Income Tax Rules

INCOME-TAX RULES, 1962

[SO 969, DATED 26-3-1962]

In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), and rule 15 of Part A, rule 11 of Part B and rule 9 of Part C of the Fourth Schedule to that Act, the Central Board of Revenue hereby makes the following rules, namely :—

PART I

PRELIMINARY

Short title and commencement.

1.(1) These rules may be called the Income-tax Rules, 1962.

(2) They shall come into force on the 1st day of April, 1962.

Definitions.

2. (1) In these rules, unless the context otherwise requires,—

(a)  “Act” means the Income-tax Act, 1961 (43 of 1961);

[(aa) “authorised bank” means any bank as may be appointed by the Reserve Bank of India as its agent under the provisions of sub-section (1) of section 45 of the Reserve Bank of India Act, 1934 (2 of 1934);]

(b)  “Chapter”, “section” and “Schedule” means respectively Chapter and section of, and Schedule to, the Act.

(2) All references to “Forms” in these rules shall be construed as references to the forms set out in Appendix II hereto.

PART II

DETERMINATION OF INCOME

A.—Salaries

[Limits for the purposes of section 10(13A).

2A. The amount which is not to be included in the total income of an assessee in respect of the special allowance referred to in clause (13A) of section 10 shall be—

(a)  the actual amount of such allowance received by the assessee in respect of the relevant period; or

(b) the amount by which the expenditure actually incurred by the assessee in payment of rent in respect of residential accommodation occupied by him exceeds one-tenth of the amount of salary due to the assessee in respect of the relevant period; or

[(c)  an amount equal to—

(i) where such accommodation is situate at Bombay, Calcutta, Delhi or Madras, one-half of the amount of salary due to the assessee in respect of the relevant period; and

(ii) where such accommodation is situate at any other place, two-fifth of the amount of salary due to the assessee in respect of the relevant period,]

(d [***]

whichever is the least.

Explanation : In this rule—

 (i)  “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;

(ii)  “relevant period” means the period during which the said accommodation was occupied by the assessee during the previous year.]

(iii) [***]

[Conditions for the purpose of section 10(5).

2B (1) The amount exempted under clause (5) of section 10 in respect of the value of travel concession or assistance received by or due to the individual from his employer or former employer for himself and his family, in connection with his proceeding,—

(a)  on leave to any place in India;

(b)  to any place in India after retirement from service or after the termination of his service,

shall be the amount actually incurred on the performance of such travel subject to the following conditions, namely :—

[(i)  where the journey is performed on or after the 1st day of October, 1997, by air, an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination;

(ii)  where places of origin of journey and destination are connected by rail and the journey is performed on or after the 1st day of October, 1997, by any mode of transport other than by air, an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and

(iii) where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed on or after the 1st day of October, 1997, between such places, the amount eligible for exemption shall be :—

(A)  where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and

(B)  where no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.]

(2) The exemption referred to in sub-rule (1) shall be available to an individual in respect of two journeys performed in a block of four calendar years commencing from the calendar year 1986 :

[Provided that nothing contained in this sub-rule shall apply to the benefit already availed of by the assessee in respect of any number of journeys performed before the 1st day of April, 1989 except to the extent that the journey or journeys so performed shall be taken into account for computing the limit of two journeys specified in this sub-rule.]

(3) Where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, an amount in respect of the value of the travel concession or assistance, if any, first availed of by the individual during first calendar year of the immediately succeeding block of four calendar years shall be eligible for exemption.

Explanation : The amount in respect of the value of the travel concession or assistance referred to in this sub-rule shall not be taken into account in deter-mining the eligibility of the amount in respect of the value of the travel con-cession or assistance in relation to the number of journeys under sub-rule (2).]

[(4) The exemption referred to in sub-rule (1) shall not be available to more than two surviving children of an individual after 1st October, 1998 :

Provided that this sub-rule shall not apply in respect of children born before 1st October, 1998, and also in case of multiple births after one child.]

[Guidelines for the purposes of section 10(10C).

2BA The amount received by an employee of—

 (i)  a public sector company; or

(ii)  any other company; or

(iii) an authority established under a Central, State or Provincial Act; or

(iv) a local [authority; or]

[(v) a co-operative society; or

(vi) a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or

(vii)  an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961); or

[(viia) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette, specify in this behalf; or]

(viii)  such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf,]

at the time of his voluntary retirement [or voluntary separation] shall be exempt under clause (10C) of section 10 only if the scheme of voluntary retirement framed by the aforesaid company or authority [or co-operative society or University or institute], as the case may be [or if the scheme of voluntary separation framed by a public sector company,] is in accordance with the following requirements, namely :—

 (i)  it applies to an employee [***] who has completed 10 years of service or completed 40 years of age;

[(ii) it applies to all employees (by whatever name called) including workers and executives of a company or of an authority or of a co-operative society, as the case may be, excepting directors of a company or of a co-operative society;]

(iii) the scheme of voluntary retirement [or voluntary separation] has been drawn to result in overall reduction in the existing strength of the employees[***];

(iv)  the vacancy caused by the voluntary retirement [or voluntary separation] is not to be filled up;

(v)  the retiring employee of a company shall not be employed in another company or concern belonging to the same management;

(vi) the amount receivable on account of voluntary retirement [or voluntary separation] of the employee does not exceed the amount equivalent to [three months’] salary for each completed year of service or salary at the time of retirement multiplied by the balance months of service left before the date of his retirement on superannuation :

[Provided that requirement of (i) above would not be applicable in case of amount received by an employee of a public sector company under the scheme of voluntary separation framed by such public sector company.]

Explanation : In this rule, the expression “salary” shall have the same meaning as is assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule.]

[Prescribed allowances for the purposes of clause (14) of section 10.

2BB (1) For the purposes of sub-clause (i) of clause (14) of section 10, prescribed allowances, by whatever name called, shall be the following, namely :—

(a)  any allowance granted to meet the cost of travel on tour or on transfer;

(b)  any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

(c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit :

Provided that free conveyance is not provided by the employer;

(d) any allowance granted to meet the expenditure incurred on a helper where such helper is engaged for the performance of the duties of an office or employment of profit;

(e)  any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions;

(f)  any allowance granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.

Explanation : For the purpose of clause (a), “allowance granted to meet the cost of travel on transfer” includes any sum paid in connection with transfer, packing and transportation of personal effects on such transfer.

(2) For the purposes of sub-clause (ii) of clause (14) of section 10, the prescribed allowances, by whatever name called, and the extent thereof shall be the following, namely :—

TABLE

Sl. No. Name of allowance Place at which allowance is exempt Extent to which allowance is exempt
(1) (2) (3) (4)
1. Any Special Compensatory Allowance in the nature of [Special Compensatory (Hilly Areas) Allowance] or High Altitude Allowance or Uncongenial Climate Allowance or Snow Bound Area Allowance or Avalanche Allowance

I. (a) Manipur Mollan/RH-2365.

   (b) Arunachal Pradesh

 (i) Kameng;

(ii) North Eastern Arunachal Pradesh where heights are 9,000 ft. and above;

(iii) Areas east or west of Siang and Subansiri sectors

(c)  Sikkim

 (i)  Area North-NE-East of line Chhaten LR 0105, Launchung LR 1902, pt. 4326 LW 1790, pt. 4349 LW 1479, pt. 3601 LW 1471 to mile 13 LW 1367 to Berluk LW 2253.

(ii)  All other areas at 9,000 ft. and above.

(d)  Uttar Pradesh

Areas of Harsil, Mana and Malari Sub-divisions and other areas of heights at 9,000 ft. and above.

(e)  Himachal Pradesh

 (i)  All areas at 9,000 ft. and above ahead of line joining Puhka-jakunzomla towards the bower.

(ii)  Area ahead of line joining Karchham and Shigrila towards the bower.

(iii) All areas in Kalpa, Spiti, Lahul and Tisa.

(f)  Jammu and Kashmir

 (i)  All areas from NR 396950 to NR 350850, NR 370790, NR 311776 North of Shaikhra Village, North of Pindi Village to NR 240800.

(ii)  Areas of Doda, Sank and other posts located in areas at a height of 9,000 ft. and above.

(iii) North of line Kud-Dudu and Bastt-garh, Bilwar, Batote and Patnitop.

(iv) All areas ahead of Zojila served by Road Srinagar-Zojila-Leh in Leh District.

(v)  Gulmarg – All areas forward of line joining Anita Linyan 3309 – Kaunrali – 2407.

(vi) Uri South – All areas forward of Kaunrali – Kandi 1810 Kustam 1505 – Sebasantra 1006 Changez 0507 – Jak 19904 Keekar 9704 Jamun 9607 Neeta 9508.

(vii) BAAZ Kaiyan Bowl – All areas forward of Dulurja 9712-BAAZ 0317 – Shamsher 0416 including New Shamsher 0615 – Zorawar 1017 – Malaugan Base 1027 – Radha 0836 to Nastachun Pass 9847.

(viii) Tangdhar – All areas west of Nastachun Pass Tangdhar Bowl and on Shamshabari Range and forward of it.

(ix)  Karan and Machhal sub-sectors – All areas along the line Pharkiangali 0869 to Z Gali 4376 andforward of Shamshabari Range.

(x)  Panzgam, Trehgam and Drugmul.

[Rs. 800] per month

II. Siachen area of Jammu and Kashmir

[Rs. 7,000] per month

III. All places located at a height of 1,000 metres or more above the sea level, other than places specified at (I) and (II) above.

[Rs. 300] per month
[2. Any Special Compensatory Allowance in the nature of Border Area Allowance, Remote Locality Allowance or Difficult Area Allowance or Disturbed Area Allowance

I. (a) Little Andaman, Nicobar and Narcondum Islands;

   (b) North and Middle Anda-mans;

   (c) Throughout Lakshadweep and Minicoy Islands;

  (d) All places on or north of the following demarcation line:

Point 14600 (2881) to Sala MS 2686-Matau MS 6777 – Sakong MT 1379-Bamong-Khonawa MO 2803 – Nyapin MO 7525 – River Khru to its junction with the river Kamla MP – 2226 – Taliha – Yapuik MK 7410 – Gshong MK 9749 – Yinki Yong NF 4324-Damoroh MF 6208 – Ahinkolin NF 8811 – Kronli MG 2407 – Hanli NM 4096 -Gurongon NM 4592-Loon NM 7579 – Mayuliang NM 0169-Chawah NM 9943 – Kamphu NM 1125 – Point 6490 (NM 1493) Vijayanagar NSA 486;

(e)  Following areas in Himachal Pradesh :

 (i)  Pangi Tehsil of Chamba District;

(ii)  Following Pancha-yats and villages of Bharmour Tehsil of Chamba District :

(A)  Panchayat : Badgaun, Bajol, Deol Kugti Naya-gam and Tundah.

(B)  Villages : Ghatu of Gram Panchayat Jagat Kanarsi of Gram Pan-chayat, Cau-hata.

(iii) Lahaul and Spiti District;

(iv) Kinnaur district:

(A) Asrang, Chitkul and Hango Kuno Charang Panchayats;

(B) 15/20 Area comprising the Gram Pancha-yats of Chhota Khamba, Na-thpa and Rupi;

(C) Pooh Sub-Division excluding the Panchayat Areas specified above.

(v) 15/20 Area of Rampur Tehsil comprising of Panchayats of Koot, Labana-Sadana, Sarpara and Chandi Branda of Shimla District.

(vi) 15/20 Area of Nirmand Tehsil, comprising the Gram Panchayats of Kharga, Kushwar and Sarga of Kullu District.

(f) Chimptuipui District of Mizoram and areas beyond 25 km. from Lunglei town in Lunglei District of Mizoram.

(g) Following areas in Jammu and Kashmir:

 (i)  Niabat Bani, Lohi, Malhar and Macchodi of Kathua District;

(ii)  Dudu Basantgarh Lander Bhamag Illaqa, Thakrakote and Nagote of Udhampur District;

(iii) All areas in Tehsil Mahore except those specified at III(f)(i) below in Udhampur District;

(iv) Illaqas of Padder and Niabat Nowgaon in Kishtwar Tehsil of Doda District;

(v)  Leh District;

(vi) Entire Gurez – Niabat, Tangdhar Sub-Division and Keran Illaqa of Baramulla District.

(h) Following areas of Uttar Pradesh :—

(i)  Chamoli District;

(ii)  Pithoragarh District;

(iii) Uttarkashi District.

(i)  Throughout Sikkim State.

Rs. 1,300 per month

II.  Installations in the Continental Shelf of India and the Exclusive Economic Zone of India.

Rs. 1,100 per month

III. (a) Throughout Arunachal Pradesh other than areas covered by those specified at I(d) above. Rs. 1,050 per month

    (b) Throughout Nagaland State.

    (c) South Andaman (including Port Blair).

   (d) Throughout Lunglei District (excluding areas beyond 25 km. from Lunglei town) of Mizoram.

  (e)  Dharmanagar, Kailasahar, Amarpur and Khowai in Tripura.

  (f)  Following areas in Jammu and Kashmir :

 (i) Areas up to Goel from Kamban side and areas upto Arnas from Keasi side in Tehsil Mahore of Udhampur District;

(ii) Matchill in Baramulla District.

(g) Following areas in Himachal Pradesh :

 (i)  Bharmour Tehsil, excluding Panchayats and villages covered by those specified at I(e)(ii) above of Chamba District;

(ii)  Chhota Bhangal and Bara Bhangal area of Kangra District;

(iii) Kinnaur District other than areas specified at I(e)(iv);

(iv) Dodra – Kawar Tehsil, Gram Panchayats of Darkali in Rampur, Kashapath Tehsil and Munish, Ghori Chaibis of Pargana Sarahan of Shimla District.

IV. (a) Throughout Aizawal District of Mizoram;

  (b) Throughout Tripura except areas those specified at III(e);

  (c) Throughout Manipur;

 (d) Following areas of Himachal Pradesh :

 (i) Jhandru Panchayat in Bhatiyat Tehsil, Churah Tehsil, Dalhousie Town (including Banikhet proper) of Chamba District;

(ii)  Cuter Seraj (excluding Village of Jakat-Khana and Burow in Nirmand Tehsil of Kullu District;

(iii) Following areas of Mandi District :

(A) Chhuhar Val-ley (Joginder-nagar Tehsil);

(B) Bagra, Ch-hatri, Chhot-dhar, Garagu-shain, Gatoo, Gharyas, Janjehli, Jaryar, Johar Kalhani Kalwan, Kho-lanal, Loth, Silibagi, Somachan, Thachdhar, Tachi and Thana Panchayats of Thunag Tehsil;

(C) Binga, Kam-lah, Saklana, Tanyar and Tarakholah, Panchayats of Dharampur Block;

(D) Balidhar, Bag-ra, Gopalpur, Khajol, Mahog, Mehudi, Manj, Pekhi, Sainj, Sarahan and Teban, Pan-chayats of Karsog Tehsil;

(E) Bohi, Batwara, Dhanyara, Paura-Kothi, Seri and Shoja, Panchayats of Sundernagar Tehsil.

(iv) Following areas and offices of Kangra District :

(A) Dharamshala town and Women’s ITI; Dari, Mechanical Workshop, Ramnagar; Child Welfare and Town Country Planning Offices, Sakoh; CRSF Office at lower Sakoh; Kangra Milk Supply Scheme, Shamnagar; Tea Factory, Dari; Forest Corporation Office, Sham-nagar; Tea Factory, Dari; Settlement Office, Shamnagar and Binwa Project, Sham-nagar. Offices located outside the Municipal limit of Dharamshala town but included in Dharamshala town for purposes of eligibility to special Compensatory (Remote Locality) Allowance;

(B) Palampur town, including HPKVV Campus at Palampur and H.P. Krishi Vishvavidya-laya Campus; Cattle Deve-lopment Office/ Jersy Farm, Banuri; Sericulture Office/Indo-German Agriculture Workshop/HPPWD Division, Bundla; Electrical Sub-Division, Lohna; D.P.O. Corporation, Bundla and Electrical HPSEE Division, Ghuggar offices located outside the Municipal limits of Palam-pur town but included in Palampur town for the purpose of above allowance;

(v) Chopal Tehsil; Ghoris, Panjgaon, Patsnu, Naubis and Teen Koti of Pargana Sarahan; Deothi Gram Pancha-yat of Taklesh Area; Pargana Barabis; Kasba Rampur and Ghori Nog of Pargana Rampur of Rampur Tehsil of Shimla District and Shimla Town and its suburbs (Dhalli, Jatog, Kasumpti, Mashobra, Taradevi and Tutu);

(vi) Panchayats of Bani, Bakhali (Pachhad Tehsil), Bharog Bhe-neri (Paonata Tehsil), Birla (Nahan Tehsil), Dibber (Pachhad Tehsil) of Thanan Kasoga (Nahan Tehsil) in Sirmour District and Transgiri Tract of Sirmour District;

(vii) Mangal Panchayat of Solan District;

(e) Following areas in Jammu and Kashmir :

 (i)  Areas in Poonch and Rajouri Districts excluding the towns of Poonch and Rajouri and Sunderbani and other Urban areas in the two districts;

(f)  Following areas in Jammu and Kashmir :

Areas not included in I(g), III(f) and IV(e) above, but which are within a distance of 8 km. from the line of actual control or at places which may be declared as qualifying for Border Allowance from time to time by the State Government for their own staff.

Rs. 750 per month
V.  Jog Falls in Shimoga District in Karnataka. Rs. 300 per month.

VI. (a) Throughout the State of Himachal Pradesh other than areas covered by those specified in I(e), III(g) and IV(d)

    (b) Throughout the State of Assam and Meghalaya

Rs. 200 per month.]
3. [Special Compensatory (Tribal Areas/Schedule Areas/Agency Areas) Allowance]

(a) Madhya Pradesh

(b) Tamil Nadu

(c) Uttar Pradesh

(d) Karnataka

(e) Tripura

(f) Assam

(g) West Bengal

(h) Bihar

(i) Orissa

[Rs. 200] per month.
4. Any allowance granted to an employee working in any transport system to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place, provided that such employee is not in receipt of daily allowance Whole of India 70 per cent of such allowance up to a maximum of [Rs. 10,000] per month.
5. Children Education Allowance Whole of India [Rs. 100] per month per child up to a maximum of two children.
6. Any allowance granted to an employee to meet the hostel expenditure on his child Whole of India [Rs. 300] per month per child up to a maximum of two children.
7. Compensatory Field Area Allowance

(a)  Following areas in Arunachal Pradesh :—

  (i) Tirap and Changlang Districts;

(ii)  All areas North of line joining point 4448 in LZ 4179-Nukme Dong MS 3272-Sepla MT 2969-Palin MO 9213-Daporijo NR 5841-Along NL 1273-Hunli NM 3196-Tidding Tuwi MT 6369-Hayuliang NN 0170-Tawaken MT 8136-Champai Bun NM 8814, all inclusive.

(b) Throughout Manipur and Nagaland.

(c)  Following areas in Sikkim :—

All areas North and North East of line joining Phalut LV 4750-Gezing LV 7059-Mangkha LV 6160-Penlang La LW 0666-Rangli LW 1448-BP 1 in LW 2453 on Indo-Bhutan Border, all inclusive.

(d)  Following areas in Himachal Pradesh :

All areas East of line joining Umasila NV 3951-Udaipur NY 8663-Manikaran SB 2300-Pir Parbati Pass TA 1459-Taranda TA 2335-Barasua Pass TA 8801, all inclusive.

(e)  Following areas in Uttar Pradesh :—

All areas North and North-East of line joining Barasua Pass Gangnani TG 1362-Govind Ghat TG 0937-Tapovan TH 1822-Musiari TN 8982-Relagad TO 2466, all inclusive.

(f) Following areas in Jammu and Kashmir :—

 (i)  Areas North and East of line joining Zojila MU 3036-Baralachala NE 6672 along the Great Himalayan Range, all inclusive;

(ii)  All areas West of line joining point 1556 in NR 5470-Gulmarg MT 3105-Naushara MY 3105-Ringapat MT 2133-Handwara MT 2043-Laingyal MT 2339-Point 8405 in NG 4565-North of line joining point 8403-Bunakut MT 5453-Razan NN 2239-Zojila, all inclusive;

(iii) All areas West of line joining tip of Chicken Neck RD 7073-Canal junction RD 6364-Mawa Brahmana RD 6183-Chauki RD 6393-Road junction RD 6499-Baramgala MY 3854-Point 1556 in NR 5470, all inclusive.

[Rs. 2,600] per month.
8. Compensatory Modified Field Area Allowance

(a)  Following areas in Punjab and Rajasthan :—

Areas West of line joining Jessai, Barmer, Jaisalmer, Pokharan, Udasar, Mahajan Ranges, Suratgarh, Lalgarh, Jattan, Abohar, Govindgarh, Fazilka, Jandiala Guru, Moga, Dholewal, Deas, Bir Sarangwal, Hussainiwala, Dera Baba Nanak, Laisain pulge upto the international border, all inclusive.

(b) Following area in Haryana :—

Satrod (Hissar).

(c) Following areas in Himachal Pradesh :—

Areas North of line joining Narkhanda, Keylong upto Field Area line/High Altitude line.

(d) Following areas in Arunachal Pradesh and Assam :—

 (i)  Cachar and North Cachar Districts of Assam including Silchar;

(ii)  All areas of Arunachal Pradesh and Assam North of river Brahmaputra except Tejpur – Misamari and Field Areas.

(e) Throughout Mizoram and Tripura.

(f) Following areas in Sikkim and West Bengal :—

Areas Northwards of line joining Sevoke LV 9112-Burdong LV 985-Sherwani LV 9453 -Bagrakot LW 0113-Damdim LW 1109-New Mal-Hasimara-QB 7894 Ganga Ram Tea Estate QA 1377 upto the High Altitude line/field area line/international border, all inclusive.

(g) Following areas in Uttar Pradesh :—

Areas North of line joining Uttarkashi, Karan Prayag, Gauchar, Joshimath, Chamoli, Rudra Prayag, Askote, Charamgad, Dharchula, Kausani and Narendra Nagar upto inter-national border, all inclusive.

(h) Following areas in Jammu and Kashmir :—

(i)  Areas West of line joining Pattan, Baramulla, Kupwara, Drugmula, Panges, Mankes, Buniyar, Pantha Chowk, Khanabal, Anantnag, Khundru and Khru upto the existing High altitude line, all inclusive;

(ii)  Areas West of line joining – BP-19, Brahmanadi-Bari, Jindra, Dhansal, Katra, Sanjhi Chatt, Batote, Patnitop, Ram-ban and Banihal upto the existing High altitude line, all inclusive.

