. Prior to the omission, sub- section 3A , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3A Notwithstanding anything contained in sub- section 1 , where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub- section 3B exceeds one hundred thousand rupees, twenty per cent of such excess shall not be allowed as deduction in computing the income chargeable under the head Profits and gains of business or profession. Earlier, sub- section 3A was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 5. Prior to the omission, sub- section 3B , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3B The expenditure, referred to in sub- section 3A is that incurred on- i advertisement, publicity and sales promotion or ii running and maintenance of aircraft and motor cars or iii payments made to hotels. Explanation.- For the purposes of sub- sections 3A and 3B - a the expenditure specified in clause i to clause iii of sub- section 3B shall be the aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provision of this Act b expenditure on advertisement, publicity and sales promotion shall not include remuneration paid to employees of the assessee engaged in one or more of the said activities c expenditure on running and maintenance of aircraft and motor cars shall include,- i expenditure incurred on chartering any air- craft and expenditure on hire charges for engaging cars plied for hire ii conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also. Earlier, sub- section 3B was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 1. Prior to the omission, sub- section 3C , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3C Nothing contained in sub- section 3A shall apply in respect of expenditure incurred by an assessee, being a domestic company as defined in clause 2 of section 80B, or a person other than a company who is resident in India in respect of expenditure incurred wholly and exclusively on- i advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities Which the assessee deals in or provides in the course of his business ii running and maintenance of motor cars in any branch, office or agency maintained outside India, for the promotion of the sale outside India of such goods, services or facilities. Earlier, it was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 2. Prior to the omission, sub- section 3D , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3D No disallowance under sub- section 3A shall be made- i in the case of an assessee engaged in the business of operation of aircraft, in respect of expenditure incurred on running and maintenance of such aircraft ii in the case of an assessee engaged in the business of running motor cars on hire, in respect of expenditure incurred in running and maintenance of such motor cars. Earlier, sub- section 3D was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and was omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 3. Inserted by the Finance Act, 1970, w. e. f. 1- 4- 1970. 1. Inserted by the Finance Act, 1983, w. r. e. f. 1- 4- 1979.
Bad debts.- The suggestion of Chambers of Commerce and the Indian Banks Association that in the case of Banks the bad debts claimed should be automatically allowed in their entirety in the assessments of the banks was not acceptable. Where accounts are kept on mercantile basis, interest thereon is taxable irrespective of whether the interest is credited to suspense account or to interest account. The amount of such interest is therefore includible in the taxable income. Instruction No. 1186, dated 20th June, 1978 3. The words and section 80VV omitted by the Finance Act, 1985 w. e. f. 1- 4- 1986. Earlier, they were inserted by the Finance Act, 1985, w. e. f. 1- 4- 1986. 1. Substituted for sub- sections 2 and 2A by the Finance Act, 1992, w. e. f. 1- 4- 1993. Prior to the substitution, sub- section 2 , as originally enacted and amended by the Finance No. 2 Act, 1962, w. e. f. 1- 4- 1962 and Finance Act, 1965, w. e. f. 1- 4- 1965, read as under 2 Notwithstanding anything contained in sub- section 1 , no expenditure in the nature of entertainment expenditure shall be allowed in the case of a company, which exceeds the aggregate amount computed as hereunder- i on the first Rs. 10, 00, 000 of the profits at the rate 1 per- and gains of the business computed before cent or Rs. 5, 0000, making any allowance under section 33 or whichever is higher section 33A or in respect of entertainment expenditure ii on the next Rs. 40, 00, 000 of the profits at the rate of 1 2 and gains of the business computed in the per cent manner aforesaid iii on the next Rs. 1, 20, 00, 000 of the pro- at the rate 1 4 fits and gains of the business computed in per cent the manner aforesaid iv on the balance of the profits and gains nil. of the business computed in the manner aforesaid . Sub- section 2 A , as inserted by the Taxation Laws Amendment Act, 1967, w. e. f. 1- 10- 1967 and amended by the Finance Act, 1968, w. e. f. 1- 4- 1968 Finance Act, 1970, w. e. f. 1- 4- 1970 Finance Act, 1976, w. e. f. 1- 4- 1976 1- 4- 1977 and Finance Act, 1983, w. r. e. f. 1- 4- 1976 w. e. f. 1- 4- 1984, read as under 2A Notwithstanding anything contained in sub- section 1 or sub- section 2 , no allowance shall be made in respect of so much of the expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year which expires after the 30th day of September, 1967, as is in excess of the aggregate amount computed as hereunder- i on the first Rs. 10, 00, 000 of the at the rate of 1 2 per profits and gains of the business or cent or Rs. 5, 000, profession computed before making any whichever is higher. allowance under section 32A or section 33 or section 33A or in