[Rs. 1,000] per month
9. Any special allowance in the nature of counter-insurgency allowance granted to the members of armed forces operating in areas away from their permanent locations [***] Whole of India [Rs. 3,900] per month.
[10. Transport allowance granted to an employee [other than an employee referred to in serial number 11] to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty Whole of India Rs. 800 per month.]
[11. Transport allowance granted to an employee, who is blind or orthopaedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty Whole of India Rs. 1,600 per month.]
[12. Underground Allowance granted to an employee who is working in uncongenial, unnatural climate in underground [***] mines Whole of India Rs. 800 per month.]
[13. Any special allowance in the nature of high altitude (uncongenial climate) allowance granted to the member of the armed forces operating in high altitude areas (a) For altitude of 9,000 to 15,000 feet

(b) For altitude above 15,000 feetRs. 1,060 per month.

Rs. 1,600 per month.14.Any special allowance granted to the members of the armed forces in the nature of special compensatory highly active field area allowanceWhole of IndiaRs. 4,200 per month.][15.Any special allowance granted to the member of the armed forces in the nature of Island (duty) allowanceAndaman & Nicobar and Lakshadweep Group of IslandsRs. 3,250 per month:]

Provided that any assessee claiming exemption in respect of the allowances mentioned at serial numbers 7 and 8 shall not be entitled to the exemption in respect of the allowance referred to at serial number 2:

Provided further that any assessee claiming exemption in respect of the allowance mentioned at serial number 9 shall not be entitled to the exemption in respect of disturbed area allowance referred to at serial number 2.]

[Circumstances and conditions for the purposes of clause (19) of section 10.

2BBA (1) For the purposes of clause (19) of section 10, the circumstances of death of a member of the armed forces (including para-military forces) of the Union in the course of operational duties shall be the following, namely :—

(i)  acts of violence or kidnapping or attacks by terrorists or anti-social elements;

(ii)  action against extremists or anti-social elements;

(iii) enemy action in international war;

(iv) action during deployment with a peace keeping mission abroad;

(v)  border skirmishes;

(vi)  laying or clearance of mines including enemy mines as also mine sweeping operations;

(vii) explosions of mines while laying operationally oriented mine-fields or lifting or negotiation mine-fields laid by the enemy or own forces in operational areas near international borders or the line of control;

(viii) in the aid of civil power in dealing with natural calamities and rescue operations;

(ix) in the aid of civil power in quelling agitation or riots or revolts by demonstrators.

(2) It shall be certified by the Head of the Department where the deceased member of the armed forces (including para-military forces) last served, or the service headquarters, as the case may be, that the death of such member has occurred in the course of operational duties in circumstances mentioned in sub-rule (1).]

[Amount of annual receipts for the purposes of sub-clauses (iiiad) and (iiiae) of clause (23C) of section 10.

2BC. (1) For the purposes of sub-clause (iiiad) of clause (23C) of section 10, the amount of annual receipts on or after the 1st day of April, 1998, of any university or other educational institution, existing solely for educational purposes and not for purposes of profit, shall be one crore rupees.

(2) For the purposes of sub-clause (iiiae) of clause (23C) of section 10, the amount of annual receipts on or after the 1st day of April, 1998, of any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, shall be one crore rupees.]

[Guidelines for approval under sub-clauses (iv) and (v) of clause (23C) of section 10.

2C. (1) The prescribed authority under sub-clauses (iv) and (v) of clause (23C) of section 10 shall be the Chief Commissioner or Director General, to whom the application shall be made as provided in sub-rule (2).

(2) The application to be furnished under sub-clauses (iv) and (v) of clause (23C) of section 10 by a fund, trust or institution shall be in Form No. 56.

Explanation —For the purposes of this rule, “Chief Commissioner or Director General” means the Chief Commissioner or Director General whom the Central Board of Direct Taxes may, authorise to act as prescribed authority for the purposes of sub-clause (iv) or sub-clause (v) of clause (23C) of section 10 in relation to any fund or trust or institution.]

Guidelines for approval under sub-clauses (vi) and (via) of clause (23C) of section 10.

[2CA. (1) The prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Chief Commissioner or Director General, to whom the application shall be made as provided in sub-rule (2).

(1A) The prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) for applications received prior to 3rd day of April, 2001:

[Provided that in case of applications received prior to 3rd day of April, 2001 where no order has been passed granting approval or rejecting the application as on 31st day of May, 2007, the prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Chief Commissioner or Director General.]

(2) An application for approval shall be made in Form No. 56D by any university or other educational institution or any hospital or other medical institution referred to in sub-clause (vi) or sub-clause (via) of clause (23C) of section 10.

[(3) The approval of the Central Board of Direct Taxes or Chief Commissioner or Director General, as the case may be, granted before the 1st day of December, 2006 shall at any one time have effect for a period not exceeding three assessment years.]

[Explanation.—For the purposes of this rule, “Chief Commissioner or Director General” means the Chief Commissioner or Director General whom the Central Board of Direct Taxes may, authorise to act as prescribed authority, for the purposes of sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, in relation to any university or other educational institution or any hospital or other medical institution.]

[Guidelines for approval under clause (23F) of section 10.

2D. (1) For the purposes of clause (23F) of section 10, the prescribed authority shall be the Director of Income-tax (Exemptions) having jurisdiction over the venture capital fund or the venture capital company who makes application for approval under sub-rule (2).

(2) An application for approval shall be made in Form No. 56A by a venture capital fund or a venture capital company to the Director of Income-tax (Exemptions) referred to in sub-rule (1).

(3) Every application under sub-rule (2) may be made in any previous year in which any income by way of dividend or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking shall not be included in computing the total income of such venture capital fund or venture capital company.

(4) Every application for approval under sub-rule (2) shall be accompanied by the following documents, namely :—

(a)  a copy of trust deed or certificate of incorporation under the Companies Act, 1956 (1 of 1956);

(b)  balance sheets and profit and loss account for three previous years immediately preceding the previous year in which the application is made;

(c)  Forms 56B and 56C duly filled in and signed by the applicant; and

(d)  a copy of the certificate of registration issued by the Securities and Exchange Board of India.

(5) The Director of Income-tax (Exemptions) shall approve the venture capital fund or the venture capital company, as the case may be, subject to the following conditions, namely :—

(a)  the venture capital fund or the venture capital company, as the case may be, is registered with the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(b) [* * *]

(c)  [* * *]

(d)  a venture capital fund or a venture capital company, as the case may be, shall not invest more than [twenty] per cent of its total monies raised or total paid-up share capital in one venture capital undertaking;

(e)  a venture capital fund or a venture capital company, as the case may be, shall not make investment of more than forty per cent in the equity capital of one venture capital undertaking;

(f)  every venture capital fund and venture capital company, shall maintain books of account and get such books audited by an accountant, as defined in Explanation to sub-section (2) of section 288 and furnish the report of such audit duly signed and verified by such accountant to the Director of Income-tax (Exemptions) before the due date of filing of the return under sub-section (1) of section 139.

(6) The Director of Income-tax (Exemptions) shall pass an order in writing granting approval or refusing approval to the venture capital fund or venture capital company, as the case may be :

Provided that the Director of Income-tax (Exemptions) shall not refuse the approval except in concurrence with the Director-General of Income-tax (Exemptions):

Provided further that every venture capital fund or venture capital company, as the case may be, shall be given an opportunity of being heard before passing an order under this rule.

(7) The Director of Income-tax (Exemptions) shall withdraw the approval granted under sub-rule (6) in the following circumstances, namely :—

(a)  if the venture capital fund or the venture capital company—

(i)  fails to make investments in the manner specified in sub-rule (5);

(ii)  invests more than [twenty] per cent of the monies raised by a venture capital fund or [twenty] per cent of paid-up share capital of the venture capital company, as the case may be, in one venture capital undertaking;

(iii)  makes an investment of more than forty per cent in the equity capital in one venture capital undertaking;

(iv)  fails to maintain books of account and get such accounts audited by an accountant or fails to file the audit report required in clause (f) of sub-rule (5);

(v)  violates the provisions of the Act or rules made thereunder;

(b)  if the certificate of registration granted under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), to a venture capital fund or a venture capital company is suspended or cancelled by the Securities and Exchange Board of India.]

[Guidelines for approval under clause (23FA) of section 10.

2DA. (1) An application for approval shall be made in Form No. 56AA by a venture capital fund or a venture capital company to the Central Government.

(2) Every application under sub-rule (1) may be made in any previous year in which any income by way of dividend or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking shall not be included in computing the total income of such venture capital fund or venture capital company.

(3) Every application for approval under sub-rule (1) shall be accompanied by the following documents, namely :—

(a)  a copy of the trust deed registered under the provision of the Registration Act, 1908 or a certificate of incorporation under the Companies Act, 1956 (1 of 1956);

(b)  balance sheets and profit and loss accounts for three previous years immediately preceding the previous year in which the application is made;

(c)  Forms 56BA and 56CA duly filled in and signed by the applicant; and

(d)  a copy of the certificate of registration issued by the Securities and Exchange Board of India under sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).

(4) The Central Government may approve the venture capital fund or the venture capital company, as the case may be, subject to the following conditions, namely :—

(a)  a venture capital fund or a venture capital company, as the case may be, is registered with the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(b)  a venture capital fund or a venture capital company, as the case may be, shall not invest more than twenty-five per cent of its total monies raised or total paid-up share capital in one venture capital undertaking;

(c)  every venture capital fund and venture capital company, shall maintain books of account and get such books audited by an accountant, as defined inExplanation to sub-section (2) of section 288 of the Act and, furnish the report of such audit duly signed and verified by such accountant to the Central Government before the due date of filing of the return under sub-section (1) of section 139 of the Act.

(5) The Central Government may pass an order in writing granting approval or refusing approval to the venture capital fund or venture capital company, as the case may be :

Provided that no order refusing the approval shall be passed unless an opportunity of being heard has been given to the venture capital fund or the venture capital company.

(6) The approval of the Central Government under sub-rule (5) shall at any one time have effect for such assessment year or years, not exceeding three assessment years.

(7) The Central Government shall withdraw the approval granted under sub-rule (5) in the following circumstances :—

(a)  if the venture capital fund or the venture capital company—

(i)  fails to make investments in the manner specified in sub-rule (4);

(ii)  invests more than twenty-five per cent of the monies raised by a venture capital fund or twenty-five per cent of paid-up share capital of the venture capital company, as the case may be, in one venture capital undertaking;

(iii)  fails to maintain books of account and get such accounts audited by an accountant or fails to file the audit report required in clause (d) of sub-rule (4);

(iv)  violates the provisions of the Act or rules made there under;

(b)  if the certificate of registration granted under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), to a venture capital fund or a venture capital company is suspended or cancelled by the Securities and Exchange Board of India.]

[Guidelines for approval under clause (23G) of section 10.

2E. (1) An application for approval shall be made on or after the 1st day of June, 1998 in Form No. 56E by an enterprise to the Central Government.

(2) Every application for approval made under sub-rule (1) shall be accompanied by the following documents, namely :—

(a)  a copy of certificate of incorporation under the Companies Act, 1956 (1 of 1956) or a copy of the document evidencing the constitution of the enterprise and its legal status;

(b)  a copy of the project report or agreement in respect of the eligible business duly approved by the Central Government or any State Government or any local authority or any other statutory body, as the case may be;

(c)  balance sheets and profit and loss accounts for the three previous years immediately preceding the previous year in which the application has been made and also for the relevant part of the previous year in which the application has been made :

Provided that an application made under sub-rule (1) may be accompanied by the balance sheets and profit and loss accounts for less than three previous years where an enterprise has been formed at any time during the three previous years immediately preceding the previous year in which the application has been made and also for the relevant part of the previous year in which the application has been made.

(3) The Central Government shall approve an enterprise for the purposes of clause (23G) of section 10, if such enterprise is wholly engaged in the eligible business.

(4) The Central Government may, before approving an enterprise, call for such documents (including audited annual accounts) or information from the enterprise, as it thinks necessary in order to satisfy itself that such enterprise is wholly engaged in the eligible business and that Government may also make such enquiries as it may deem necessary in this behalf.

(5) The Central Government shall pass an order in writing while granting approval or refusing approval to the enterprise :

Provided that no order refusing the approval shall be passed unless an opportunity of being heard has been given to the enterprise.

(6) Every enterprise approved under sub-rule (5) shall maintain books of account and get such books audited by an accountant, as defined in Explanation to sub-section (2) of section 288 and furnish the report of such audit duly signed and verified by such accountant to the Chief Commissioner of Income-tax under whose jurisdiction it is assessed, before the due date of filing of the return under sub-section (1) of section 139.

(7) Where the enterprise,—

(a)  ceases to carry on the eligible business; or

(b)  fails to maintain books of account and get such accounts audited by an accountant as required by sub-rule (6); or

(c)  fails to furnish the audit report as required by sub-rule (6),

the Chief Commissioner of Income-tax shall, after making such enquiries as he may deem necessary, furnish a report on the circumstances referred to in clauses (a), (b) and (c) to the Central Government, within six months from the due date of filing of return under sub-section (1) of section 139.

(8) The Central Government, on being satisfied that any or all of the circumstances referred to in clauses (a), (b) and (c) of sub-rule (7) exist, shall withdraw the approval granted under sub-rule (5) :

Provided that no order withdrawing the approval shall be passed unless an opportunity of being heard has been given to the enterprise.

Explanation : For the purposes of this rule,—

(a)  the expression “enterprise” means any enterprise wholly engaged in the eligible business;

(b)  the expression “eligible business” means the business referred to in sub-section (4) of section 80-IA or a housing project referred to in sub-section (10) of section 80-IB and which fulfils the conditions specified in the said sub-sections or a hotel project or a hospital project as defined in clauses (g) and (h) of Explanation 1 to clause (23G) of section 10.]

[Guidelines for setting up an Infrastructure Debt Fund for the purpose of exemption under clause (47) of section 10.

2F. (1) The Infrastructure Debt Fund shall be set up as a Non-Banking Financial Company conforming to and satisfying the conditions provided by the Reserve Bank of India in the Infrastructure Development Fund – Non-Banking Financial Companies (Reserve Bank) Directions, 2011, vide notification No. DNBS.233/CGM (US)-2011, dated the 21st November, 2011.

(2) The funds of Infrastructure Debt Fund shall be invested only in the Public Private Partnership Infrastructure Projects and Post Commencement Operation Date Infrastructure Projects which have completed at least one year of satisfactory commercial operation and such Infrastructure Debt Fund is a party to tripartite agreement with the concessionaire and the project authority for ensuring compulsory buy out and termination payment.

(3) The Infrastructure Debt Fund shall issue rupee denominated bonds or foreign currency bonds in accordance with the directions of Reserve Bank of India (RBI) and the relevant regulations under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, as amended from time to time.

(4) The terms and conditions of any bond issued by the Infrastructure Debt Fund shall be in accordance with the said directions of the Reserve Bank of India and the regulations referred to in sub-rule (3).

(5) In case of an investor in the aforesaid bond being a non-resident, the original or initial maturity of bond, at time of first investment by such non-resident investor, shall not be less than a period of five years :

Provided that the investment made by a non-resident investor in such bonds shall be subject to a lock in period of not less than three years, but the non-resident investor may transfer the bond to another non-resident investor within such lock in period.

(6) The investment made by the Infrastructure Debt Fund in an individual project or project belonging to a group at any time, shall not exceed twenty per cent of the corpus of the fund.

(7) No investment shall be made by the Infrastructure Debt Fund in any project where its sponsor or the associate enterprise or the group of such sponsor has a substantial interest.

(8) The Infrastructure Debt Fund shall file its return of income as required by sub-section (4C) of section 139 on or before the due date.

(9) In case the Infrastructure Debt Fund does not fulfil any of the conditions provided in this rule or directions of the Reserve Bank of India, all provisions of the Act shall apply as if it is not an Infrastructure Debt Fund referred to in clause (47) of section 10 of the Act.

Explanation – For the purpose of this rule,—

 (i)  “associate enterprise” shall have the same meaning as assigned to it in section 92A of the Act;

 (ii) “concern” shall have the same meaning as in clause (a) of Explanation 3 of sub-section (22) of section 2 of the Act;

(iii) “concessionaire”, “tripartite agreement” and “project authority” respectively shall have the same meaning as assigned to them in the Infrastructure Debt Fund – Non-Banking Financial Companies (Reserve Bank) Directions, 2011;

(iv) “corpus” means the total funds of the Infrastructure Debt Fund raised for the purpose of investment;

(v)  “group” means a group as defined in clause (mm) of section 2 of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996;

(vi)  a person shall be deemed to have substantial interest in—

(a)  a company if he is the beneficial owner (including beneficial ownership held by one or more of his relatives, in case the person is an individual) of shares (not being the shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than 10 per cent of the voting power; or

 (b)  a concern other than a company if he is, at any time during the previous year, beneficially entitled to not less than 20 per cent of the income of such concern;

(vii) “relative”, in relation to an individual, means—

(a)  spouse of the individual;

(b)  brother or sister of the individual;

(c)  brother or sister of the spouse of the individual;

(d)  brother or sister of either of the parents of the individual;

(e)  any lineal ascendant or descendant of the individual;

(f)  any lineal ascendant or descendant of the spouse of the individual;

(g)  spouse of the persons referred to in sub-clauses (b) to (f); or

(h)  any lineal descendant of a brother or sister of either the individual or of the spouse of the individual;

(viii) “sponsor” means a non-banking financial company, or a bank which is allowed to act as sponsor of Infrastructure Debt Fund in accordance with the directions of Reserve Bank of India.]

Valuation of perquisites.

3. For the purpose of computing the income chargeable under the head “Salaries”, the value of perquisites provided by the employer directly or indirectly to the assessee (hereinafter referred to as employee) or to any member of his household by reason of his employment shall be determined in accordance with the following sub-rules, namely:—

1) The value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below (See page 1.36) :

TABLE I

Sl. No. Circumstances Where accommodation is unfurnished Where accommodation is furnished
(1) (2) (3) (4)
(1) Where the accommodation is provided by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State. License fee determined by the Central Government or any State Government in respect of accommodation in accordance with the rules framed by such Government as reduced by the rent actually paid by the employee. The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(2)  Where the accommodation is provided by any other employer and—
(a) where the accommodation is owned by the employer, or

(i) 15% of salary in cities having population exceeding 25 lakhs as per 2001 census;

(ii) 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census;

(iii) 7.5% of salary in other areas,

in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee.

The value of perquisites as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(b) where the accommodation is taken on lease or rent by the employer. Actual amount of lease rental paid or payable by the employer or 15% of salary whichever is lower as reduced by the rent, if any, actually paid by the employee. The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(3)

Where the accommodation is provided by the employer specified in serial number (1) or (2) in a hotel (except where the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to another).

Not applicable. 24% of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, which is lower, for the period during which such accommodation is provided as reduced by the rent, if any, actually paid or payable by the employee:

 

Provided that nothing contained in this sub-rule shall apply to any accommodation provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site, or a dam site or a power generation site or an off-shore site—

(i)  which, being of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than eight kilometres away from the local limits of any municipality or a cantonment board; or

(ii)  which is located in a remote area:

Provided further that where on account of his transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the Table.

Explanation.—For the purposes of this sub-rule, where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government,—

(i)  the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and

(ii)  the value of perquisite of such an accommodation shall be the amount calculated in accordance with Sl. No. (2)(a) of Table I, as if the accommodation is owned by the employer.

(2)(A) The value of perquisite by way of use of motor car to an employee by an employer shall be determined in accordance with the following Table, namely:—

TABLE II

VALUE OF PERQUISITE PER CALENDAR MONTH

Sl. No.  Circumstances Where cubic capacity of engine does not exceed 1.6 litres Where cubic capacity of engine exceeds 1.6 litres
(1) (2) (3) (4)
(1)  Where the motor car is owned or hired by the employer and—
(a) is used wholly and exclusively in the performance of his official duties; No value:
Provided 
that the documents specified in clause (B) of this sub-rule are maintained by the employer.

No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.

(b) is used exclusively for the private or personal purposes of the employee or any member of his household and the running and maintenance expenses are met or reimbursed by the employer; Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use. Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use.
(c) is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and—
(i) the expenses on maintenance and running are met or reimbursed by the employer; Rs. 1,800 (plus Rs. 900, if chauffeur is also provided to run the motor car)

Rs. 2,400 (plus Rs. 900, if chauffeur is also provided to run the motor car)

(ii) the expenses on running and maintenance for private or personal use are fully met by the assessee.

Rs. 600 (plus Rs. 900, if chauffeur is also provided by the employer to run the motor car)

Rs. 900 (plus Rs. 900, if chauffeur is also provided to run the motor car)

(2) Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer and—
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;

No value:

Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.

No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
(ii) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee or any member of his household. Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.

Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.

(3) Where the employee owns any other automotive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer and
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;

No value :

Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.

Not applicable :
(ii) such reimbursement is for the use of vehicle partly for official purposes and partly for personal or private purposes of the employee. Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount of Rs. 900.

 

Provided that where one or more motor-cars are owned or hired by the employer and the employee or any member of his household are allowed the use of such motor-car or all of any of such motor-cars (otherwise than wholly and exclusively in the performance of his duties), the value of perquisite shall be the amount calculated in respect of one car in accordance with Sl. No. (1)(c)(i) of Table II as if the employee had been provided one motor-car for use partly in the performance of his duties and partly for his private or personal purposes and the amount calculated in respect of the other car or cars in accordance with Sl. No. (1)(b) of Table II as if he had been provided with such car exclusively for his private or personal purposes.

(B) Where the employer or the employee claims that the motor-car is used wholly and exclusively in the performance of official duty or that the actual expenses on the running and maintenance of the motor-car owned by the employee for official purposes is more than the amounts deductible in Sl. No. 2(ii) or 3(ii) of Table II, he may claim a higher amount attributable to such official use and the value of perquisite in such a case shall be the actual amount of charges met or reimbursed by the employer as reduced by such higher amount attributable to official use of the vehicle provided that the following conditions are fulfilled :—

(a)  the employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon;

(b)  the employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.

Explanation.—For the purposes of this sub-rule, the normal wear and tear of a motor-car shall be taken at 10 per cent per annum of the actual cost of the motor-car or cars.

(3) The value of benefit to the employee or any member of his household resulting from the provision by the employer of services of a sweeper, a gardener, a watchman or a personal attendant, shall be the actual cost to the employer. The actual cost in such a case shall be the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services.

(4) The value of the benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption shall be determined as the sum equal to the amount paid on that account by the employer to the agency supplying the gas, electric energy or water. Where such supply is made from resources owned by the employer, without purchasing them from any other outside agency, the value of perquisite would be the manufacturing cost per unit incurred by the employer. Where the employee is paying any amount in respect of such services, the amount so paid shall be deducted from the value so arrived at.

(5) The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be determined as the sum equal to the amount of expenditure incurred by the employer in that behalf or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees’ household are allowed in any other educational institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered :

Provided that where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, nothing contained in this sub-rule shall apply if the cost of such education or the value of such benefit per child does not exceed one thousand rupees per month.

(6) The value of any benefit or amenity resulting from the provision by an employer who is engaged in the carriage of passengers or goods, to any employee or to any member of his household for personal or private journey free of cost or at concessional fare, in any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity :

Provided that nothing contained in this sub-rule shall apply to the employees of an airline or the railways.

(7) In terms of provisions contained in sub-clause (viii) of clause (2) of section 17, the following other benefits or amenities and value thereof shall be determined in the manner provided hereunder:

(i)  The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the interest computed at the rate charged per annum by the State Bank of India, constituted under the State Bank of India Act, 1955 (23 of 1955), as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household:

Provided that no value would be charged if such loans are made available for medical treatment in respect of diseases specified in rule 3A of these Rules or where the amount of loans are petty not exceeding in the aggregate twenty thousand rupees:

Provided further that where the benefit relates to the loans made available for medical treatment referred to above, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.

(ii)  The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household, other than concession or assistance referred to in rule 2B of these rules, shall be determined as the sum equal to the amount of the expenditure incurred by such employer in that behalf. Where such facility is maintained by the employer, and is not available uniformly to all employees, the value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the public. Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying him, the amount of expenditure so incurred shall also be a fringe benefit or amenity:

Provided that where any official tour is extended as a vacation, the value of such fringe benefit shall be limited to the expenses incurred in relation to such extended period of stay or vacation. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

(iii) The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:

Provided that nothing contained in this clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof either case does not exceed fifty rupees per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.

(iv) The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise from the employer shall be determined as the sum equal to the amount of such gift:

Provided that where the value of such gift, voucher or token, as the case may be, is below five thousand rupees in the aggregate during the previous year, the value of perquisite shall be taken as “nil“.

(v) The amount of expenses including membership fees and annual fees incurred by the employee or any member of his household, which is charged to a credit card (including any add-on-card) provided by the employer, or otherwise, paid for or reimbursed by such employer shall be taken to be the value of perquisite chargeable to tax as reduced by the amount, if any paid or recovered from the employee for such benefit or amenity:

Provided that there shall be no value of such benefit where expenses are incurred wholly and exclusively for official purposes and the following conditions are fulfilled:—

(a)  complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure and the nature of expenditure;

(b)  the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

(vi) (A) The value of benefit to the employee resulting from the payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by him or by a member of his household shall be determined to be the actual amount of expenditure incurred or reimbursed by such employer on that account. The amount so determined shall be reduced by the amount, if any paid or recovered from the employee for such benefit or amenity:

Provided that where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership.

(B) Nothing contained in this clause shall apply if such expenditure is incurred wholly and exclusively for business purposes and the following conditions are fulfilled:—

(a)  complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure, the nature of expenditure and its business expediency;

(b)  the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

(C) Nothing contained in this clause shall apply for use of health club, sports and similar facilities provided uniformly to all employees by the employer.

(vii) The value of benefit to the employee resulting from the use by the employee or any member of his household of any movable asset (other than assets already specified in this rule and other than laptops and computers) belonging to the employer or hired by him shall be determined at 10 per cent per annum of the actual cost of such asset or the amount of rent or charge paid or payable by the employer, as the case may be, as reduced by the amount, if any, paid or recovered from the employee for such use.

(viii) The value of benefit to the employee arising from the transfer of any movable asset belonging to the employer directly or indirectly to the employee or any member of his household shall be determined to be the amount representing the actual cost of such assets to the employer as reduced by the cost of normal wear and tear calculated at the rate of 10 per cent of such cost for each completed year during which such asset was put to use by the employer and as further reduced by the amount, if any, paid or recovered from the employee being the consideration for such transfer :

Provided that in the case of computers and electronic items, the normal wear and tear would be calculated at the rate of 50 per cent and in the case of motor cars at the rate of 20 per cent by the reducing balance method.

(ix) The value of any other benefit or amenity, service, right or privilege provided by the employer shall be determined on the basis of cost to the employer under an arm’s length transaction as reduced by the employee’s contribution, if any :

Provided that nothing contained in this clause shall apply to the expenses on telephones including a mobile phone actually incurred on behalf of the employee by the employer.

(8)(i) For the purposes of sub-clause (vi) of clause (2) of section 17, the fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option is exercised by the employee, shall be determined in accordance with the provisions of clause (ii) or clause (iii).

(ii) In a case where, on the date of the exercising of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange :

Provided that where, on the date of exercising of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share :

Provided further that where, on the date of exercising of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be—

(a)  the closing price of the share on any recognised stock exchange on a date closest to the date of exercising of the option and immediately preceding such date; or

(b)  the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of exercising of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.

(iii) In a case where, on the date of exercising of the option, the share in the company is not listed on a recognised stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.

(iv) For the purpose of this sub-rule,—

(a)  “closing price” of a share on a recognised stock exchange on a date shall be the price of the last settlement on such date on such stock exchange :

Provided that where the stock exchange quotes both “buy” and “sell” prices, the closing price shall be the “sell” price of the last settlement;

(b)  “merchant banker” means category I merchant banker registered with Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(c)  “opening price” of a share on a recognised stock exchange on a date shall be the price of the first settlement on such date on such stock exchange :

Provided that where the stock exchange quotes both “buy” and “sell” prices, the opening price shall be the “sell” price of the first settlement;

(d)  “recognised stock exchange” shall have the same meaning assigned to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(e)  “specified date” means,—

(i)  the date of exercising of the option; or

(ii)  any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the exercising.

(9) For the purposes of sub-clause (vi) of clause (2) of section 17, the fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date.

Explanation —For the purposes of this sub-rule, “merchant banker” and “specified date” shall have the meanings assigned to them in sub-clause (b) and sub-clause (e) respectively of clause (iv) of sub-rule (8).

(10) This rule shall come into force with effect from the 1st day of April, 2009.

Explanation – For the purposes of this rule—

(i)  “accommodation” includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure;

(ii)  “entertainment” includes hospitality of any kind and also, expenditure on business gifts other than free samples of the employers own product with the aim of advertising to the general public;

(iii)  “hotel” includes licensed accommodation in the nature of motel, service apartment or guest house;

(iv)  “member of household” shall include—

(a)  spouse(s),

(b)  children and their spouses,

(c)  parents, and

(d)  servants and dependants;

(v)  “remote area”, for purposes of proviso to this sub-rule means an area that is located at least 40 kilometres away from a town having a population not exceeding 20,000 based on latest published all-India census;

(vi)  “salary” includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include the following, namely:—

(a)  dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;

(b)  employer’s contribution to the provident fund account of the employee;

(c)  allowances which are exempted from payment of tax;

(d)  the value of perquisites specified in clause (2) of section 17 of the Income-tax Act;

(e)  any payment or expenditure specifically excluded under proviso to sub-clause (iii) of clause (2) or proviso to clause (2) of section 17;

(f)  lump-sum payments received at the time of termination of service or superannuation or voluntary retirement, like gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments;

(vii) “maximum outstanding monthly balance” means the aggregate outstanding balance for each loan as on the last day of each month.]

[Exemption of medical benefits from perquisite value in respect of medical treatment of prescribed diseases or ailments in hospitals approved by the Chief Commissioner.

3A. (1) [In granting approval to any hospital other than a hospital for Indian system of medicine and homoeopathic treatment for the purposes of sub-clause (b) of clause (ii) of the proviso to sub-clause (vi) of clause (2) of section 17], the Chief Commissioner shall satisfy himself that the hospital is registered with the local authority and fulfils the following requirements, namely :—

   (i)  The building used for the hospital complies with the municipal bye-laws in force.

  (ii)  The rooms are well ventilated, lighted and are kept in clean and hygienic conditions.

 (iii)  At least ten iron spring beds are provided for patients.

 (iv)  At least one properly equipped operation theatre is provided, with minimum floor space of 180 square feet and with a separate sterilisation room.

  (v)  At least one labour room is provided, with minimum floor space of 180 square feet, in case the hospital provides medical service for maternity cases.

 (vi)  Aseptic conditions are maintained in the operation theatre and the labour room.

 (vii) A duty room is provided for the nursing staff on duty.

(viii) Adequate space for storage of medicines, food articles, equipments, etc., is provided.

  (ix) The water used in the hospital or nursing home is fit for drinking.

   (x)  Adequate arrangements are made for isolating septic and infectious patients.

  (xi)  The hospital is provided with and maintains :—

(a)  high pressure sterilizer and instrument sterilizer;

(b)  oxygen cylinders and necessary attachments for giving oxygen;

(c)  adequate surgical equipments, instruments and apparatus including intravenous apparatus;

(d)  a pathological laboratory for testing of blood, urine and stool;

(e)  electro-cardiogram monitoring system;

(f)  stand-by generator for use in case of power failure.

(xii) There is at least one qualified doctor available on duty round the clock for every twenty beds or fraction thereof.

(xiii) In hospitals providing intensive care unit facilities, there are at least two qualified doctors available on duty round the clock exclusively for such intensive care unit.

(xiv) One nurse is on duty round the clock for every five beds or a fraction thereof.

(xv)  In hospitals providing intensive care unit facilities, there are at least four nurses provided exclusively for every four beds or fraction thereof for such intensive care unit.

(xvi) The hospital maintains record of health of every patient containing information about the patient’s name, address, occupation, sex, age, date of admission, date of discharge, diagnosis of disease and treatment undertaken.

[(1A) In granting approval to any hospital for Indian system of medicine and homoeopathic treatment for the purposes of sub-clause (b) of clause (ii) of the proviso to sub-clause (vi) of clause (2) of section 17, the Chief Commissioner shall satisfy himself that the hospital fulfils the conditions specified vide Office Memorandum dated the 6th June, 2002, by the Department of Indian Systems of Medicine and Homoeopathy, Ministry of Health and Family Welfare for approval of private hospitals for Indian system of medicine and homoeopathic treatment to Central Government Health Scheme beneficiaries and Central Government employees.]

(2) For the purpose of sub-clause (b) of clause (ii) of the proviso to [sub-clause (vi) of] clause (2) of section 17, the prescribed diseases or ailments shall be the following, namely :—

(a)  cancer;

(b)  tuberculosis;

(c)  acquired immunity deficiency syndrome;

(d) disease or ailment of the heart, blood, lymph glands, bone marrow, respiratory system, central nervous system, urinary system, liver, gall bladder, digestive system, endocrine glands or the skin, requiring surgical operation;

(e)  ailment or disease of the eye, ear, nose or throat, requiring surgical operation;

(f)  fracture in any part of the skeletal system or dislocation of vertebrae requiring surgical operation or orthopaedic treatment;

(g) gynaecological or obstetric ailment or disease requiring surgical operation, caesarean operation or laperoscopic intervention;

(h)  ailment or disease of the organs mentioned at (d), requiring medical treatment in a hospital for at least three continuous days;

(i)  gynaecological or obstetric ailment or disease requiring medical treatment in a hospital for at least three continuous days;

(j)  burn injuries requiring medical treatment in a hospital for at least three continuous days;

(k) mental disorder – neurotic or psychotic – requiring medical treatment in a hospital for at least three continuous days;

(l)  drug addiction requiring medical treatment in a hospital for at least seven continuous days;

(m) anaphylectic shocks including insulin shocks, drug reactions and other allergic manifestations requiring medical treatment in a hospital for at least three continuous days.

Explanation : For the purpose of this rule,—

(a)  “qualified doctor” means a person who holds a degree recognised by the Medical Council of India and is registered by the Medical Council of any State;

(b)  “nurse” means a person who holds a certificate of a recognised Nursing Council and is registered under any law for the registration of nurses;

(c)  “surgical operation” includes treatment by modern methodology such as angioplasty, dialysis, lithotropsy, laser or cryo-surgery.]

B.—Income from house property

[Unrealised rent.

4. For the purposes of the Explanation below sub-section (1) of section 23, the amount of rent which the owner cannot realise shall be equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where,—

(a) the tenancy is bona fide;

(b) the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;

(c) the defaulting tenant is not in occupation of any other property of the assessee;

(d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.]

C.—Profits and gains of business or profession

[Depreciation.

5. (1) Subject to the provisions of sub-rule (2), the allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets shall be calculated at the percentages specified in the second column of the Table in Appendix I to these rules on the written down value of such block of assets as are used for the purposes of the business or profession of the assessee at any time during the previous year.

[(1A) The allowance under clause (i) of sub-section (1) of section 32 of the Act in respect of depreciation of assets acquired on or after 1st day of April, 1997 shall be calculated at the percentage specified in the second column of the Table in Appendix IA of these rules on the actual cost thereof to the assessee as are used for the purposes of the business of the assessee at any time during the previous year :

Provided that the aggregate depreciation allowed in respect of any asset for different assessment years shall not exceed the actual cost of the said asset :

Provided further that the undertaking specified in clause (i) of sub-section (1) of section 32 of the Act may, instead of the depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule (1) read with Appendix I, if such option is exercised before the due date for furnishing the return of income under sub-section (1) of section 139 of the Act,

(a)  for the assessment year 1998-99, in the case of an undertaking which began to generate power prior to 1st day of April, 1997; and

(b)  for the assessment year relevant to the previous year in which it begins to generate power, in case of any other undertaking :

Provided also that any such option once exercised shall be final and shall apply to all the subsequent assessment years.]

(2) Where any new machinery or plant is installed during the previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, for the purposes of business of manufacture or production of any article or thing and such article or thing—

(a)  is manufactured or produced by using any technology (including any process) or other know-how developed in, or

(b)  is an article or thing invented in,

a laboratory owned or financed by the Government or a laboratory owned by a public sector company or a University or an institution recognised in this behalf by the Secretary, Department of Scientific and Industrial Research, Government of India,

such plant or machinery shall be treated as a part of block of assets qualifying for depreciation at the rate of [40] per cent of written down value, if the following conditions are fulfilled, namely :—

(i)  the right to use such technology (including any process) or other know- how or to manufacture or produce such article or thing has been acquired from the owner of such laboratory or any person deriving title from such owner ;

(ii)  the return furnished by the assessee for his income, or the income of any other person in respect of which he is assessable, for any previous year in which the said machinery or plant is acquired, shall be accompanied by a certificate from the Secretary, Department of Scientific and Industrial Research, Government of India, to the effect that such article or thing is manufactured or produced by using such technology (including any process) or other know-how developed in such laboratory or is an article or thing invented in such laboratory ; and

(iii) the machinery or plant is not used for the purpose of business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule to the Act.

Explanation : For the purposes of this sub-rule,—

(a)  “laboratory financed by the Government” means a laboratory owned by any body [including a society registered under the Societies Registration Act, 1860 (21 of 1860)], and financed wholly or mainly by the Government ;

(b)  “public sector company” means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) ; and

(c)  “University” means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act.]

[Form of report by an accountant for claiming deduction under section 32(1)(iia).

5A. The report from an accountant which is required to be furnished by the assessee under the third proviso to clause (iia) of sub-section (1) of section 32 shall be in Form No. 3AA.]

 [Prescribed authority for investment allowance.

[5AA.] For the purposes of sub-section (2B) of section 32A, the “prescribed authority” shall be the Secretary, Department of [Scientific and Industrial Research], Government of India.]

[Report of audit of accounts to be furnished under section 32AB(5).

5AB. The report of audit of the accounts of an assessee, which is required to be furnished under sub-section (5) of section 32AB shall be in [Form No. 3AAA.]]

[Report of audit of accounts to be furnished under section 33AB(2).

5AC. The report of audit of the accounts of an assessee, which is required to be furnished under sub-section (2) of section 33AB shall be in Form No. 3AC.]

 [Report of audit of accounts to be furnished under section 33ABA(2).

5AD. The report of audit of the accounts of an assessee, which is required to be furnished under sub-section (2) of section 33ABA, shall be in Form No. 3AD.]

[Development rebate.

5B. The deduction to be allowed by way of development rebate in respect of any ship or machinery or plant referred to in sub-section (1A) of section 33 shall be a sum equivalent to—

[(a) in the case of any such ship—

(i)  where the ship is acquired by the assessee at any time before the expiry of seven years from the date she was built, thirty per cent of the actual cost of the ship to the assessee ; and

(ii)  in any other case, twenty per cent of the actual cost of the ship to the assessee ;]

  (b)  in the case of any such machinery or plant installed after the 31st day of March, 1964—

(i)  where it is installed before the 1st day of April, 1966, for the purposes of business of mining coal, twenty per cent of the actual cost of the machinery or plant to the assessee ; and

(ii)  in any other case, ten per cent of the actual cost of the machinery or plant to the assessee.

Explanation : In this rule, “actual cost” shall have the meaning assigned to it in clause (1) of section 43.]

[Guidelines, form and manner in respect of approval under clause (ii) and clause (iii) of sub-section (1) of section 35.

5C. (1) An application for approval,—

(i) under clause (ii[or clause (iii)of sub-section (1) of section 35 by a [***research association in duplicate in Form No. 3CF-I;

(ii) under clause (ii) or clause (iii) of sub-section (1) of section 35 by a university, college or other institution in duplicate in Form No. 3CF-II,

shall be made, at any time during the financial year immediately preceding the assessment year from which the approval is sought, to the Commissioner of Income-tax or the Director of Income-tax having jurisdiction over the applicant.

(2) Annexure to the application [in] Form No. 3CF-I shall be filled out if the association claims exemption under clause (21) of section 10 of the Income-tax Act.

(3) The applicant shall send a copy of the application in Form No. 3CF-I or, as the case may be, Form No. 3CF-II to Member (IT), Central Board of Direct Taxes accompanied by the acknowledgement receipt as evidence of having furnished the application form in duplicate in the office of the Commissioner of Income-tax or the Director of Income-tax having jurisdiction over the case.

(4) The period of one year, as specified in the fourth proviso to sub-section (1) of section 35, before the expiry of which approval is to be granted or the application is to be rejected by the Central Government shall be reckoned from the end of the month in which the application form from the applicant for approval is received in the office of Member (IT), Central Board of Direct Taxes.

(5) If any defect is noticed in the application in Form No. 3CF-I or Form No. 3CF-II or if any relevant document is not attached thereto, the Commissioner of Income-tax or, as the case may be, the Director of Income-tax shall serve a deficiency letter on the applicant before the expiry of one month from the date of receipt of the application form in his office.

(6) The applicant shall remove the deficiency within a period of fifteen days from the date of service of the deficiency letter or within such further period which, on an application made in this behalf may be extended, so however, that the total period for removal of deficiency does not exceed thirty days, and if the applicant fails to remove the deficiency within the period of thirty days so allowed, the Commissioner of Income-tax or, as the case may be, the Director of Income-tax shall send his recommendation for treating the application as invalid to the Member (IT), Central Board of Direct Taxes.

(7) The Central Government, if satisfied, may pass an order treating the application as invalid.

(8) If the application form is complete in all respects, the Commissioner of Income-tax or, as the case may be, the Director of Income-tax, may make such inquiry as he may consider necessary regarding the genuineness of the activity of the association or university or college or other institution and send his recommendation to the Member (IT) for grant of approval or rejection of the application before the expiry of the period of three months to be reckoned from the end of the month in which the application form was received in his office.

(9) The Central Government may before granting approval under clause (ii) or clause (iii) shall call for such documents or information from the applicant as it may consider necessary and may get any inquiry made for verification of the genuineness of the activity of the applicant.

(10) The Central Government may, under sub-section (1) of section 35, issue the notification to be published in the Official Gazette granting approval to the association or university or college or other institution or for reasons to be recorded in writing reject the application.

(11) The Central Government may withdraw the approval granted under clause (ii) or clause (iii) of sub-section (1) of section 35 if it is satisfied that the [***]research association or university or college or other institution has ceased its activities or its activities are not genuine or are not being carried out in accordance with all or any of the conditions under rule 5D or rule 5E.

(12) No order treating the application as invalid or rejecting the application or withdrawing the approval, shall be passed without giving a reasonable opportunity of being heard to the [***research association or university or college or other institution.

(13) A copy of the order invalidating or rejecting the application or withdrawing the approval shall be communicated to the applicant, the Assessing Officer and the Commissioner of Income-tax or, as the case may be, the Director of Income-tax.

[Conditions subject to which approval is to be granted to a research association under clause (ii) or clause (iii) of sub-section (1) of section 35.

5D. (1) The sole object of the applicant research association shall be to undertake scientific research or research in social science or statistical research, as the case may be.

(2) The applicant research association shall carry on the research activity by itself.

(3) The research association seeking approval under clause (ii) or clause (iii) of sub-section (1) of section 35 shall maintain books of account and get such books audited by an accountant as defined in the Explanation to sub-section (2) of section 288 and furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax or the Director of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under sub-section (1) of section 139.

(4) The research association shall maintain a separate statement of donations received and amount applied for scientific research or research in social science or statistical research and a copy of such statement duly certified by the auditor shall accompany the report of audit referred to in sub-rule (3).

(5) The research association shall, by the due date of furnishing the return of income under sub-section (1) of section 139, furnish a statement to the Commissioner of Income-tax or Director of Income-tax containing—

(i)  a detailed note on the research work undertaken by it during the previous year;

(ii)  a summary of research articles published in national or international journals during the year;

(iii)  any patent or other similar rights applied for or registered during the year;

(iv)  programme of research projects to be undertaken during the forthcoming year and the financial allocation for such programme.

(6) If the Commissioner of Income-tax or the Director of Income-tax is satisfied that the research association,—

(a)  is not maintaining books of account, or

(b)  has failed to furnish its audit report, or

(c)  has not furnished its statement of the sums received and the sums applied for scientific research or research in social science or statistical research or a statement referred to in sub-rule (5), or

(d)  has ceased to carry on its research activities, or its activities are not genuine, or

(e)  is not fulfilling the conditions subject to which approval was granted to it,

he may after making appropriate enquiries furnish a report on the circumstances referred to in clauses (a) to (e) above to the Central Government within six months from the date of furnishing the return of income under sub-section (1) of section 139.]

Conditions subject to which approval is to be granted to a University, College or other Institution under clause (ii) and clause (iii) of sub-section (1) of section 35.