respect of entertainment expenditure ii on the next Rs. 40, 00, 000 of the at the rate of 1 4 per profits and gains of the business or cent profession computed in the manner aforesaid iii on the balance of the profits and at the rate of 1 8 per gains of the business or profession cent. computed in the manner aforesaid so, however, that the allowance shall in no case exceed Rs. 50, 000 Provided that where the previous year of any assessee falls partly before and partly after the 30th day of September, 1967, the allowance in respect of such expenditure incurred during the previous year shall not exceed- a in the case of a company- i in respect of such expenditure incurred before the 1st day of October, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in sub- section 2 , the same proportion as the number of days comprised in the period commencing on the 1st day of such previous year and ending with the 30th day of September, 1967, bears to the total number of days in the previous year ii in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub- section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to 999999. -- the total number of days in the previous year b in any other case- i in respect of such expenditure incurred before the 1st day of October, 1967, the amount admissible under sub- section 1 ii in respect of such expenditure incur- red after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub- section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year. Explanation I.- For the purposes of this sub- section, entertainment expenditure includes- i the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person after the 29th day of February, 1968 ii the amount of any expenditure in the nature of entertainment expenditure not being expenditure incur- red out of an allowance of the nature referred to in clause i incurred after the 29th day of February, 1968, for the purposes of the business or profession of the assessee by any employee or other person. Explanation 2.- For the removal of doubts, it is hereby declared that for the purposes of this sub- section and sub- section 2B , as it stood before the 1st day of April, 1977 , entertainment expenditure includes- expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work. 1. Inserted by the Finance Act, 1994, w. r. e. f. 1- 4- 1993. 1. Inserted by the Taxation Laws Amendment Act, 1978, w. e. f. 1- 4- 1979. Earlier, the original sub- section 2B was inserted by the Finance Act, 1970, w. e. f. 1- 4- 1970 and omitted by the Finance Act, 1976, w. e. f. 1- 4- 1977. 2. Inserted by the Finance Act, 1964, w. e. f. 1- 4- 1964. 4. Prior to the omission, sub- section 3A , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3A Notwithstanding anything contained in sub- section 1 , where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub- section 3B exceeds one hundred thousand rupees, twenty per cent of such excess shall not be allowed as deduction in computing the income chargeable under the head Profits and gains of business or profession. Earlier, sub- section 3A was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 5. Prior to the omission, sub- section 3B , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3B The expenditure, referred to in sub- section 3A is that incurred on- i advertisement, publicity and sales promotion or ii running and maintenance of aircraft and motor cars or iii payments made to hotels. Explanation.- For the purposes of sub- sections 3A and 3B - a the expenditure specified in clause i to clause iii of sub- section 3B shall be the aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provision of this Act b expenditure on advertisement, publicity and sales promotion shall not include remuneration paid to employees of the assessee engaged in one or more of the said activities c expenditure on running and maintenance of aircraft and motor cars shall include,- i expenditure incurred on chartering any air- craft and expenditure on hire charges for engaging cars plied for hire ii conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also. Earlier, sub- section 3B was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 1. Prior to the omission, sub- section 3C , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3C Nothing contained in sub- section 3A shall apply in respect of expenditure incurred by an assessee, being a domestic company as defined in clause 2 of section 80B, or a person other than a company who is resident in India in respect of expenditure incurred wholly and exclusively on- i advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities Which the assessee deals in or provides in the course of his business ii running and maintenance of motor cars in any branch, office or agency maintained outside India, for the promotion of the sale outside India of such goods, services or facilities. Earlier, it was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 2. Prior to the omission, sub- section 3D , as inserted by the Finance Act, 1983, w. e. f. 1- 4- 1984, read as under 3D No disallowance under sub- section 3A shall be made- i in the case of an assessee engaged in the business of operation of aircraft, in respect of expenditure incurred on running and maintenance of such aircraft ii in the case of an assessee engaged in the business of running motor cars on hire, in respect of expenditure incurred in running and maintenance of such motor cars. Earlier, sub- section 3D was inserted by the Finance Act, 1978, w. e. f. 1- 4- 1979 and was omitted by the Finance No. 2 Act, 1980, w. e. f. 1- 4- 1981 3. Inserted by the Finance Act, 1970, w. e. f. 1- 4- 1970. 1. Inserted by the Finance Act, 1983, w. r. e. f. 1- 4- 1979.