5E. (1) The sum paid to a university, college or other institution shall be used for scientific research and research in social science or statistical research.

(2) The applicant university, college or other institution shall carry out scientific research, research in social science or statistical research through its faculty members or its enrolled students.

(3) A university or college or other institution approved under clause (ii) or clause (iii) of sub-section (1) of section 35 shall maintain separate books of account in respect of the sums received by it for scientific research or, as the case may be, for research in social science or statistical research, reflect therein the amount used for carrying out research, get such books of account audited by an accountant, as defined in the Explanation to sub-section (2) of section 288 and furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax or the Director of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under sub-section (1) of section 139.

(4) The university or college or other institution shall maintain a separate statement of donations received and the amount used for research and a copy of such statement duly certified by the auditor shall accompany the report of audit referred to in sub-rule (3).

[(4A) The university, college or other institution shall, by the due date of furnishing the return of income under sub-section (1) of section 139, furnish a statement to the Commissioner of Income-tax or Director of Income-tax containing—

(i)  a detailed note on the research work undertaken by it during the previous year;

(ii)  a summary of research articles published in national or international journals during the year;

(iii)  any patent or other similar rights applied for or registered during the year;

(iv)  programme of research projects to be undertaken during the forthcoming year and the financial allocation for such programme.]

(5) If the Commissioner of Income-tax or the Director of Income-tax is satisfied that the university or college or other institution,—

(a)  is not maintaining separate books of account for research activities, or

(b)  has failed to furnish its audit report, or

(c)  has not furnished its statement of the sums received and the sums used for research  [or a statement referred to in sub-rule (4A)], or

(d)  has ceased to carry on its research activities, or its activities are not genuine, or

(e) is not fulfilling the conditions subject to which approval was granted to it,

he may after making appropriate enquiries furnish a report on the circumstances referred to in clauses (a) to (e) above to the Central Government within six months from the date of furnishing the return of income under section 139(1).]

[Prescribed authority, guidelines, form, manner and conditions for approval under clause (iia) of sub-section (1) of section 35.

5F. (1) For the purposes of clause (iia) of sub-section (1) of section 35, the prescribed authority shall be the Chief Commissioner of Income-tax having jurisdiction over the applicant.

(2) Guidelines, form and manner in respect of approval under clause (iia) of sub-section (1) of section 35 shall be as under :—

(a)  An application for approval under clause (iia) of sub-section (1) of section 35 by a company shall be made in duplicate in Form No. 3CF-III, to the Commissioner of Income-tax having jurisdiction over the applicant, at any time during the financial year immediately preceding the assessment year from which the approval is sought.

(b)  The applicant shall send a copy of the application in Form No. 3CF-III to the prescribed authority, accompanied by the acknowledgement receipt as evidence of having furnished the application form in duplicate in the Office of the Commissioner of Income-tax having jurisdiction over the case.

(c)  Every notification under clause (iia) of sub-section (1) of section 35 shall be issued or an order rejecting the application shall be passed within a period of twelve months from the end of the month in which the application was received in the Office of the Chief Commissioner of Income-tax.

(d)  If any defect is noticed in the application in Form No. 3CF-III or if any relevant document is not attached thereto, the Commissioner of Income-tax shall serve a deficiency letter on the applicant before the expiry of one month from the date of receipt of the application form in his office.

(e)  The applicant shall remove the deficiency within a period of fifteen days from the date of service of the deficiency letter or within such further period which, on an application made in this behalf may be extended, so however, that the total period for removal of deficiency does not exceed thirty days, and if the applicant fails to remove the deficiency within the period of thirty days so allowed, the Commissioner of Income-tax shall send his recommendation to the Chief Commissioner of Income-tax for treating the application as invalid.

(f)  The Chief Commissioner of Income-tax may, after examining the re-commendations referred to in clause (e), pass an order that the application is invalid.

(g)  If the application form is complete in all respects, the Commissioner of Income-tax may, make such inquiry as he may consider necessary regarding the genuineness of the activity of the company and send his recommendation to the Chief Commissioner of Income-tax for grant of approval or rejection of the application before the expiry of the period of three months to be reckoned from the end of the month in which the application form was received in his office.

(h)  The Chief Commissioner of Income-tax may, before granting approval under clause (iia) of sub-section (1) of section 35, call for such documents or information from the applicant as it considers necessary and may get any inquiry made for verification of the genuineness of the activity of the applicant.

(i)  The Chief Commissioner of Income-tax may, under sub-section (1) of section 35, issue the notification to be published in the Official Gazette granting approval to the company or for reasons to be recorded in writing reject the application.

(j)  The Chief Commissioner of Income-tax may withdraw the approval granted under clause (iia) of sub-section (1) of section 35 if he is satisfied that the company has ceased to carry on its activities or its activities are not genuine or are not being carried on in accordance with all or any of the conditions under this rule :

Provided that no order treating the application as invalid or rejecting the application or withdrawing the approval shall be passed without giving a reasonable opportunity of being heard to the company.

(k)  A copy of the order invalidating or rejecting the application or withdrawing the approval shall be communicated to the applicant, the Assessing Officer and the Commissioner of Income-tax.

(3) Approval to a company under clause (iia) of sub-section (1) of section 35 shall be subject to the following conditions, namely :—

(a)  The sum paid to the company shall be used for scientific research;

(b)  The applicant company shall carry on scientific research through its own employees using its own assets;

(c)  A company approved under clause (iia) of sub-section (1) of section 35 shall maintain separate books of account in respect of the sums received by it for scientific research, reflect therein the amount used for carrying on research, get such books of account audited by an accountant, and furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under sub-section (1) of section 139.

Explanation —For the purpose of this clause “accountant” shall have the same meaning as assigned to it in Explanation to sub-section (2) of section 288 of the Act;

(d)  The company shall maintain a separate statement of donations received and the amount used for research and a copy of such statement duly certified by the auditor shall accompany the report of audit referred to in sub-rule (3).

(e)  Subsequent to approval, the company shall, every year, by the due date of furnishing the return of income under sub-section (1) of section 139, furnish a statement to the Commissioner of Income-tax containing the following information, namely :—

(i)  a detailed note on the research work undertaken by it during the previous year;

(ii)  a summary of research articles published in national or international journals during the year;

(iii)  any patents or other similar rights applied for or registered during the year;

(iv)  programme of research projects to be undertaken during the forthcoming year and the financial allocation for such subjects.

(f)  If the Commissioner of Income-tax is satisfied that the company,—

(i)  is not maintaining separate books of account for research activities, or

(ii)  has failed to furnish its audit report, or

(iii)  has not furnished its statement of the sums received and the sums used for research, or a statement referred to in sub-clause (e), or

(iv) has ceased to carry on its research activities, or its activities are not genuine, or

(v) is not fulfilling the conditions subject to which approval was granted to it,

he may after making appropriate enquiries, furnish a report on the circumstances referred to in sub-clauses (i) to (v) to the jurisdictional Chief Commissioner of Income-tax within six months from the date of furnishing the return of income under sub-section (1) of section 139.]

 [Prescribed authority for expenditure on scientific research.

6. (1) For the purposes of [ [clause (i) of] sub-section (1) and sub-section (2A) of] section 35, the prescribed authority shall be the Director General (Income-tax Exemptions) in concurrence with the Secretary, Department of Scientific and Industrial Research, Government of India.

 [(1A) For the purposes of sub-section (2AA) of section 35, the prescribed authority shall be—

(a)  in the case of a National Laboratory or a University or an Indian Institute of Technology, the head of the National Laboratory or the University or the Indian Institute of Technology, as the case may be; and

(b)  in the case of a specified person, the Principal Scientific Adviser to the Government of India.]

 [(1B) For the purposes of sub-section (2AB) of section 35, the prescribed authority shall be the Secretary, Department of Scientific and Industrial Research.]

(2) [***]]

 [(3) The application for obtaining approval under sub-section (2AA) of section 35 shall be made by a sponsor in Form No. 3CG.

Explanation : For the purposes of this rule “sponsor” means a person who makes an application in Form No. 3CG.]

 [(4) The application required to be furnished by a company under sub-section (2AB) of section 35 shall be in Form No. 3CK.]

 [(5) The head of the National Laboratory or the University or the Indian Institute of Technology  [or the Principal Scientific Adviser to the Government of India] shall, if he is satisfied that it is feasible to carry out the scientific research programme then, subject to other conditions prescribed in this rule and section 35(2AA) of the Act, pass an order in writing in Form No. 3CH :

Provided that a reasonable opportunity of being heard shall be granted to the sponsor before rejecting an application :

Provided further that an order under this rule shall be passed within two months of the receipt of the application under sub-rule (1A) :]

 [Provided also that the Principal Scientific Adviser to the Government of India may authorise an officer who is not below the rank of a Deputy Secretary to issue such order, after the scientific research programme has been approved by him.]

 [(5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3CM :

Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application.]

 [* * *]

 [(6) The National Laboratory, [University, Indian Institute of Technology or specified person] shall issue a receipt of payment for carrying out an approved programme of scientific research under sub-section (2AA) in Form No. 3CI.]

 [(7) Approval of a programme under sub-section (2AA) shall be subject to the following conditions :—

(a)  The programme should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature ;

(b)  The prescribed authority shall submit its report to the Director General (Income-tax Exemptions) in Form No. 3CJ within a period of three months from the date of granting approval to the programme :

 [Provided that the officer authorised by the prescribed authority, being the Principal Scientific Adviser to the Government of India, under sub-rule (5) shall submit such report to the Director General (Income-tax Exemptions);]

(c)  The sponsor and the National Laboratory,  [University, Indian Institute of Technology or specified person], as the case may be, shall submit to the Director General (Income-tax Exemptions) a yearly statement showing progress of implementation of the approved programme and actuals of expenditure incurred thereon ;

(d)  The prescribed authority shall not extend the duration of the programme or approve any escalation in costs ;

(e)  The National Laboratory,  [University, Indian Institute of Technology or specified person], as the case may be, shall maintain a separate account for each approved programme ; which shall be audited annually and a copy thereof shall be furnished to the Director General (Income-tax Exemptions) by 31st day of October of each succeeding year;

(f)  Assets acquired by the prescribed authority for executing the approved programme shall not be disposed of without the approval of the Director General (Income-tax Exemptions);

(g)  On completion of the approved programme, a completion certificate along with a copy of the report on the research activities carried out and salient features of the result obtained and its further application for commercial exploitation shall be jointly submitted by the sponsor and the National Laboratory, [University, Indian Institute of Technology or specified person] to the Director General (Income-tax Exemptions) ;

(h)  A copy of the audited statement of accounts for the approved programme shall be submitted by the Head of the National Laboratory, University or Indian Institute of Technology [or the Principal Scientific Adviser to the Government of India] to the Director General (Income-tax Exemptions) within six months of the completion of the programme.]

 [(7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely :—

(a)  The facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature;

(b)  The prescribed authority shall submit its report in relation to the approval of in-house Research and Development facility in Form No. 3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval;

(c)  The company shall maintain a separate account for each approved facility; which shall be audited annually and a copy thereof shall be furnished to the Secretary, Department of Scientific and Industrial Research by 31st day of October of each succeeding year.

Explanation : For the purposes of this sub-rule the expression “audited” means the audit of accounts by an accountant, as defined in the Explanationbelow sub-section (2) of section 288 of the Income-tax Act, 1961;

(d)  Assets acquired in respect of development of scientific research and development facility shall not be disposed of without the approval of the Secretary, Department of Scientific and Industrial Research.]

Prescribed authority, services, etc., for agricultural development allowance.

6A. [Omitted by the IT (Thirty-second Amdt.) Rules, 1999, w.e.f. 19-11-1999.]

Prescribed activities for export markets development allowance.

6AA. [Omitted by the IT (Thirty-second Amdt.) Rules, 1999, w.e.f. 19-11-1999.]

 [Prescribed authority for the purposes of sections 35CC and 35CCA.

 [6AAA.] For the purposes of section 35CC and section 35CCA,—

(i)   the “prescribed authority” to approve the programme of rural development referred to in sub-section (1) of section 35CC and in clause (a) of sub-section (1) of section 35CCA shall be the Committee consisting of the following, namely :—

(a)   The  [Chief Commissioner or Commissioner] of Income-tax who exercises jurisdiction over the State or, as the case may be, the Union territory in which the programme of rural development is to be carried out—Chairman;

(b)   An officer not below the rank of a Secretary to the Government of the State or, as the case may be, the Union territory in which the programme of rural development is to be carried out—Member;

(ii) the “prescribed authority” to approve an association or institution referred to in clause (a) or clause (b) of sub-section (1) of section 35CCA shall be the Committee consisting of the following, namely :—

(a)   The  [Chief Commissioner or Commissioner] of Income-tax, who exercises jurisdiction over the State or, as the case may be, the Union territory in which the principal office of the association or institution is situated—Chairman;

(b)   An officer not below the rank of a Secretary to the Government of the State or, as the case may be, the Union territory in which the principal office of the association or institution is situated— Member :

Provided that where in a case whether falling under clause (i) or clause (ii) two or more Commissioners exercise jurisdiction over the State or, as the case may be, the Union territory, the Board may, by notification in the Official Gazette, empower the  [Chief Commissioner or Commissioner] specified in this behalf to be the Chairman of the Committee.

Explanation : In this rule, “programme of rural development” shall have the meaning assigned to it in the Explanation to sub-section (1) of section 35CC of the Income-tax Act.]

Statement of expenditure for claiming deduction under section 35CC.

6AAB. [Omitted by the IT (Thirty-second Amdt.) Rules, 1999, w.e.f. 19-11-1999.]

 [Prescribed authority for the purposes of section 35CCB.

6AAC. For the purposes of section 35CCB, the “prescribed authority” shall be the Secretary, Department of Environment, Government of India.]

1[Guidelines for approval of agricultural extension project under section 35CCC.

6AAD. (1) The agricultural extension project shall be considered for notification if it fulfils all of the following conditions, namely :—

(i) the project shall be undertaken by an assessee for training, education and guidance of farmers;

(ii) the project shall have prior approval of the Ministry of Agriculture, Government of India; and

(iii) an expenditure (not being expenditure in the nature of cost of any land or building) exceeding the amount of twenty-five lakh rupees is expected to be incurred for the project

(3) The application referred to in sub-rule (2) shall be accompanied by the following, namely :—(2) Before undertaking any agricultural extension project, an assessee shall make an application in Form No. 3C-O to the Member (IT), Central Board of Direct Taxes for notification of such project under sub-section (1) of section 35CCC.

(a) a detailed note on the agricultural extension project to be undertaken by the assessee;

(b) details of the expenditure expected to be incurred on the project and expected date of completion of the project; and

(c) a letter approving the project and specifying the amount of expenditure expected to be incurred on the project from the Ministry of Agriculture, Government of India.

(4) Where any defect is noticed in the application referred to in sub-rule (2) or a relevant document is not attached thereto, the Central Board of Direct Taxes shall, before the expiry of one month from the date of receipt of the application in its office, intimate the defect to the applicant for its rectification.

(5) The applicant shall remove the defect within a period of fifteen days from the date of such intimation or within such further period as may be extended by the Central Board of Direct Taxes, on an application made in this behalf by the applicant, so however, that the total period for removal of defect does not exceed thirty days, and if the applicant fails to remove the defect within such period as allowed, the Central Board of Direct Taxes shall pass an order treating the application as invalid.(4) Where any defect is noticed in the application referred to in sub-rule (2) or a relevant document is not attached thereto, the Central Board of Direct Taxes shall, before the expiry of one month from the date of receipt of the application in its office, intimate the defect to the applicant for its rectification.

(6) If the application form is complete in all respects, the Central Board of Direct Taxes shall, within a period of one month from the end of the month in which it receives the application form complete in all respects, issue under sub-section (1) of section 35CCC, a notification in Form No. 3CP to be published in Official Gazette specifying the agricultural extension project, subject to the conditions mentioned in rule 6AAE or such other conditions, as it may deem fit, to be effective for such period not exceeding three assessment years.

(7) The assessee, may, atleast two months before the expiry of the effective period of the notification issued under sub-rule (6), make an application to the Central Board of Direct Taxes for notification of such project for a further period.

(8) The Central Board of Direct Taxes shall, after receiving the application under sub-rule (7), call for a report from the Commissioner of Income-tax or the Director of Income-tax, as the case may be, having jurisdiction over the case regarding the activities of the agricultural extension project during the period of notification and fulfilment of conditions mentioned in rule 6AAE and any other conditions subject to which the agricultural extension project was notified under sub-rule (6).

(9) On being satisfied with the report received under sub-rule (8) on the agricultural extension project, the Central Board of Direct Taxes may, within a period of three months from the end of the month in which it receives application referred to in sub-rule (7), notify the said project for a further period not exceeding three assessment years.

(10) A copy of the notification issued under sub-rule (6) or, as the case may be, under sub-rule (9) shall be sent to the applicant, the Ministry of Agriculture, Government of India, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, the Department of Agriculture of the concerned State and the Agricultural Technology Management Agency of the concerned District.

(11) The Central Board of Direct Taxes may, on being satisfied that the assessee has ceased its activities, or that its activities are not genuine or that its activities are not being carried out in accordance with all or any of the relevant provisions of the Act or this rule or rule 6AAE, or its activities are not being carried out in accordance with all or any of the conditions subject to which the notification was issued, pass an order for rescission of the notification issued under sub-rule (6) or sub-rule (9).

(12) Before any order is passed treating the application as invalid or rejecting it or rescinding the notification, an opportunity of being heard in the matter shall be given to the assessee.

(13) A copy of the order invalidating or rejecting the application or rescinding the notification shall be sent to the applicant, the Ministry of Agriculture, Government of India, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, the Department of Agriculture of the concerned State and Agricultural Technology Management Agency of the concerned district.]


1. Substituted by the Income-tax (Third Amendment) Rules, 2014, w.e.f. 21-3-2014. Prior to its substitution, rule 6AAD, as inserted by the Income-tax (Fourth Amendment) Rules, 2013, w.e.f. 30-5-2013, read as under :

“6AAD. Guidelines for approval of agricultural extension project under section 35CCC.—(1) The agricultural extension project shall be considered for notification if it fulfils all of the following conditions namely:—

(i) the project shall be undertaken by an assessee for training, education and guidance of farmers;
(ii) the project shall have prior approval of the Ministry of Agriculture, Government of India; and
(iii) the expenditure (not being expenditure in the nature of cost of any land or building) exceeding an amount of twenty-five lakh rupees is expected to be incurred for the project.

(2) An assessee, before undertaking any agricultural extension project, shall make an application for notification of such project under sub-section (1) of section 35CCC, in duplicate, in Form No. 3C-O, to the Commissioner of Income-tax or the Director of Income-tax, as the case may be, having jurisdiction over the assessee.

(3) The assessee shall also send a copy of the application in Form No. 3C-O to the Member (IT), Central Board of Direct Taxes (hereinafter referred to as the CBDT) accompanied by the acknowledgement receipt, as evidence of having furnished the application form in duplicate, in the office of the Commissioner of Income- tax or the Director of Income-tax, as the case may be, having jurisdiction over the case.

(4) The application shall be accompanied by the following, namely :—

(a) a detailed note on the agricultural extension project to be undertaken by the assessee;
(b) details of the expenditure expected to be incurred on the project and expected date of completion of the project; and
(c) a letter approving the project and specifying the amount of expenditure expected to be incurred on the project from the Ministry of Agriculture, Government of India.

(5) If any defect is noticed in the application referred to in sub-rule (2) or if any relevant document is not attached thereto, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, shall, before the expiry of one month from the date of receipt of the application in his office, intimate the defect to the applicant for its rectification.

(6) The applicant shall remove the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, as may be extended by the Commissioner of Income-tax or the Director of Income-tax, as the case may be, so however, that the total period for removal of defect does not exceed thirty days, and if the applicant fails to remove the defect within such period so allowed, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, shall send his recommendation for treating the application as invalid to the CBDT.

(7) On receipt of recommendation of the Commissioner of Income-tax or the Director of Income-tax, as the case may be, under sub-rule (6), the CBDT, if satisfied, may pass an order treating the application as invalid.

(8) If the application form is complete in all respects, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, may make such inquiry or call for such documents from the assessee as he may consider necessary for satisfying himself regarding the genuineness of the current and proposed activities of the assessee, and send his recommendation to the CBDT for grant of approval or rejection of the application before the expiry of the period of two months to be reckoned from the end of the month in which the application form complete in all respects was received in his office.

(9) The CBDT may, before notifying an agricultural extension project under section 35CCC, call for such documents from the assessee, as it considers necessary, and may also get any inquiry made for verification of the genuineness of the activities of the assessee.

(10) The CBDT may, within a period of three months from the end of the month in which it receives the report referred to in sub-rule (8) from the Commissioner of Income-tax or the Director of Income-tax, as the case may be, under sub-section (1) of section 35CCC, issue a notification in Form No. 3CP to be published in the Official Gazette specifying the agricultural extension project subject to conditions mentioned in rule 6AAE or such other conditions, as it may deem fit, to be effective for such period not exceeding three assessment years or pass an order rejecting the application.

(11) If the CBDT is satisfied with the activities of the agricultural extension project during the period of notification, it may notify the said project for a further period.

(12) A copy of the notification issued under sub-rule (10) or sub-rule (11) shall be sent to the applicant, Ministry of Agriculture, Government of India, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, the Department of Agriculture of the concerned State, and the Agricultural Technology Management Agency (ATMA) of the concerned District(s).

(13) The CBDT may rescind the notification issued under sub-rule (10) or sub-rule (11) at any time, if it is satisfied that the assessee has ceased its activities or its activities are not genuine or are not being carried out in accordance with all or any of the relevant provisions of the Act or this rule or rule 6AAE or are not being carried out in accordance with all or any of the conditions subject to which the notification was issued.

(14) An order treating the application as invalid or rejecting or rescinding the notification shall not be passed unless the assessee has been given an opportunity of being heard in the matter.

(15) A copy of any order invalidating or rejecting the application or rescinding the notification shall be sent to the applicant, Ministry of Agriculture, Government of India, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, the Department of Agriculture of the concerned State, and the Agricultural Technology Management Agency (ATMA) of the concerned District(s).”

Conditions subject to which an agricultural extension project is to be notified under section 35CCC.

6AAE. (1) The assessee undertaking agricultural extension project shall maintain separate books of account of the agricultural extension project notified under sub-section (1) of section 35CCC, and get such books of account audited by an accountant as defined in the Explanation below sub-section (2) of section 288.

(2) The audit report referred to in sub-rule (1) shall include the comments of the auditor on the true and fair view of the books of account maintained for agricultural extension project, the genuineness of the activities of the agricultural extension project and fulfilment of the conditions specified in the relevant provisions of the Act or the rules or the conditions mentioned in the 1[notification issued under sub-rule (6) or sub-rule (9) of rule 6AAD.]

(3) The assessee shall not accept an amount exceeding the amount as approved in the notification from the beneficiary under the eligible agricultural extension project for training, education, guidance or any material distributed for the purposes of such training, education or guidance.

(4) The assessee shall not get any direct or indirect benefit from the notified agricultural extension project except the deduction of the eligible expenditure in accordance with the provisions of section 35CCC of the Act, rule 6AAD and this rule.

(5) All expenses (not being expenditure in the nature of cost of any land or building), as reduced by the amount received from beneficiary, if any, incurred wholly and exclusively for undertaking an eligible agricultural extension project shall be eligible for deduction under section 35CCC :

Provided that any expenditure incurred on the agricultural extension project which is reimbursed or reimbursable to the assessee by any person, whether directly or indirectly, shall not be eligible for deduction under section 35CCC.

(6) The assessee shall, on or before the due date of furnishing the return of income under sub-section (1) of section 139, furnish the following to the Commissioner of Income-tax or the Director of Income-tax, as the case may be, namely:—

(a) the audited statement of accounts of the agricultural extension projects for the previous year along with the audit report and amount of deduction claimed under sub-section (1) of section 35CCC;
(b) a note on the agricultural extension project undertaken by it during the previous year and the programme of agricultural extension project to be undertaken during the current year and the financial allocation for such programme; and
(c) a certificate from the Ministry of Agriculture, Government of India, regarding the genuineness of the agricultural extension project undertaken by the assessee during the previous year.

(7) If the Commissioner of Income-tax or the Director of Income-tax, as the case may be, is satisfied that the,—

(a) assessee has not maintained separate books of account for the agricultural extension project or has not got such books of account audited by an accountant in accordance with sub-rule (1);
(b) assessee has not furnished the documents referred to in sub-rule (6);
(c) assessee has ceased to carry out activities of agricultural extension project;
(d) activities of agricultural extension project of the assessee are not genuine; or
(e) activities of the agricultural extension project are not being carried out in accordance with the relevant provisions of the Act or the rules or the conditions subject to which the notification was issued, he may, after making appropriate inquires, furnish a report on the circumstances referred to in clauses (a) to (e) to the CBDT 2[for appropriate action as per the provisions of sub-rule (11) of rule 6AAD.]

1. Substituted for “notification issued under sub-rule (10) or sub-rule (11) of rule 6AAD” by the Income-tax (Third Amendment) Rules, 2014, w.e.f. 21-3-2014.

2. Substituted for “for appropriate action as per the provisions of sub-rule (13) of rule 6AAD” by the Income-tax (Third Amendment) Rules, 2014, w.e.f. 21-3-2014.

Guidelines for approval of skill development project under section 35CCD.

[6AAF. —(1) A skill development project shall be considered for notification if it is undertaken by an eligible company and the project is undertaken in separate facilities in a training institute.

(2) The eligible company, before undertaking any skill development project, shall make an application for notification of such project under sub-section (1) of section 35CCD, in duplicate, in Form No. 3CQ, to the National Skill Development Agency (hereinafter referred to as the NSDA).

(3) The eligible company shall also send a copy of the application in Form No. 3CQ to the Commissioner of Income-tax or the Director of Income-tax, as the case may be, having jurisdiction over the case, accompanied by the acknowledgement receipt as evidence of having furnished the application form in duplicate to the NSDA.

(4) The application shall be accompanied by the following, namely :—

(a)  detailed note on the skill development project to be undertaken by the eligible company;

(b)  details of the expenditure expected to be incurred on the project and expected date of completion of the project; and

(c)  a letter of concurrence from the training institute in which the skill development project is to be undertaken.

(5) If any defect is noticed in the application referred to in sub-rule (2) or if any relevant document is not attached thereto, the NSDA shall, before the expiry of one month from the date of receipt of the application in its office, intimate the defect to the applicant for its rectification.

(6) The applicant shall remove the defect within a period of fifteen days from the date of such intimation or within such further period as, on an application made in this behalf, may be extended by the NSDA, so however, that the total period for removal of the defect does not exceed thirty days, and if the applicant, fails to remove the defect within such period so allowed, the NSDA shall send its recommendation for treating the application as invalid to the CBDT.

(7) On receipt of recommendation of the NSDA under sub-rule (6) the CBDT, if satisfied, may pass an order treating the application as invalid.

(8) If the application form is complete in all respects, the NSDA may make such inquiry or call for such documents from the eligible company or the training institute as it may consider necessary for satisfying itself regarding the genuineness of the current and proposed activity of the applicant and send its recommendation to the CBDT for grant of approval or rejection of the application before the expiry of the period of two months to be reckoned from the end of the month in which the application form complete in all respects was received in its office.

(9) The Commissioner of Income-tax or the Director of Income-tax, as the case may be, having jurisdiction over the case shall send his recommendation to the NSDA for grant of approval or rejection of the application, after considering the compliance of the applicant with the various provisions of Income-tax Act, 1961 and Wealth-tax Act, 1957, before the expiry of the period of one month to be reckoned from the end of the month in which the copy of the application was received in his office.

(10) If the NSDA recommends the grant of approval under sub-rule (8), the CBDT shall, within a period of fifteen days from the end of the month in which it receives the report from the NSDA, under sub-section (1) of section 35CCD, issue a notification in Form No. 3CR to be published in the Official Gazette specifying the skill development project subject to conditions mentioned in rule 6AAG or such other conditions, as it may deem fit, to be effective for such period not exceeding three assessment years and if the NSDA recommends the rejection of the application under sub-rule (8), the CBDT shall pass an order rejecting the application.

(11) If the CBDT is satisfied with the activities of the skill development project during the period of notification, it may notify the said project for a further period in consultation with the NSDA.

(12) A copy of the notification issued under sub-rule (10) or sub-rule (11) shall be sent to the applicant, the NSDA, the training institute and the Commissioner of Income-tax or the Director of Income-tax, as the case may be, having jurisdiction over the case.

(13) The CBDT may rescind the notification issued under sub-rule (10) or sub-rule (11) at any time, if it is satisfied that the eligible company or the training institute, as the case may be, has ceased its activities or its activities are not genuine or the activities of the skill development project are not being carried out in accordance with all or any of the relevant provisions of the Act or this rule or rule 6AAG or the conditions subject to which the notification was issued.

(14) An order rescinding the notification shall not be passed unless the applicant has been given an opportunity of being heard in the matter.

(15) A copy of any order invalidating or rejecting the application or rescinding the notification shall be sent to the applicant, the training institute, the NSDA and the Commissioner of Income-tax or the Director of Income-tax, as the case may be, having jurisdiction over the case].

Conditions subject to which a skill development project is to be notified under section 35CCD.

[6AAG (1) The company undertaking skill development project shall maintain separate books of account of the skill development project notified under sub-section (1) of section 35CCD, and get such books of account audited by an accountant as defined in the Explanation below sub-section (2) of section 288.

(2) The audit report referred to in sub-rule (1) shall include the comments of the auditor on the true and fair view of the books of account maintained for skill development project, the genuineness of the activities of the skill development project and fulfilment of the conditions specified in the relevant provisions of the Act or the rules or the conditions mentioned in the notification issued under sub-rule (10) or sub-rule (11) of rule 6AAF.

(3) A skill development project in respect of existing employees of the company shall not be eligible for notification under sub-section (1) of section 35CCD, where the training of such employees commences after six months of their recruitment.

(4) All expenses (not being expenditure in the nature of cost of any land or building), incurred wholly and exclusively for undertaking a notified skill development project shall be eligible for deduction under section 35CCD :

Provided that any expenditure incurred on the skill development project which is reimbursed or reimbursable to the company by any person, whether directly or indirectly, shall not be eligible for deduction under section 35CCD.

(5) The company shall, on or before the due date of furnishing the return of income under sub-section (l) of section 139, furnish the audited statement of accounts of the skill development project for the previous year along with the audit report and amount of deduction claimed under sub-section (1) of section 35CCD to the Commissioner of Income-tax or the Director of Income-tax, as the case may be.

(6) If the Commissioner of Income-tax or the Director of Income-tax, as the case may be, is satisfied that the,—

(a)  company has not maintained separate books of account for the skill development project or has not got such books of account audited by an accountant in accordance with sub-rule (1);

(b)  company has not furnished the documents referred to in sub-rule (5);

(c)  company has ceased to carry out activities of skill development project;

(d)  activities of skill development project of the company are not genuine; or

(e)  activities of the skill development project of the company are not being carried out in accordance with the relevant provisions of the Act or the rules or the conditions subject to which the notification was issued,

he shall, after making appropriate inquiries, furnish a report on the circumstances referred to in clause (a) to (e) to the CBDT for appropriate action under sub-rule (13) of rule 6AAF.

(7) If the NSDA is not satisfied about the genuineness of the activities of the notified skill development project, the NSDA shall send its recommendation to the CBDT for appropriate action under sub-rule (13) of rule 6AAF.]

Meaning of expressions used in rule 6AAF and rule 6AAG.

[6AAH. For the purposes of rule 6AAF and rule 6AAG—

(i)  “eligible company” means a company, which is—

(a)  engaged in the business of manufacture or production of any article or thing, not being an article or thing mentioned at serial number 1 and serial number 2 of the list of articles or things specified in the Eleventh Schedule; or

(b)  engaged in providing services mentioned in column (2) of the Table below:

TABLE

S.No. Particulars
 Accounting services
 Architect services
 Automobile repair or maintenance
 Banking, insurance and financial services including ATM installation, maintenance and operations or banking correspondents or insurance agents
 Beauty and cosmetology, including hair styling or manicurists or pedicurists
 Cable operators or Direct To Home (DTH) services
 Cargo Handling and stevedoring services
 Construction including painting or woodwork or plumbing or flooring or electrical wiring or installation or maintenance of lifts
 Courier services
 Design services including fashion or gems and jewellery or apparel or industrial designing
 Event management
 Facilities management, housekeeping, cleaning services
 Fire and safety services
 Food processing or preservation services, including post harvesting and post farm-gate skills
 Health and Wellness services including spa or nutritionists or weight management or health instructors or yoga or gym trainers
 Home decor services, landscaping
 Hospital and Healthcare services, such as Lab technicians, nursing and other paramedical staff
 Hospitality, including culinary skills or catering services
 Logistics and Transportation by any mode, including by air, sea, road, rail or pipelines, and related services such as driving or operation of heavy machinery equipment, forwarding agents, packers and movers
 Market research services
 Media or film or advertising
 Mining and extraction of mineral resources, including hydrocarbons
 Packaging and Warehousing, including both ambient temperature storage and cold storage, operation of Internal Container Depots and Container Freight Stations
 Port and maritime services such as dredging, piloting, tug boat operations, shipbuilding, ship scrapping, bunkering
 Power Sector Services, including those required for erection or installation or maintenance of equipment or towers, etc. in generation, transmission or distribution sector projects
 Private Security, including guards, supervisors, installation and maintenance of security equipment etc.
 Refrigeration and air-conditioning
 Repair and maintenance services, including Installation and servicing of household goods or white goods
 Retail marketing, including shop floor assistants or merchandisers
 Telecom services, including erection and maintenance of towers
 Travel and tourism, including guides or ticketing or sales or cab drives

(ii)  “Training institute” means a training institute set up by the Central or State Government or a local authority or a training institute affiliated to National Council for Vocational Training or State Council for Vocational Training.

(iii) “National Council for Vocational Training” means the National Council for Training in Vocational Trades established by the resolution of the Government of India in the Ministry of Labour (Directorate General of Resettlement and Employment) No.TR/E.P. – 24/56, dated the 21st August, 1956 and re-named as the National Council for Vocational Training by the resolution of the Government of India in the Ministry of Labour (Directorate General of Employment and Training) No.DGET/12/21/80-TC, dated the 30th September, 1981.

(iv) “State Council for Vocational Training” means a State Council for Training in Vocational Trades established by the State Government].

 [Form of audit report for claiming deductions under sections 35D and 35E.

6AB. The report of audit of the accounts of an assessee, other than a company or a co-operative society, which is required to be furnished under sub-section (4) of section 35D or sub-section (6) of section 35E shall be in Form No.  [3AE].]

 [Computation of aggregate average advances for the purposes of clause (viia) of sub-section (1) of section 36.

6ABA. For the purposes of clause (viia) of sub-section (1) of section 36, the aggregate average advances made by the rural branches of a scheduled bank shall be computed in the following manner, namely :—

(a)  the amounts of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the previous year shall be aggregated separately ;

(b)  the sum so arrived at in the case of each such branch shall be divided by the number of months for which the outstanding advances have been taken into account for the purposes of clause (a) ;

(c)  the aggregate of the sums so arrived at in respect of each of the rural branches shall be the aggregate average advances made by the rural branches of the scheduled bank.

Explanation : In this rule, “rural branch” and “scheduled bank” shall have the meanings assigned to them in the Explanation to clause (viia) of sub-section (1) of section 36.]

 [Infrastructure facility under clause (d) of the Explanation to clause (viii) of sub-section (1) of section 36.

6ABAA. The conditions to be fulfilled by a public facility to be eligible to be notified as an infrastructure facility in accordance with the provisions of clause (d) of the Explanation to clause (viii) of sub-section (1) of section 36 shall be the following, 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 similar in nature to an infrastructure facility referred to in theExplanation to clause (i) of sub-section (4) of section 80-IA;

(c)  it has started or starts operating and maintaining such infrastructure facility on or after the 1st day of April, 1995.]

 [Form of report for claiming deduction under clause (xi) of sub-section (1) of section 36.

6ABB. The report of an accountant, which is required to be furnished under clause (xi) of sub-section (1) of section 36 shall be in Form No. 3BA.]

Limits and conditions for allowance of expenditure in certain cases.

6AC. [Omitted by the IT (Thirty-second Amdt.) Rules, 1999, w.e.f. 19-11-1999.]

Expenditure on advertisement.

6B. [Omitted by the IT (Thirty-second Amdt.) Rules, 1999, w.e.f. 19-11-1999.]

Expenditure on residential accommodation including guest houses.

6C. [Omitted by the IT (Amdt.) Rules, 1973, w.e.f. 1-4-1973. Original rule 6C was inserted by the IT (Third Amdt.) Rules, 1965 and later omitted by the IT (Fourth Amdt.) Rules, 1965. It was again inserted by the IT (Second Amdt.) Rules, 1966.]

Expenditure in connection with travelling, etc.

6D. [Omitted by the IT (Thirty-second Amdt.) Rules, 1999, w.e.f. 19-11-1999.]

 [Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft.

6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely :—

 (a)  where the payment is made to—

(i)  the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(ii)  the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);

(iii)  any co-operative bank or land mortgage bank;

(iv)  any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949);

(v)  the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);

 (b)  where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender;

 (c)  where the payment is made by—

   (i)  any letter of credit arrangements through a bank;

  (ii)  a mail or telegraphic transfer through a bank;

 (iii)  a book adjustment from any account in a bank to any   other account in that or any other bank;

  (iv)  a bill of exchange made payable only to a bank;

 (v)  the use of electronic clearing system through a bank   account;

 (vi)  a credit card;

(vii) a debit card.

Explanation —For the purposes of this clause and clause (g), the term “bank” means any bank, banking company or society referred to in sub-clauses (i) to (iv) of clause (a) and includes any bank [not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)], whether incorporated or not, which is established outside India;

 (d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee;

 (e) where the payment is made for the purchase of—

  (i)  agricultural or forest produce; or

 (ii)  the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or

(iii)  fish or fish products; or

(iv)  the products of horticulture or apiculture,

to the cultivator, grower or producer of such articles, produce or products;

 (f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;

 (g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town;

(h)  where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees;

(i)  where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee—

  (i)  is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and

 (ii)  does not maintain any account in any bank at such place or ship;

 (j) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike;

(k)  where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;

(l)  where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business.

Explanation —For the purposes of this clause, the expressions “authorised dealer” or “money changer” means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force.]

 [Conditions that a stock exchange is required to fulfil to be notified as a recognised stock exchange for the purposes of clause (d) of proviso to clause (5) of section 43.

6DDA. For the purposes of clause (d) of proviso to clause (5) of section 43, a stock exchange shall fulfil the following conditions in respect of trading in derivatives, namely :—

(i)  the stock exchange shall have the approval of the Securities and Exchange Board of India established under the Securities and Exchange Board of India Act, 1992 (15 of 1992) in respect of trading in derivatives and shall function in accordance with the guidelines or conditions laid down by the Securities and Exchange Board of India;

(ii)  the stock exchange shall ensure that the particulars of the client (including unique client identity number and PAN) are duly recorded and stored in its databases;

(iii)  the stock exchange shall maintain a complete audit trail of all transactions (in respect of cash and derivative market) for a period of seven years on its system;

[(iv) the stock exchange shall ensure that transactions (in respect of cash and derivative market) once registered in the system are not erased;]

 [(v) the stock exchange shall ensure that the transactions (in respect of cash and derivative market) once registered in the system are modified only in cases of genuine error and maintain data regarding all transactions (in respect of cash and derivative market) registered in the system which have been modified and submit a monthly statement in Form No. 3BB to the Director General of Income-tax (Intelligence), New Delhi within fifteen days from the last day of each month to which such statement relates.]

Notification of a recognised stock exchange for the purposes of clause (d) of proviso to clause (5) of section 43.

6DDB. (1) An application for notification of a stock exchange as a recognised stock exchange for the purposes of clause (d) of proviso to clause (5) of section 43 may be made to the Member (L), Central Board of Direct Taxes, North Block, New Delhi – 110001.

(2) The application referred to in sub-rule (1) shall be accompanied with the following documents, namely :—

  (i)  approval granted by Securities and Exchange Board of India for trading in derivatives;

 (ii)  up-to-date rules, bye-laws and trading regulations of the stock exchange;

(iii)  confirmation regarding fulfilling the conditions referred to in clause (ii) to [clause (v)] of rule 6DDA;

(iv)  such other information as the stock exchange may like to place before the Central Government.

(3) The Central Government may call for such other information from the applicant as it deems necessary for taking a decision on the application.

(4) The Central Government, after examining the information furnished by the stock exchange under sub-rule (2) or sub-rule (3), shall notify the stock exchange as a recognised stock exchange for the purposes of clause (d) of proviso to clause (5) of section 43 or issue an order rejecting the application before the expiry of four months from the end of the month in which the application is received.

(5) The notification referred to in sub-rule (4) shall be effective until the approval granted by the Securities and Exchange Board of India is withdrawn or expired, or the notification is rescinded by the Central Government.]

 [Conditions that a recognised association is required to fulfil to be notified as a recognised association for the purposes of clause (e) of the proviso to clause (5) of section 43.

6DDC. For the purposes of clause (e) of the proviso to clause (5) of section 43, a recognised association shall fulfil the following conditions in respect of trading in derivatives, namely:—

 (i)  the recognised association shall have the approval of the Forward Markets Commission established under the Forward Contracts (Regulation) Act, 1952 (74 of 1952) in respect of trading in derivatives and shall function in accordance with the guidelines or conditions laid down by the Forward Markets Commission;

(ii)  the recognised association shall ensure that the particulars of the client (including unique client identity number and PAN) are duly recorded and stored in its databases;

(iii) the recognised association shall maintain a complete audit trail of all transactions (in respect of derivative market) for a period of seven years on its system;

(iv)  the recognised association shall ensure that transactions (in respect of derivative market) once registered in the system are not erased;

(v)  the recognised association shall ensure that the transactions (in respect of derivative market) once registered in the system are modified only in cases of genuine error and maintain data regarding all transactions (in respect of derivative market) registered in the system which have been modified and submit a monthly statement in Form No. 3BC to the Director General of Income-tax (Intelligence and Criminal Investigation), New Delhi within fifteen days from the last day of each month to which such statement relates]

 [Notification of a recognised association for the purposes of clause (e) of the proviso to clause (5) of section 43.

6DDD. (1) An application for notification of a recognised association (as per clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952) as a recognised association for the purposes of clause (e) of the proviso to clause (5) of section 43 may be made to the Member (Legislation), Central Board of Direct Taxes, North Block, New Delhi.

(2) The application referred to in sub-rule (1) shall be accompanied with the following documents, namely :—

(i)  approval granted by Forward Markets Commission for trading in derivatives;

(ii)  up-to-date rules, bye-laws and trading regulations of the recognised association;

(iii) confirmation regarding fulfilling the conditions referred to in clause (ii) to clause (v) of rule 6DDC;

(iv) such other information as the recognised association may like to place before the Central Government.

(3) The Central Government may call for such other information from the applicant as it deems necessary for taking a decision on the application.

(4) The Central Government, after examining the information furnished by the recognised association under sub-rule (2) or sub-rule (3), shall notify the recognised association as a recognised association for the purposes of clause (e) of the proviso to clause (5) of section 43 or issue an order rejecting the application before the expiry of four months from the end of the month in which the application is received.

(5) The notification referred to in sub-rule (4) shall be effective until the approval granted by the Forward Markets Commission is withdrawn or expired, or the notification is rescinded by the Central Government]

 [Limits of reserve for unexpired risks.

6E. In the computation of profits and gains of any business of insurance other than life insurance, the amount carried over to a reserve for unexpired risks including any amount carried over to any such additional reserve which is to be allowed as a deduction under clause (c) of rule 5 of the First Schedule, shall not exceed—

[(a) where the insurance business relates to fire insurance or engineering insurance and which provides insurance for terrorism risks, 100 per cent of the net premium income of such business of the previous year;

(aa) where the insurance business relates to fire insurance or miscellaneous insurance other than the insurance business covered under clause (a), 50 per cent of the net premium income of such business of the previous year;]

(b)  where the insurance business relates to marine insurance, 100 per cent of the net premium income of such business of the previous year:

Provided that any amount out of the amount carried over to such reserve or additional reserve which is not allowed as a deduction under this rule in respect of any previous year shall not be included in the total income for the assessment year relevant to the immediately next succeeding previous year in the revenue account relating to which the amount aforesaid is credited.

 [Explanation.—For the purposes of this rule,—

(a)  “net premium income” means the amount of premium received as reduced by the amount of reinsurance premium paid during the relevant previous year;

(b)  “marine insurance” includes the Export Credit Insurance.]]

Special provision regarding interest on bad and doubtful debts of financial institutions, banks, etc.

[6EA. The provisions of section 43D shall apply in the case of every public financial institution, scheduled bank, State financial corporation and State industrial investment corporation where its income by way of interest pertains to the following categories of bad and doubtful debts, namely:—

(a)  (i) Non-viable or sticky advances, i.e., where irregularities of the nature specified in sub-clause (ii) are noticed in the accounts of the borrowers for a period of six months and more and there are no minimum prospects of regularisation of accounts, or where the accounts or information in relation to such accounts reflect usual signs of sickness, such as,—

(1)  apparent stagnation in the business as a result of the slow or negligible turnover;

(2)  frequent requests for overdrawing or issue of cheques without ensuring availability of funds in the account;

(3)  bills purchased or discounted remain overdue for 3 months and more or the recovery of such bills from the borrower poses difficulties;

(4)  in the case of term-loans, instalments which are overdue for 6 months or more;

(5) unexplained delays by the borrower in submission of quarterly or half-yearly operating statements or stock statements or balance sheets and other information required by the bank;

(6)  slow movement or stagnation of stocks observed during inspections;

(7)  low or negligible level of activity observed during inspections or suspension or closure of the business;

(8) persistent delay in compliance with vital requirements like execution of documents, producing additional security when required or non-compliance with such requirements;

(9) diversion of funds to sister units or acquiring capital assets not relevant to the business or large personal withdrawals by the borrowers;

(10) intentional non-adherence to project schedules leading to sub-stantial cost escalations and requirement of additional term-finance;

(11) the pressure on the liquidity leading to non-payment of wages to workers or statutory dues or rents of office and factory premises;

(12) the current liabilities exceeding current assets;

(13) any grave irregularities observed by the auditors of the borrowers which remain to be rectified;

(14) basic weakness revealed by the financial statements of the unit, for example, continued cash loss beyond one year.

 (ii)  The irregularities referred to in sub-clause (i) in the accounts of the borrowers are,—

(1) where the accounts are overdrawn beyond the drawing power or the sanctioned limit, for a temporary period;

(2) instalments in respect of term-loans are overdue for less than 6 months or import bills under letters of credit or instalments under deferred payment carried are overdue for less than 3 months;

(3) bills not exceeding 10% to 15% of the total outstandings in the bills purchased or discounted account of the borrower are overdue for payment for a period of less than 3 months and refund in respect of unpaid bills is not forthcoming immediately.

 (b) Advances recalled, i.e., where the repayment is highly doubtful and revival of the unit is not considered worthwhile and a decision has been taken to recall the advances.

(c) Suit-filed accounts, i.e., where legal action or recovery proceedings have been initiated and suits are pending for recovery of advances.

(d) Decreed debts, i.e., where suits have been filed and decree obtained and such decree is pending for execution.

(e) Debts recoverability whereof has become doubtful on account of shortfalls in value of security, difficulty in enforcing and realising the securities, or inability or unwillingness of the borrower to repay the banks dues, partly or wholly, and such debts have not been included in preceding clauses (a) to (d).]

[Categories of bad or doubtful debts in the case of a public company under clause (b) of section 43D.

6EB. The provisions of clause (b) of section 43D shall apply in the case of every public company where its income by way of interest pertains to the following categories of bad and doubtful debts, namely :—

(a)   (i) doubtful asset, that is, a debt which has remained a non-performing asset of the nature specified in sub-clause (ii) for a period exceeding two years;

 (ii)  non-performing asset referred to in sub-clause (i) shall be the following :—

(1)  term loan beyond one year, if the interest amount remains “past due” for six months or instalment is overdue for more than six months;

(2)  lease rental or hire purchase instalment, if the rental or the instalment is “past due” for six months;

(3)  bill purchased or discounted, if the bill remains overdue and unpaid for six months; or

(4)  any other credit facility in the nature of short term loan or advance [other than those referred to in (1), (2) and (3) above], if any amount to be received in respect of such a facility remains “past due” for a period of six months;

(b) loss asset, that is, a debt which has been identified as loss and considered as uncollectible but has not been written off in the accounts of the assessee.

Explanation.—For the purposes of this rule, an amount shall be deemed to be “past due” when it remains unpaid for thirty days beyond the due date.]

 [CC.—Books of account

Books of account and other documents to be kept and maintained under section 44AA(3) by persons carrying on certain professions.

6F. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorised representative or film artist shall keep and maintain the books of account and other documents specified in sub-rule (2) :

 [Provided that nothing in this sub-rule shall apply in relation to any previous year in the case of any person if his total gross receipts in the profession do not exceed one lakh fifty thousand rupees in any one of the three years immediately preceding the previous year, or, where the profession has been newly set up in the previous year, his total gross receipts in the profession for that year are not likely to exceed the said amount.]

(2) The books of account and other documents referred to in sub-rule (1) shall be the following, namely:—

(i) a cash book;

(ii) a journal, if the accounts are maintained according to the mercantile system of accounting;

(iii) a ledger;

[(iv) carbon copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the person, and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by him:

Provided that nothing in this clause shall apply in relation to sums not exceeding twenty-five rupees;]

(v)  original bills wherever issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees, payment vouchers prepared and signed by the person:

[Provided that the requirements as to the preparation and signing of payment vouchers shall not apply in a case where the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred by him.]

Explanation : In this rule,—

(a) “authorised representative” means a person who represents any other person, on payment of any fee or remuneration before any Tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy;

(b)  “cash book” means a record of all cash receipts and payments, kept and maintained from day-to-day and giving the cash balance in hand at the end of each day or at the end of a specified period not exceeding a [month];

(c)  “film artist” means any person engaged in his professional capacity in the production of a cinematograph film whether produced by him or by any other person, as—

(i) an actor;

(ii) a cameraman;

(iii) a director, including an assistant director;

(iv) a music director, including an assistant music director;

(v) an art director, including an assistant art director;

(vi) a dance director, including an assistant dance director;

(vii) an editor;

(viii) a singer;

(ix) a lyricist;

(x) a story writer;

(xi) a screen-play writer;

(xii) a dialogue writer; and

(xiii) a dress designer.

 (3) A person carrying on medical profession shall, in addition to the books of account and other documents specified in sub-rule (2), keep and maintain the following, namely :—

(i) a daily case register in Form No. 3C;

(ii) an inventory  [under broad heads,] as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.

(4) The books of account and other documents specified in sub-rule (2) and sub-rule (3)  [other than those relating to a previous year which has come to an end] shall be kept and maintained by the person at the place where he is carrying on the profession or, where the profession is carried on in more places than one, at the principal place of his profession:

Provided that where the person keeps and maintains separate books of account in respect of each place where the profession is carried on, such books of account and other documents may be kept and maintained at the respective places at which the profession is carried on.

(5) The books of account and other documents specified in sub-rule (2) and sub-rule (3) shall be kept and maintained for a period of [six] years from the end of the relevant assessment year:

 [***]

Provided  [***] that where the assessment in relation to any assessment year has been reopened under section 147 of the Act within the period specified in section 149 of the Act, all the books of account and other documents which were kept and maintained at the time of reopening of the assessment shall continue to be so kept and maintained till the assessment so reopened has been completed.]

 [(6) Notwithstanding anything contained in sub-rules (1) to (3), it shall not be necessary for any person carrying on any of the professions specified in sub-rule (1) to keep and maintain the books of account and other documents specified in sub-rule (2) or sub-rule (3) in relation to any previous year commencing before the  [first day of March, 1983].]

 [CCC.—Reports of audit of accounts of persons carrying on business or profession

 [Report of audit of accounts to be furnished under section 44AB.

6G. (1) The report of audit of the accounts of a person required to be furnished under section 44AB shall,—

(a)  in the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited, be in Form No. 3CA;

(b)  in the case of a person who carries on business or profession, but not being a person referred to in clause (a), be in Form No. 3CB.

(2) The particulars which are required to be furnished under section 44AB shall be in Form No. 3CD.]

 [CCCA.—Report of audit in case of income by way of royalties, etc., in case of non-residents

Form of report of audit to be furnished under sub-section (2) of section 44DA.

6GA. The report of audit of accounts of the non-resident (not being a company) or a foreign company, which is required to be furnished under sub-section (2) of section 44DA shall be in Form No. 3CE.]

 [CCCC.—Report in the case of slump sale

Form of report of an accountant under sub-section (3) of section 50B.

6H. The report of an accountant which is required to be furnished by every assessee along with the return of income, in case of slump sale, under sub-section (3) of section 50B shall be in Form No. 3CEA.]

D.—Special cases

Income which is partially agricultural and partially from business.

7. (1) In the case of income which is partially agricultural income as defined in section 2 and partially income chargeable to income-tax under the head “Profits and gains of business”, in determining that part which is chargeable to income-tax 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 a raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.

(2) For the purposes of sub-rule (1) “market value” shall be deemed to be :—

(a)  where agricultural produce is ordinarily sold in the market in its raw state, or after application to it of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be taken to market, the value calculated according to the average price at which it has been so sold during the relevant previous year;

(b)  where agricultural produce is not ordinarily sold in the market in its raw state or after application to it of any process aforesaid, the aggregate of—

(i)  the expenses of cultivation;

(ii)  the land revenue or rent paid for the area in which it was grown; and

(iii)  such amount as the  [Assessing Officer] finds, having regard to all the circumstances in each case, to represent a reasonable profit.

 [Income from the manufacture of rubber

7A. [(1) Income derived from the sale of centrifuged latex or cenex or latex based crepes (such as pale latex crepe) or brown crepes (such as estate brown crepe, remilled crepe, smoked blanket crepe or flat bark crepe) or technically specified block rubbers manufactured or processed from field latex or coagulum obtained from rubber plants grown by the seller in India shall be computed as if it were income derived from business, and thirty-five per cent of such income shall be deemed to be income liable to tax.]

(2) In computing such income, an allowance shall be made in respect of the cost of planting rubber plants in replacement of plants that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (31) of section 10, is not includible in the total income.

Income from the manufacture of coffee.

7B. [(1) Income derived from the sale of coffee grown and cured by the seller in India shall be computed as if it were income derived from business, and twenty-five per cent of such income shall be deemed to be income liable to tax.

(1A) Income derived from the sale of coffee grown, cured, roasted and grounded by the seller in India, with or without mixing chicory or other flavouring ingredients, shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax.

Explanation : For the purposes of sub-rules (1) and (1A) “curing” shall have the same meaning as assigned to it in clause (d) of section 3 of the Coffee Act, 1942 (7 of 1942).]

(2) In computing  [the incomes referred to in sub-rules (1) and (1A)]an allowance shall be made in respect of the cost of planting coffee plants in replacement of plants that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (31) of section 10, is not includible in the total income.]

Income from the manufacture of tea.

8. (1) Income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax.

(2) In computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area has not previously been abandoned  [, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (30) of section 10, is not includible in the total income.]

 [Conditions for the grant of development allowance.

8A. The other conditions referred to in clause (iii) of sub-section (3) of section 33A shall be the following, namely:—

(a)  the assessee shall, at least three months before commencing the operations for planting or, as the case may be, replanting tea bushes, give notice of his intention to do so to the Tea Board in writing in Form No. 4:

Provided that in a case where such operations have commenced before the  [1st day of January, 1968], this condition shall be deemed to have been fulfilled if notice of such commencement is given by the assessee before the [1st day of February, 1968];

(b)  the assessee shall afford the Tea Board or such other person or agency as may be authorised in writing by the Tea Board in this behalf, every reasonable facility to enter upon and inspect the area under planting or, as the case may be, replanting;

(c)  the assessee shall furnish to the Tea Board such particulars, documents or statements, in relation to the planting or replanting of tea, as the Tea Board may require him to furnish;

(d)  the assessee shall furnish to the  [Assessing Officer], along with his return of income for the previous year for which the deduction is claimed, a certificate from the Tea Board in Form No. 5  [and a state-ment of particulars in Form No. 5A].

Explanation : For the purposes of this rule, “Tea Board” means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953).]

 [Guidelines for notification of zero coupon bond.

8B. (1) An application by an infrastructure capital company or infrastructure capital fund or a public sector company for notification under clause (48) of section 2 of any zero coupon bond proposed to be issued by it shall be made in Form No. 5B at least three months before the date of issue of such bond:

Provided that an application shall not be made for notification of a bond to be issued after two financial years following the financial year in which the application is made.

(2) Every application, under sub-rule (1), shall be accompanied by the following documents, namely:—

(i) where the application is made by any infrastructure capital company or a public sector company, being a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), a copy of certificate of incorporation under the Companies Act, 1956 (1 of 1956);

(ii) where the application is made by any infrastructure capital fund, a copy of the trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908);

(iii) where the application is made by a public sector company, being any corporation, established by or under any Central or State or Provincial Act, a copy of the relevant Act.

(3) The Central Government, while specifying a zero coupon bond by notification in the Official Gazette shall satisfy itself that the following conditions are fulfilled, namely:—

(i) the period of life of the bond is not less than ten years and not more than twenty years;

(ii) the infrastructure capital company or infrastructure capital fund or public sector company proposing to issue a zero coupon bond has an investment grade rating from at least two credit rating agencies registered under sub-section (1A) of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(iii) necessary arrangement has been made by the infrastructure capital company or infrastructure capital fund or public sector company for listing the zero coupon bond in a recognised stock exchange in India;

(iv) where the application is made by the infrastructure capital company or infrastructure capital fund, such company or fund shall furnish along with the application an undertaking that the money realised on issue of the zero coupon bond shall be invested by it in the following manner, namely:—

(i)  twenty-five per cent or more of such realisation before the end of the financial year immediately following the financial year in which the bond is issued;

(ii)  the balance of such realisation within a period of four financial years immediately following the financial year in which the bond is issued;

(v)  where the application is made by a public sector company, such company shall furnish along with the application an undertaking that the money realised on issue of the zero coupon bond shall be invested or utilised by it in the following manner, namely:—

(i)  fifteen per cent or more of such realisation before the end of the financial year immediately following the financial year in which the bond is issued;

(ii)  the balance of such realisation within a period of six financial years immediately following the financial year in which the bond is issued.

(4) The Central Government, after having satisfied itself about fulfilling of the conditions referred to in sub-rule (1), sub-rule (2) and sub-rule (3) shall specify the bond, by notification in the Official Gazette, giving therein, inter alia, the following particulars, namely:—

(a)  name of the bond;

(b)  period of life of the bond;

(c)  the time schedule of the issue of the bond;

(d)  the amount to be paid on maturity or redemption of the bond;

(e)  the discount;

(f)  the number of bonds to be issued.

(5) The Central Government may, if the applicant fails to fulfil the conditions referred to in sub-rule (1) or sub-rule (2) or sub-rule (3), reject the application for notification after giving an opportunity of being heard to the infrastructure capital company or infrastructure capital fund or public sector company, as the case may be.

(6) Every infrastructure capital company or infrastructure capital fund or public sector company shall submit within two months from the end of each financial year referred to in sub-clause (i) or sub-clause (ii) of clause (iv) of sub-rule (3), or, as the case may be, in sub-clause (i) or sub-clause (ii) of clause (v) of sub-rule (3), a certificate from an accountant as defined in the Explanation to sub-section (2) of section 288, specifying the amount invested in each year.

(7) The Central Government shall have the power to withdraw the notification if the applicant fails to fulfil any of the conditions referred to in sub-rule (3) or sub-rule (6).

Explanation : For the purpose of this rule, the expressions “discount” and “period of life of the bond” shall have the same meanings respectively assigned to them in clause (i) and clause (ii) of the Explanation to clause (iiia) of sub-section (1) of section 36.

Computation of pro rata amount of discount on a zero coupon bond for the purpose of clause (iiia) of sub-section (1) of section 36.

8C. For the purposes of clause (iiia) of sub-section (1) of section 36, the pro rata amount of discount on a zero coupon bond shall be computed in the following manner, namely:—

(a)  the period of life of the bond shall be converted into number of calendar months and, for this purpose, where the calendar month in which the bond is issued or the bond matures or is redeemed contains a part of a calendar month then, if such part is fifteen days or more than fifteen days, it shall be increased to one calendar month and if such part is less than fifteen days it shall be ignored;

(b)  the amount of discount shall be divided by the number of calendar months determined in accordance with clause (a);

(c)  where one or more than one calendar month out of calendar months determined in accordance with clause (a) is or are included in a previous year, the amount determined in accordance with clause (b) shall be multiplied by the number of calendar months so included and the amount so arrived at shall be taken to be the pro rata amount of discount for that previous year.]

[Method for determining amount of expenditure in relation to income not includible in total income.

8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with—

(a)  the correctness of the claim of expenditure made by the assessee; or

(b)  the claim made by the assessee that no expenditure has been incurred,

in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).

(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :—

(i)  the amount of expenditure directly relating to income which does not form part of total income;

(ii)  in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :—

           A X  B/C

Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ;

B= the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ;

C= the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.

(iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.

(3) For the purposes of this rule, the “total assets” shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets.]

Royalties or copyright fees, etc., for literary or artistic work.

9. (1) Where a claim for an allocation is or has been made under section 12AA of the Indian Income-tax Act, 1922 (11 of 1922), in respect of the amount referred to in that section, it shall be dealt with in the following manner, namely:—

(i)  where the time taken by the author of the literary or artistic work in the making thereof is more than twelve but less than twenty-four months, one-half of the amount referred to in the said section shall be included in the total income of the previous year in which the whole amount is received or receivable, and the other half in the total income of the next succeeding previous year; and

(ii)  where the time so taken is twenty-four months or more, one-third of the amount referred to in the said section shall be included in the total income of the previous year in which the whole amount is received or receivable and one-third of the said amount in the total income of each of the two next succeeding previous years.

 (2) Where a claim for an allocation is made by an assessee under section 180 for the assessment year 1962-63 or any subsequent assessment year, it shall be dealt with in the following manner, namely:—

(i)  the tax for the assessment year relevant to the previous year in which the whole amount is received or receivable shall be—

(a)  the amount of tax payable on the total income as reduced by two-thirds of the amount referred to in section 180 included in the total income of the previous year aforesaid had the total income so reduced been his total income; plus

(b)  the tax on an amount equal to two-thirds of the amount referred to in section 180 included in the total income of the previous year aforesaid at the rate applicable to a total income of an amount equal to one-third of such inclusion; and

(ii) one-third of the amount referred to in section 180 included in the total income of the previous year aforesaid shall be included in the total income of each of the two next succeeding previous years and the tax payable, if any, in respect of each of the assessments relevant to the two said succeeding previous years shall be reduced by an amount equal to one-half of the tax referred to in sub-clause (b) of clause (i).

[Deduction in respect of expenditure on production of feature films.

9A. [(1) In computing the profits and gains of the business of production of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film producer), the deduction in respect of the cost of production of a feature film certified for release by the Board of Film Censors in a previous year shall be allowed in accordance with the provisions of sub-rule (2) to sub-rule (4).

Explanation : In this rule,—

 (i) “Board of Film Censors” means the Board of Film Censors constituted under the Cinematograph Act, 1952 (37 of 1952);

(ii) “cost of production”, in relation to a feature film, means the expenditure incurred on the production of the film, not being—

(a)  the expenditure incurred for the preparation of the positive prints of the film; and

(b)  the expenditure incurred in connection with the advertisement of the film after it is certified for release by the Board of Film Censors:]

 [Provided that the cost of production of a feature film, shall be reduced by the subsidy received by the film producer under any scheme framed by the Government, where such amount of subsidy has not been included in computing the total income of the assessee for any assessment year.]

(2) Where a  [***] feature film is certified for release by the Board of Film Censors in any previous year and in such previous year,—

(a)  the film producer sells all rights of exhibition of the film, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year; or

(b)  the film producer—

(i)  himself exhibits the film on a commercial basis in all or some of the areas; or

(ii)  sells the rights of exhibition of the film in respect of some of the areas; or

(iii)  himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas,

and the film is released for exhibition on a commercial basis at least  [ninety] days before the end of such previous year, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year.

(3) Where a  [***] feature film is certified for release by the Board of Film Censors in any previous year and in such previous year, the film producer—

(a) himself exhibits the film on a commercial basis in all or some of the areas; or

(b) sells the rights of exhibition of the film in respect of some of the areas; or

(c) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas,

and the film is not released for exhibition on a commercial basis at least  [ninety] days before the end of such previous year, the cost of production of the film in so far as it does not exceed the amount realised by the film producer by exhibiting the film on a commercial basis or the amount for which the rights of exhibition are sold or, as the case may be, the aggregate of the amounts realised by the film producer by exhibiting the film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such previous year; and the balance, if any, shall be carried forward to the next following previous year and allowed as a deduction in that year.

(4) Where, during the previous year in which a  [***] feature film is certified for release by the Board of Film Censors, the film producer does not himself exhibit the film on a commercial basis or does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of production of the film in computing the profits and gains of such previous year; and the entire cost of production of the film shall be carried forward to the next following previous year and allowed as a deduction in that year.

[(5)] Notwithstanding anything contained in the foregoing provisions of this rule, the deduction under this rule shall not be allowed unless,—

 (a)  in a case where the film producer—

(i)  has himself exhibited the feature film on a commercial basis; or

(ii)  has sold the rights of exhibition of the feature film; or

[(iii) has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas,]

the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible;

(b)  in a case where the film producer has transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount or where the film producer follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible.

[(6)] Where the  [Assessing Officer] is of opinion that—

[(a)] the rights of exhibition of the feature film have been transferred by the film producer by a mode not covered by the provisions of this rule; or

[(b)] having regard to the facts and circumstances of any case, it is not practicable to apply the provisions of this rule to such case,

deduction in respect of the cost of production of the film may be allowed by the [Assessing Officer] in such other manner as he may deem suitable.

[(7)] For the purposes of this rule,—

(i)  the sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis;

(ii)  the rights of exhibition of a feature film shall be deemed to have been sold only on the date when the positive prints of the film are delivered by the film producer to the purchaser of such rights or where in terms of the agreement between the film producer and the film distributor as defined in rule 9B, the positive prints are to be made by the film distributor, the date on which the negative of the film is delivered by the film producer to the film distributor.

[(8)]  [Nothing contained in this rule shall apply in relation to any assessment year commencing before the 1st day of April, 1987.]

 [***]

[Deduction in respect of expenditure on acquisition of distribution rights of feature films.

9B. (1) In computing the profits and gains of the business of distribution of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film distributor), the deduction in respect of the cost of acquisition of a feature film shall be allowed in accordance with sub-rule (2) to sub-rule (4).

Explanation : For the purposes of this rule, “cost of acquisition”, in relation to a feature film, means the amount paid  [by the film distributor to the film producer or to another distributor under an agreement entered into by the film distributor with such film producer or such other distributor, as the case may be] for acquiring the rights of exhibition and, where the rights of exhibition have been acquired on a minimum guarantee basis, the minimum amount guaranteed, not being—

(i)  the amount of expenditure incurred by the film distributor for the preparation of the positive prints of the film; and

(ii)  the expenditure incurred by him in connection with the advertisement of the film.

(2) Where a feature film is acquired by the film distributor in any previous year and in such previous year—

(a)  the film distributor sells all rights of exhibition of the film, the entire cost of acquisition of the film shall be allowed as a deduction in computing the profits and gains of such previous year; or

(b)  the film distributor,—

(i)  himself exhibits the film on a commercial basis in all or some of the areas; or

(ii)  sells the rights of exhibition of the film in respect of some of the areas; or

(iii)  himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas,

and the film is released for exhibition on a commercial basis at least  [ninety] days before the end of such previous year, the entire cost of acquisition of the film shall be allowed as a deduction in computing the profits and gains of such previous year.

(3) Where a feature film is acquired by the film distributor in any previous year and in such previous year the film distributor—

(a)  himself exhibits the film on a commercial basis in all or some of the areas; or

(b)  sells the rights of exhibition of the film in respect of some of the areas; or

(c)  himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas,

and the film is not released for exhibition on a commercial basis at least  [ninety] days before the end of such previous year, the cost of acquisition of the film in so far as it does not exceed the amount realised by the film distributor by exhibiting the film on a commercial basis or the amount for which the rights of exhibition have been sold or, as the case may be, the aggregate of the amounts realised by the film distributor by exhibiting the film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such previous year; and the balance, if any, shall be carried forward to the next following previous year and allowed as a deduction in that year.

(4) Where during the previous year in which a feature film is acquired by the film distributor, he does not himself exhibit the film on a commercial basis or does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of acquisition of the film in computing the profits and gains of such previous year; and the entire cost of acquisition shall be carried forward to the next following previous year and allowed as a deduction in that year.

(5) Notwithstanding anything contained in the foregoing provisions of this rule, the deduction under this rule shall not be allowed unless—

 (a)  in a case where the film distributor,—

(i)  has himself exhibited the feature film on a commercial basis; or

(ii)  has sold the rights of exhibition of the feature film; or

(iii)  has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas,

the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold, or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible ;

(b)  in a case where the film distributor has transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount, or where the film distributor follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible.

(6) For the purposes of this rule,—

(i)  the sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis ;

(ii)  the rights of exhibition of a feature film shall be deemed to have been sold only on the date when the positive prints of the film are delivered by the film distributor to the purchaser of such rights ;

[(iii) distributor shall include a sub-distributor.]

 [(7) Nothing contained in this rule shall apply in relation to any assessment year commencing before the 1st day of April, 1987.]

 [Conditions for carrying forward or set-off of accumulated loss and unabsorbed depreciation allowance in case of amalgamation.

9C. The conditions referred to in clause (iii) of sub-section (2) of section 72A shall be the following, namely :—

(a) the amalgamated company, owning an industrial undertaking of the amalgamating company by way of amalgamation, shall achieve the level of production of at least fifty per cent of the installed capacity of the said undertaking before the end of four years from the date of amalgamation and continue to maintain the said minimum level of production till the end of five years from the date of amalgamation :

Provided that the Central Government, on an application made by the amalgamated company, may relax the condition of achieving the level of production or the period during which the same is to be achieved or both in suitable cases having regard to the genuine efforts made by the amalgamated company to attain the prescribed level of production and the circumstances preventing such efforts from achieving the same;

(b) the amalgamated company shall furnish to the Assessing Officer a certificate in Form No. 62, duly verified by an accountant, with reference to the books of account and other documents showing particulars of production, along with the return of income for the assessment year relevant to the previous year during which the prescribed level of production is achieved and for subsequent assessment years relevant to the previous years falling within five years from the date of amalgam-mation.

Explanation.—For the purposes of this rule,—

(a)  “installed capacity” means the capacity of production existing on the date of amalgamation; and

(b)  “accountant” means the accountant as defined in the Explanation below sub-section (2) of section 288 of the Income-tax Act, 1961.]

Determination of income in the case of non-residents.

10. In any case in which the [Assessing Officer] is of opinion that the actual amount of the income accruing or arising to any non-resident person whether directly or indirectly, through or from any business connection in India or through or from any property in India or through or from any asset or source of income in India or through or from any money lent at interest and brought into India in cash or in kind cannot be definitely ascertained, the amount of such income for the purposes of assessment to income-tax  [* * *] may be calculated :—

(i)  at such percentage of the turnover so accruing or arising as the  [Assessing Officer] may consider to be reasonable, or

(ii)  on any amount which bears the same proportion to the total profits and gains of the business of such person (such profits and gains being computed in accordance with the provisions of the Act), as the receipts so accruing or arising bear to the total receipts of the business, or

(iii)  in such other manner as the [Assessing Officer] may deem suitable.

 [Meaning of expressions used in computation of arm’s length price.

10A. For the purposes of this rule and rules [10AB] to 10E,—

 [(a) “associated enterprise” shall,

(i)  have the same meaning as assigned to it in section 92A; and

(ii)  in relation to a specified domestic transaction entered into by an assessee, include 

(A) the persons referred to in clause (b) of sub-section (2) of section 40A in respect of a transaction referred to in clause (a) of sub-section (2) of the said section;

(B) other units or undertakings or businesses of such assessee in respect of a transaction referred to in section 80A or, as the case may be, subsection (8) of section 80-IA;

(C) any other person referred to in sub-section (10) of section 80-IA in respect of a transaction referred to therein;

(D) other units, undertakings, enterprises or business of such assessee, or other person referred to in sub-section (10) of section 80-IA, as the case may be, in respect of a transaction referred to in section 10AA or the transactions referred to in Chapter VI-A to which the provisions of sub-section (8) or, as the case may be, the provisions of sub-section (10) of section 80-IA are applicable;

 (aa)  “enterprise” shall have the same meaning as assigned to it in clause (iii) of section 92F and shall, for the purposes of a specified domestic transaction, include a unit, or an enterprise, or an undertaking or a business of a person who undertakes such transaction;]

 [ab]  “uncontrolled transaction” means a transaction between enterprises other than associated enterprises, whether resident or non-resident;

(b)  “property” includes goods, articles or things, and intangible property;

(c)  “services” include financial services;

(d)  “transaction” includes a number of closely linked transactions.

 [Other method of determination of arm’s length price.

10AB. For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arms’ length price in relation to an international transaction  [or a specified domestic transaction] shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.]

Determination of arm’s length price under section 92C.

10B. (1) For the purposes of sub-section (2) of section 92C, the arm’s length price in relation to  [an international transaction or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :—

(a) comparable uncontrolled price method, by which,—

(i)  the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified;

(ii)  such price is adjusted to account for differences, if any, between [the international transaction or the specified domestic transaction] and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market;

(iii)  the adjusted price arrived at under sub-clause (ii) is taken to be an arm’s length price in respect of the property transferred or services provided in [the international transaction or the specified domestic transaction];

(b) resale price method, by which,—

(i)  the price at which property purchased or services obtained by the enterprise from an associated enterprise is resold or are provided to an unrelated enterprise, is identified;

(ii)  such resale price is reduced by the amount of a normal gross profit margin accruing to the enterprise or to an unrelated enterprise from the purchase and resale of the same or similar property or from obtaining and providing the same or similar services, in a comparable uncontrolled transaction, or a number of such transactions;

(iii)  the price so arrived at is further reduced by the expenses incurred by the enterprise in connection with the purchase of property or obtaining of services;

(iv)  the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between  [the international transaction or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market;

(v)  the adjusted price arrived at under sub-clause (iv) is taken to be an arm’s length price in respect of the purchase of the property or obtaining of the services by the enterprise from the associated enterprise;

(c) cost plus method, by which,—

(i)  the direct and indirect costs of production incurred by the enterprise in respect of property transferred or services provided to an associated enterprise, are determined;

(ii)  the amount of a normal gross profit mark-up to such costs (computed according to the same accounting norms) arising from the transfer or provision of the same or similar property or services by the enterprise, or by an unrelated enterprise, in a comparable uncontrolled transaction, or a number of such transactions, is determined;

(iii)  the normal gross profit mark-up referred to in sub-clause (ii) is adjusted to take into account the functional and other differences, if any, between [the international transaction or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect such profit mark-up in the open market;

(iv)  the costs referred to in sub-clause (i) are increased by the adjusted profit mark-up arrived at under sub-clause (iii);

(v)  the sum so arrived at is taken to be an arm’s length price in relation to the supply of the property or provision of services by the enterprise;

(d) profit split method, which may be applicable mainly in  [international transactions or specified domestic transactions] involving transfer of unique intangibles or in multiple  [international transactions or specified domestic transactions] which are so interrelated that they cannot be evaluated separately for the purpose of determining the arm’s length price of any one transaction, by which—

(i)  the combined net profit of the associated enterprises arising from [the international transaction or the specified domestic transaction] in which they are engaged, is determined;

(ii)  the relative contribution made by each of the associated enterprises to the earning of such combined net profit, is then evaluated on the basis of the functions performed, assets employed or to be employed and risks assumed by each enterprise and on the basis of reliable external market data which indicates how such contribution would be evaluated by unrelated enterprises performing comparable functions in similar circumstances;

(iii)  the combined net profit is then split amongst the enterprises in proportion to their relative contributions, as evaluated under sub-clause (ii);

(iv)  the profit thus apportioned to the assessee is taken into account to arrive at an arm’s length price in relation to  [the international transaction or the specified domestic transaction] :

Provided that the combined net profit referred to in sub-clause (i) may, in the first instance, be partially allocated to each enterprise so as to provide it with a basic return appropriate for the [type of international transaction or specified domestic transaction] in which it is engaged, with reference to market returns achieved for similar types of transactions by independent enterprises, and thereafter, the residual net profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution in the manner specified under sub-clauses (ii) and (iii), and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual net profit apportioned to that enterprise on the basis of its relative contribution shall be taken to be the net profit arising to that enterprise from  [the international transaction or the specified domestic transaction];

(e)  transactional net margin method, by which,—

(i)  the net profit margin realised by the enterprise from  [an international transaction or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base;

(ii)  the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base;

(iii)  the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between [the international transaction or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market;

(iv)  the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii);

(v)  the net profit margin thus established is then taken into account to arrive at an arm’s length price in relation to  [the international transaction or the specified domestic transaction].

 [(f)  Any other method as provided in rule 10AB.]

(2) For the purposes of sub-rule (1), the comparability of [an international transaction or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:—

(a)  the specific characteristics of the property transferred or services provided in either transaction;

(b)  the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions;

(c)  the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions;

(d)  conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail.

(3) An uncontrolled transaction shall be comparable to  [an international transaction or a specified domestic transaction] if—

(i)  none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or

(ii)  reasonably accurate adjustments can be made to eliminate the material effects of such differences.

(4) The data to be used in analysing the comparability of an uncontrolled transaction with  [an international transaction or a specified domestic transaction]shall be the data relating to the financial year in which  [the international transaction or the specified domestic transaction] has been entered into :

Provided that data relating to a period not being more than two years prior to such financial year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared.

Most appropriate method.

10C. (1) For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each  [particular international transaction or specified domestic transaction], and which provides the most reliable measure of an arm’s length price in relation to the international transaction [or the specified domestic transaction, as the case may be].

(2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:—

(a)  the nature and class of  [the international transaction or the specified domestic transaction];

(b)  the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises;

(c)  the availability, coverage and reliability of data necessary for application of the method;

(d)  the degree of comparability existing between [the international transaction or the specified domestic transaction] and the uncontrolled transaction and between the enterprises entering into such transactions;

(e)  the extent to which reliable and accurate adjustments can be made to account for differences, if any, between [the international transaction or the specified domestic transaction] and the comparable uncontrolled transaction or between the enterprises entering into such transactions;

(f)  the nature, extent and reliability of assumptions required to be made in application of a method.

Information and documents to be kept and maintained under section 92D.

10D. (1) Every person who has entered into [an international transaction or a specified domestic transaction] shall keep and maintain the following information and documents, namely:—

(a)  a description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises;

(b)  a profile of the multinational group of which the assessee enterprise is a part along with the name, address, legal status and country of tax residence of each of the enterprises comprised in the group with whom international transactions [or specified domestic transactions, as the case may be,] have been entered into by the assessee, and ownership linkages among them;

(c)  a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted;

(d)  the nature and terms (including prices) of international transactions  [or specified domestic transactions] entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction;

(e)  a description of the functions performed, risks assumed and assets employed or to be employed by the assessee and by the associated enterprises involved in [the international transaction or the specified domestic transaction];

(f)  a record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions [or the specified domestic transactions] entered into by the assessee;

(g)  a record of uncontrolled transactions taken into account for analysing their comparability with the international transactions [or the specified domestic transactions] entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions  [or the specified domestic transactions, as the case may be] ;

(h)  a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant [international transaction or specified domestic transaction];

(i)  a description of the methods considered for determining the arm’s length price in relation to each [international transaction or specified domestic transaction] or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case;

(j)  a record of the actual working carried out for determining the arm’s length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between  [the international transaction or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions;

(k)  the assumptions, policies and price negotiations, if any, which have critically affected the determination of the arm’s length price;

(l)  details of the adjustments, if any, made to transfer prices to align them with arm’s length prices determined under these rules and consequent adjustment made to the total income for tax purposes;

(m)  any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the arm’s length price.

(2)  [Nothing contained in sub-rule (1), in so far as it relates to an international transaction, shall] apply in a case where the aggregate value, as recorded in the books of account, of international transactions entered into by the assessee does not exceed one crore rupees :

Provided that the assessee shall be required to substantiate, on the basis of material available with him, that income arising from international transactions entered into by him has been computed in accordance with section 92.

(3) The information specified in sub-rule (1) shall be supported by authentic documents, which may include the following :

(a)  official publications, reports, studies and data bases from the Government of the country of residence of the associated enterprise, or of any other country;

(b)  reports of market research studies carried out and technical publications brought out by institutions of national or international repute;

(c)  price publications including stock exchange and commodity market quotations;

(d)  published accounts and financial statements relating to the business affairs of the associated enterprises;

(e)  agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions  [or the specified domestic transactions, as the case may be];

(f)  letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise;

(g)  documents normally issued in connection with various transactions under the accounting practices followed.

(4) The information and documents specified under sub-rules (1) and (2), should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in clause (iv) of section 92F:

Provided that where [an international transaction or a specified domestic transaction] continues to have effect over more than one previous year, fresh documentation need not be maintained separately in respect of each previous year, unless there is any significant change in the nature or terms of the international transaction  [or the specified domestic transaction, as the case may be], in the assumptions made, or in any other factor which could influence the transfer price, and in the case of such significant change, fresh documentation as may be necessary under sub-rules (1) and (2) shall be maintained bringing out the impact of the change on the pricing of [the international transaction or the specified domestic transaction].

(5) The information and documents specified in sub-rules (1) and (2) shall be kept and maintained for a period of eight years from the end of the relevant assessment year.

Report from an accountant to be furnished under section 92E.

10E. The report from an accountant required to be furnished under section 92E by every person who has entered into an international transaction  [or a specified domestic transaction] during a previous year shall be in Form No. 3CEB and be verified in the manner indicated therein.]

 [DA.—Advance Pricing Agreement Scheme

Meaning of expressions used in matters in respect of advance pricing agreement.

10F. For the purposes of this rule and rules 10G to 10T,—

(a) “agreement” means an advance pricing agreement entered into between the Board and the applicant, with the approval of the Central Government, as referred to in sub-section (1) of section 92CC of the Act;

(b) “application” means an application for advance pricing agreement made under rule 10-I;

(c) “bilateral agreement” means an agreement between the Board and the applicant, subsequent to, and based on, any agreement referred to in rule 44GA between the competent authority in India with the competent authority in the other country regarding the most appropriate transfer pricing method or the arms length price;

(d) “competent authority in India” means an officer authorised by the Central Government for the purpose of discharging the functions as such for matters in respect of any agreement entered into under section 90 or 90A of the Act;

(e) “covered transaction” means the international transaction or transactions for which agreement has been entered into;

(f) “critical assumptions” means the factors and assumptions that are so critical and significant that neither party entering into an agreement will continue to be bound by the agreement, if any of the factors or assumptions is changed;

(g) “most appropriate transfer pricing method” means any of the transfer pricing method, referred to in sub-section (1) of section 92C of the Act, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or function performed by such persons or such other relevant factors prescribed by the Board under rules 10B and 10C;

(h) “multilateral agreement” means an agreement between the Board and the applicant, subsequent to, and based on, any agreement referred to in rule 44GA between the competent authority in India with the competent authorities in the other countries regarding the most appropriate transfer pricing method or the arms’ length price;

(i) “tax treaty” means an agreement under section 90 or section 90A of the Act for the avoidance of double taxation;

(j) “team” means advance pricing agreement team consisting of income-tax authorities as constituted by the Board and including such number of experts in economics, statistics, law or any other field as may be nominated by the Director General of Income-tax (International Taxation);

(k) “unilateral agreement” means an agreement between the Board and the applicant which is neither a bilateral nor multilateral agreement.

Persons eligible to apply.

10G. Any person who—

  (i) has undertaken an international transaction; or

  (ii) is contemplating to undertake an international transaction,

shall be eligible to enter into an agreement under these rules.

Pre-filing consultation.

10H. (1) Every person proposing to enter into an agreement under these rules shall, by an application in writing, make a request for a pre-filing consultation.

(2) The request for pre-filing consultation shall be made in Form No. 3CEC to the Director General of Income-tax (International Taxation).

(3) On receipt of the request in Form No. 3CEC, the team shall hold pre-filing consultation with the person referred to in rule 10G.

(4) The competent authority in India or his representative shall be associated in pre-filing consultation involving bilateral or multilateral agreement.

(5) The pre-filing consultation shall, among other things,—

(i) determine the scope of the agreement;

(ii) identify transfer pricing issues;

(iii) determine the suitability of international transaction for the agreement;

(iv) discuss broad terms of the agreement.

(6) The pre-filing consultation shall—

(i) not bind the Board or the person to enter into an agreement or initiate the agreement process;

(ii) not be deemed to mean that the person has applied for entering into an agreement.

Application for advance pricing agreement.

10-I. (1) Any person, who has entered into a pre-filing consultation as referred to in rule 10H may, if desires to enter into an agreement furnish an application in Form No. 3CED along with the requisite fee.

(2) The application shall be furnished to Director General of Income-tax (International Taxation) in case of unilateral agreement and to the competent authority in India in case of bilateral or multilateral agreement.

(3) Application in Form No. 3CED may be filed by the person referred to in rule 10G at any time—

(i) before the first day of the previous year relevant to the first assessment year for which the application is made, in respect of transactions which are of a continuing nature from dealings that are already occurring; or

(ii) before undertaking the transaction in respect of remaining transactions.

(4) Every application in Form No. 3CED shall be accompanied by the proof of payment of fees as specified in sub-rule (5).

(5) The fees payable shall be in accordance with following table based on the amount of international transaction entered into or proposed to be undertaken in respect of which the agreement is proposed:

Amount of international transaction entered into or proposed to be undertaken in respect of which agreement is proposed during the proposed period of agreement. Fee
Amount not exceeding Rs. 100 crores 10 lacs
Amount not exceeding Rs. 200 crores 15 lacs
Amount exceeding Rs. 200 crores 20 lacs

Withdrawal of application for agreement.

10J. (1) The applicant may withdraw the application for agreement at any time before the finalisation of the terms of the agreement.

(2) The application for withdrawal shall be in Form No. 3CEE.

(3) The fee paid shall not be refunded on withdrawal of application by the applicant.

Preliminary processing of application.

10K. (1) Every application filed in Form No. 3CED shall be complete in all respects and accompanied by requisite documents.

(2) If any defect is noticed in the application in Form No. 3CED or if any relevant document is not attached thereto or the application is not in accordance with understanding reached in pre-filing consultation referred to in rule 10H, the Director General of Income-tax (International Taxation) (for unilateral agreement) and competent authority in India (for bilateral or multilateral agreement) shall serve a deficiency letter on the applicant before the expiry of one month from the date of receipt of the application.

(3) The applicant shall remove the deficiency or modify the application within a period of fifteen days from the date of service of the deficiency letter or within such further period which, on an application made in this behalf, may be extended, so however, that the total period of removal of deficiency or modification does not exceed thirty days.

(4) The Director General of Income-tax (International Taxation) or the competent authority in India, as the case may be, on being satisfied, may pass an order providing that application shall not be allowed to be proceeded with if the application is defective and defect is not removed by applicant in accordance with sub-rule (3).

(5) No order under sub-rule (4) shall be passed without providing an opportunity of being heard to the applicant and if an application is not allowed to be proceeded with, the fee paid by the applicant shall be refunded.

10L. (1) If the application referred to in rule 10K has been allowed to be proceeded with, the team or the competent authority in India or his representative shall process the same in consultation and discussion with the applicant in accordance with provisions of this rule.

(2) For the purpose of sub-rule (1), it shall be competent for the team or the competent authority in India or its representative to—

(i) hold meetings with the applicant on such time and date as it deem fit;

(ii) call for additional document or information or material from the applicant;

(iii) visit the applicant’s business premises; or

(iv) make such inquiries as it deems fit in the circumstances of the case.

(3) For the purpose of sub-rule (1), the applicant may, if he considers it necessary, provide further document and information for consideration of the team or the competent authority in India or his representative.

(4) For bilateral or multilateral agreement, the competent authority shall forward the application to Director General of Income-tax (International Taxation) who shall assign it to one of the teams.

(5) The team, to whom the application has been assigned under sub-rule (4), shall carry out the enquiry and prepare a draft report which shall be forwarded by the Director General of Income-tax (International Taxation) to the competent authority in India.

(6) If the applicant makes a request for bilateral or multilateral agreement in its application, the competent authority in India shall in addition to the procedure provided in this rule invoke the procedure provided in rule 44GA.

(7) The Director General of Income-tax (International Taxation) (for unilateral agreement) or the competent authority in India (for bilateral or multilateral agreement) and the applicant shall prepare a proposed mutually agreed draft agreement enumerating the result of the process referred to in sub-rule (1) including the effect of the arrangement referred to in sub-rule (5) of rule 44GA which has been accepted by the applicant in accordance with sub-rule (8) of the said rule.

(8) The agreement shall be entered into by the Board with the applicant after its approval by the Central Government.

(9) Once an agreement has been entered into the Director General of Income-tax (International Taxation) or the competent authority in India, as the case may be, shall cause a copy of the agreement to be sent to the Commissioner of Income-tax having jurisdiction over the assessee.

Terms of the agreement.

10M. (1) An agreement may among other things, include—

(i) the international transactions covered by the agreement;

(ii) the agreed transfer pricing methodology, if any;

(iii) determination of arm’s length price, if any;

(iv) definition of any relevant term to be used in item (ii) or (iii);

(v) critical assumptions;

(vi) the conditions if any other than provided in the Act or these rules.

(2) The agreement shall not be binding on the Board or the assessee if there is a change in any of critical assumptions or failure to meet conditions subject to which the agreement has been entered into.

(3) The binding effect of agreement shall cease only if any party has given due notice of the concerned other party or parties.

(4) In case there is a change in any of the critical assumptions or failure to meet the conditions subject to which the agreement has been entered into, the agreement can be revised or cancelled, as the case may be.

(5) The assessee which has entered into an agreement shall give a notice in writing of such change in any of the critical assumptions or failure to meet conditions to the Director General of Income-tax (International Taxation) as soon as it is practicable to do so.

(6) The Board shall give a notice in writing of such change in critical assumptions or failure to meet conditions to the assessee, as soon as it comes to the knowledge of the Board.

(7) The revision or the cancellation of the agreement shall be in accordance with rules 10Q and 10R respectively.

Amendments to Application.

10N. (1) An applicant may request in writing for an amendment to an application at any stage, before the finalisation of the terms of the agreement.

(2) The Director General of Income-tax (International Taxation) (for unilateral agreement) or the competent authority in India (for bilateral or multilateral agreement) may, allow the amendment to the application, if such an amendment does not have effect of altering the nature of the application as originally filed.

(3) The amendment shall be given effect only if it is accompanied by the additional fee, if any, necessitated by such amendment in accordance with fee as provided in rule 10-I.

Furnishing of Annual Compliance Report.

10-O. (1) The assessee shall furnish an annual compliance report to Director General of Income-tax (International Taxation) for each year covered in the agreement.

(2) The annual compliance report shall be in Form 3CEF.

(3) The annual compliance report shall be furnished in quadruplicate, for each of the years covered in the agreement, within thirty days of the due date of filing the income-tax return for that year, or within ninety days of entering into an agreement, whichever is later.

(4) The Director General of Income-tax (International Taxation) shall send one copy of annual compliance report to the competent authority in India, one copy to the Commissioner of Income-tax who has the jurisdiction over the income-tax assessment of the assessee and one copy to the Transfer Pricing Officer having the jurisdiction over the assessee.

Compliance Audit of the agreement.

10P. (1) The Transfer Pricing Officer having the jurisdiction over the assessee shall carry out the compliance audit of the agreement for each of the year covered in the agreement.

(2) For the purposes of sub-rule (1), the Transfer Pricing Officer may require—

(i) the assessee to substantiate compliance with the terms of the agreement, including satisfaction of the critical assumptions, correctness of the supporting data or information and consistency of the application of the transfer pricing method;

(ii) the assessee to submit any information, or document, to establish that the terms of the agreement has been complied with.

(3) The Transfer Pricing Officer shall submit the compliance audit report, for each year covered in the agreement, to the Director General of Income-tax (International Taxation) in case of unilateral agreement and to the competent authority in India, in case of bilateral or multilateral agreement, mentioning therein his findings as regards compliance by the assessee with terms of the agreement.

(4) The Director General of Income-tax (International Taxation) shall forward the report to the Board in a case where there is finding of failure on part of assessee to comply with terms of agreement and cancellation of the agreement is required.

(5) The compliance audit report shall be furnished by the Transfer Pricing Officer within six months from the end of the month in which the Annual Compliance Report referred to in rule 10-O is received by the Transfer Pricing Officer.

(6) The regular audit of the covered transactions shall not be undertaken by the Transfer Pricing Officer if an agreement has been entered into under rule 10L except where the agreement has been cancelled under rule 10R.

Revision of an agreement.

10Q. (1) An agreement, subsequent to it having been entered into, may be revised by the Board, if,—

(a) there is a change in critical assumptions or failure to meet a condition subject to which the agreement has been entered into;

(b) there is a change in law that modifies any matter covered by the agreement but is not of the nature which renders the agreement to be non-binding ; or

(c) there is a request from competent authority in the other country requesting revision of agreement, in case of bilateral or multilateral agreement.

(2) An agreement may be revised by the Board either suo motu or on request of the assessee or the competent authority in India or the Director General of Income-tax (International Taxation).

(3) Except when the agreement is proposed to be revised on the request of the assessee, the agreement shall not be revised unless an opportunity of being heard has been provided to the assessee and the assessee is in agreement with the proposed revision.

(4) In case the assessee is not in agreement with the proposed revision the agreement may be cancelled in accordance with rule 10R.

(5) In case the Board is not in agreement with the request of the assessee for revision of the agreement, the Board shall reject the request in writing giving reason for such rejection.

(6) For the purpose of arriving at the agreement for the proposed revision, the procedure provided in rule 10L may be followed so far as they apply.

(7) The revised agreement shall include the date till which the original agreement is to apply and the date from which the revised agreement is to apply.

Cancellation of an agreement.

10R. (1) An agreement shall be cancelled by the Board for any of the following reasons:

(i) the compliance audit referred to in rule 10P has resulted in the finding of failure on the part of the assessee to comply with the terms of the agreement;

(ii) the assessee has failed to file the annual compliance report in time;

(iii) the annual compliance report furnished by the assessee contains material errors; or

(iv) the agreement is to be cancelled under sub-rule (4) of rule 10Q.

(2) The Board shall give an opportunity of being heard to the assessee, before proceeding to cancel an application.

(3) The competent authority in India shall communicate with the competent authority in the other country or countries and provide reason for the proposed cancellation of the agreement in case of bilateral or multilateral agreement.

(4) The order of cancellation of the agreement shall be in writing and shall provide reasons for cancellation and for non-acceptance of assessee’s submission, if any.

(5) The order of cancellation shall also specify the effective date of cancellation of the agreement, where applicable.

(6) The order under the Act, declaring the agreement as void ab initio, on account of fraud or misrepresentation of facts, shall be in writing and shall provide reason for such declaration and for non-acceptance of assessee’s submission, if any.

(7) The order of cancellation shall be intimated to the Assessing Officer and the Transfer Pricing Officer, having jurisdiction over the assessee.

Renewing an agreement.

10S. Request for renewal of an agreement may be made as a new application for agreement, using the same procedure as outlined in these rules except pre-filing consultation as referred to in rule 10H.

10T. (1) Mere filing of an application for an agreement under these rules shall not prevent the operation of Chapter X of the Act for determination of arms’ length price under that Chapter till the agreement is entered into.

(2) The negotiation between the competent authority in India and the competent authority in the other country or countries, in case of bilateral or multilateral agreement, shall be carried out in accordance with the provisions of the tax treaty between India and the other country or countries.]

 [Safe Harbour Rules

10TAFor the purposes of this rule and rule 10TB to rule 10TG,—

(a) “contract research and development services wholly or partly relating to software development” means the following, namely:—

(i)  research and development producing new theorems and algorithms in the field of theoretical computer science;

(ii)  development of information technology at the level of operating systems, programming languages, data management, communications software and software development tools;

(iii)  development of Internet technology;

(iv)  research into methods of designing, developing, deploying or maintaining software;

(v)  software development that produces advances in generic approaches for capturing, transmitting, storing, retrieving, manipulating or displaying information;

(vi)  experimental development aimed at filling technology knowledge gaps as necessary to develop a software programme or system;

(vii) research and development on software tools or technologies in specialised areas of computing (image processing, geographic data presentation, character recognition, artificial intelligence and such other areas);or

(viii) upgradation of existing products where source code has been made available by the principal;

(b)  “core auto components” means,—

(i)  engine and engine parts, including piston and piston rings, engine valves and parts cooling systems and parts and power train components;

(ii)  transmission and steering parts, including gears, wheels, steering systems, axles and clutches;

(iii)  suspension and braking parts, including brake and brake assemblies, brake linings, shock absorbers and leaf springs;

(c) “corporate guarantee” means explicit corporate guarantee extended by a company to its wholly owned subsidiary being a non-resident in respect of any short-term or long-term borrowing.

Explanation—For the purposes of this clause, explicit corporate guarantee does not include letter of comfort, implicit corporate guarantee, performance guarantee or any other guarantee of similar nature;

(d) “generic pharmaceutical drug” means a drug that is comparable to a drug already approved by the regulatory authority in dosage form, strength, route of administration, quality and performance characteristics, and intended use;

(e) “information technology enabled services” means the following business process outsourcing services provided mainly with the assistance or use of information technology, namely:—

(i)  back office operations;

(ii)  call centres or contact centre services;

(iii) data processing and data mining;

(iv) insurance claim processing;

(v)  legal databases;

(vi) creation and maintenance of medical transcription excluding medical advice;

(vii) translation services;

(viii) payroll;

(ix)  remote maintenance;

 (x)  revenue accounting;

(xi)  support centres;

(xii) website services;

(xiii) data search integration and analysis;

(xiv) remote education excluding education content development; or

(xv) clinical database management services excluding clinical trials,

but does not include any research and development services whether or not in the nature of contract research and development services;

(f)  “intra-group loan” means loan advanced to wholly owned subsidiary being a non-resident, where the loan—

(i)  is sourced in Indian rupees;

(ii)  is not advanced by an enterprise, being a financial company including a bank or a financial institution or an enterprise engaged in lending or borrowing in the normal course of business; and

(iii)  does not include credit line or any other loan facility which has no fixed term for repayment;

(g) “knowledge process outsourcing services” means the following business process outsourcing services provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skills, namely:—

(i)  geographic information system;

(ii)  human resources services;

(iii) engineering and design services;

(iv) animation or content development and management;

(v)  business analytics;

(vi) financial analytics; or

(vii) market research,

but does not include any research and development services whether or not in the nature of contract research and development services;

(h) “non-core auto components” mean auto components other than core auto components;

(i)  “no tax or low tax country or territory” means a country or territory in which the maximum rate of income-tax is less than fifteen per cent;

(j)  “operating expense” means the costs incurred in the previous year by the assessee in relation to the international transaction during the course of its normal operations including depreciation and amortisation expenses relating to the assets used by the assessee, but not including the following, namely:—

(i)  interest expense;

(ii)  provision for unascertained liabilities;

(iii) pre-operating expenses;

(iv) loss arising on account of foreign currency fluctuations;

(v)  extraordinary expenses;

(vi) loss on transfer of assets or investments;

(vii) expense on account of income-tax; and

(viii) other expenses not relating to normal operations of the assessee;

(k)  “operating revenue” means the revenue earned by the assessee in the previous year in relation to the international transaction during the course of its normal operations but not including the following, namely:—

(i)  interest income;

(ii)  income arising on account of foreign currency fluctuations;

(iii) income on transfer of assets or investments;

(iv) refunds relating to income-tax;

(v)  provisions written back;

(vi) extraordinary incomes; and

(vii) other incomes not relating to normal operations of the assessee.

(l)  “operating profit margin” in relation to operating expense means the ratio of operating profit, being the operating revenue in excess of operating expense, to the operating expense expressed in terms of percentage;

(m) “software development services” means,—

(i)  business application software and information system development using known methods and existing software tools;

(ii)  support for existing systems;

(iii) converting or translating computer languages;

(iv) adding user functionality to application programmes;

(v)  debugging of systems;

(vi) adaptation of existing software; or

(vii) preparation of user documentation,

but does not include any research and development services whether or not in the nature of contract research and development services.]

 [Eligible assessee.

10TB(1) Subject to the provisions of sub-rules (2) and (3), the ‘eligible assessee’ means a person who has exercised a valid option for application of safe harbour rules in accordance with rule 10TE, and—

(i)  is engaged in providing software development services or information technology enabled services or knowledge process outsourcing services, with insignificant risk, to a non-resident associated enterprise (hereinafter referred as foreign principal);

(ii)  has made any intra-group loan;

(iii)  has provided a corporate guarantee;

(iv) is engaged in providing contract research and development services wholly or partly relating to software development, with insignificant risk, to a foreign principal;

(v)  is engaged in providing contract research and development services wholly or partly relating to generic pharmaceutical drugs, with insignificant risk, to a foreign principal; or

(vi) is engaged in the manufacture and export of core or non-core auto components and where ninety per cent or more of total turnover during the relevant previous year is in the nature of original equipment manufacturer sales.

(2) For the purposes of identifying an eligible assessee, with insignificant risk, referred to in item (i) of sub-rule (1), the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall have regard to the following factors, namely:—

(a) the foreign principal performs most of the economically significant functions involved, including the critical functions such as conceptualisation and design of the product and providing the strategic direction and framework, either through its own employees or through its other associated enterprises, while the eligible assessee carries out the work assigned to it by the foreign principal;

(b)  the capital and funds and other economically significant assets including the intangibles required, are provided by the foreign principal or its other associated enterprises, and the eligible assessee is only provided a remuneration for the work carried out by it;

(c)  the eligible assessee works under the direct supervision of the foreign principal or its associated enterprise which not only has the capability to control or supervise but also actually controls or supervises the activities carried out through its strategic decisions to perform core functions as well as by monitoring activities on a regular basis;

(d)  the eligible assessee does not assume or has no economically significant realised risks, and if a contract shows that the foreign principal is obligated to control the risk but the conduct shows that the eligible assessee is doing so, the contractual terms shall not be the final determinant;

(e)  the eligible assessee has no ownership right, legal or economic, on any intangible generated or on the outcome of any intangible generated or arising during the course of rendering of services, which vests with the foreign principal as evident from the contract and the conduct of the parties.

(3) For the purposes of identifying an eligible assessee, with insignificant risk, referred to in items (iv) and (v) of sub-rule (1), the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall have regard to the following factors, namely:—

(a)  the foreign principal performs most of the economically significant functions involved in research or product development cycle, including the critical functions such as conceptualisation and design of the product and providing the strategic direction and framework, either through its own employees or through its other associated enterprises while the eligible assessee carries out the work assigned to it by the foreign principal;

(b) the foreign principal or its other associated enterprises provides the funds or capital and other economically significant assets including intangibles required for research or product development and also provides a remuneration to the eligible assessee for the work carried out by it;

(c) the eligible assessee works under the direct supervision of the foreign principal or its other associated enterprise which has not only the capability to control or supervise but also actually controls or supervises research or product development, through its strategic decisions to perform core functions as well as by monitoring activities on a regular basis;

(d)  the eligible assessee does not assume or has no economically significant realised risks, and if a contract shows that the foreign principal is obligated to control the risk but the conduct shows that the eligible assessee is doing so, the contractual terms shall not be the final determinant;

(e)  the eligible assessee has no ownership right, legal or economic, on the outcome of the research which vests with the foreign principal and is evident from the contract as well as the conduct of the parties.]

Eligible international transaction.

10TC. ‘Eligible international transaction’ means an international transaction between the eligible assessee and its associated enterprise, either or both of whom are non-resident, and which comprises of:

 (i)  provision of software development services;

(ii)  provision of information technology enabled services;

(iii) provision of knowledge process outsourcing services;

(iv) advance of intra-group loan;

(v)  provision of corporate guarantee, where the amount guaranteed,—

(a)   does not exceed one hundred crore rupees; or

(b)  exceeds one hundred crore rupees, and the credit rating of the associated enterprise, done by an agency registered with the Securities and Exchange Board of India, is of the adequate to highest safety;

(vi)  provision of contract research and development services wholly or partly relating to software development;

(vii)  provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs;

(viii)  manufacture and export of core auto components; or

 (ix)  manufacture and export of non-core auto components,

by the eligible assessee.]

 [Safe Harbour.

10TD(1) Where an eligible assessee has entered into an eligible international transaction and the option exercised by the said assessee is not held to be invalid under rule 10TE, the transfer price declared by the assessee in respect of such transaction shall be accepted by the income-tax authorities, if it is in accordance with the circumstances as specified in sub-rule (2).

(2) The circumstances referred to in sub-rule (1) in respect of the eligible international transaction specified in column (2) of the Table below shall be as specified in the corresponding entry in column (3) of the said Table:—

Sl. No. Eligible International Transaction Circumstances
(1) (2) (3)
Provision of software development services referred to in item (i) of rule 10TC. The operating profit margin declared by the eligible assessee from the eligible international transaction in relation to operating expense incurred is –

(3) The provisions of subrules (1) and (2) shall apply for the assessment year 2013-14 and four assessment years immediately following that assessment year.

(4) No comparability adjustment and allowance under the second proviso to sub-section (2) of section 92C shall be made to the transfer price declared by the eligible assessee and accepted under sub-rules (1) and (2) above.

(5) The provisions of sections 92D and 92E in respect of an international transaction shall apply irrespective of the fact that the assessee exercises his option for safe harbour in respect of such transaction.]

 [Procedure.

10TE(1) For the purposes of exercise of the option for safe harbour, the assessee shall furnish a Form 3CEFA, complete in all respects, to the Assessing Officer on or before the due date specified in Explanation 2 below sub-section (1) of section 139 for furnishing the return of income for—

(i)  the relevant assessment year, in case the option is exercised only for that assessment year; or

(ii)  the first of the assessment years, in case the option is exercised for more than one assessment year:

Provided that the return of income for the relevant assessment year or the first of the relevant assessment years, as the case may be, is furnished by the assessee on or before the date of furnishing of Form 3CEFA.

(2) The option for safe harbour validly exercised shall continue to remain in force for the period specified in Form 3CEFA or a period of five years whichever is less:

Provided that the assessee shall, in respect of the assessment year or years following the initial assessment year, furnish a statement to the Assessing Officer before furnishing return of income of that year, providing details of eligible transactions, their quantum and the profit margins or the rate of interest or commission shown:

Provided further that an option for safe harbour shall not remain in force in respect of any assessment year following the initial assessment year, if—

(i)  the option is held to be invalid for the relevant assessment year by the Transfer Pricing Officer under sub-rule (11) or by the Commissioner under sub-rule (8) in respect of an objection filed by the assessee against the order of the Transfer Pricing Officer under sub-rule (11), as the case may be; or

(ii)  the eligible assessee opts out of the safe harbour, for the relevant assessment year, by furnishing a declaration to that effect, to the Assessing Officer.

(3) On receipt of Form 3CEFA, the Assessing Officer shall verify whether—

(i)  the assessee exercising the option is an eligible assessee; and

(ii)  the transaction in respect of which the option is exercised is an eligible international transaction,

before the option for safe harbour by the assessee is treated to be validly exercised.

(4) Where the Assessing officer doubts the valid exercise of the option for the safe harbour by an assessee, he shall make a reference to the Transfer Pricing Officer for determination of the eligibility of the assessee or the international transaction or both for the purposes of the safe harbour.

(5) For the purposes of sub-rule (4) and sub-rule (10), the Transfer Pricing Officer may require the assessee, by notice in writing, to furnish such information or documents or other evidence as he may consider necessary, and the assessee shall furnish the same within the time specified in such notice.

(6) Where—

(a)  the assessee does not furnish the information or documents or other evidence required by the Transfer Pricing Officer; or

(b)  the Transfer Pricing Officer finds that the assessee is not an eligible assessee; or

(c)  the Transfer Pricing Officer finds that the international transaction in respect of which the option referred to in sub-rule (1) has been exercised is not an eligible international transaction,

the Transfer Pricing Officer shall, by order in writing, declare the option exercised by the assessee under sub-rule (1) to be invalid and cause a copy of the said order to be served on the assessee and the Assessing Officer:

Provided that no order declaring the option exercised by the assessee to be invalid shall be passed without giving an opportunity of being heard to the assessee.

(7) If the assessee objects to the order of the Transfer Pricing Officer under sub-rule (6) or sub-rule (11) declaring the option to be invalid, he may file his objections with the Commissioner, to whom the Transfer Pricing Officer is subordinate, within fifteen days of receipt of the order of the Transfer Pricing Officer.

(8) On receipt of the objection referred to in sub-rule (7), the Commissioner shall after providing an opportunity of being heard to the assessee pass appropriate orders in respect of the validity or otherwise of the option exercised by the assessee and cause a copy of the said order to be served on the assessee and the Assessing Officer.

(9) In a case where option exercised by the assessee has been held to be valid, the Assessing officer shall proceed to verify whether the transfer price declared by the assessee in respect of the relevant eligible international transactions is in accordance with the circumstances specified in sub-rule (2) of rule 10 TD and, if it is not in accordance with the said circumstances, the Assessing Officer shall adopt the operating profit margin or rate of interest or commission specified in sub-rule (2) of rule 10TD.

(10) Where the facts and circumstances on the basis of which the option exercised by the assessee was held to be valid have changed and the Assessing Officer has reason to doubt the eligibility of an assessee or the international transaction for any assessment year other than the initial Assessment Year falling within the period for which the option was exercised by the assessee, he shall make a reference to the Transfer Pricing Officer for determination of eligibility of the assessee or the international transaction or both for the purpose of safe harbour.

Explanation —For purposes of this sub-rule the facts and circumstances include:—

(a)  functional profile of the assessee in respect of the international transaction;

(b)  the risks being undertaken by the assessee;

(c)  the substantive contractual conditions governing the role of the assessee in respect of the international transaction;

(d)  the conduct of the assessee as referred to in sub-rule (2) or sub-rule (3) of rule 10TB; or

(e)  the substantive nature of the international transaction.

(11) The Transfer Pricing Officer on receipt of a reference under sub-rule (10) shall, by an order in writing, determine the validity or otherwise of the option exercised by the assessee for the relevant year after providing an opportunity of being heard to the assessee and cause a copy of the said order to be served on the assessee and the Assessing Officer.

(12) Nothing contained in this rule shall affect the power of the Assessing Officer to make a reference under section 92CA in respect of international transaction other than the eligible international transaction.

(13) Where no option for safe harbour has been exercised under sub-rule (1) by an eligible assessee in respect of an eligible international transaction entered into by the assessee or the option exercised by the assessee is held to be invalid, the arm’s length price in relation to such international transaction shall be determined in accordance with the provisions of sections 92C and 92CA without having regard to the profit margin or the rate of interest or commission as specified in sub-rule (2) of rule 10TD.

(14) For the purposes of this rule,—

(i)  no reference under sub-rule(4) shall be made by an Assessing Officer after expiry of a period of two months from the end of the month in which Form 3CEFA is received by him;

(ii)  no order under sub-rule (6) or sub-rule (11) shall be passed by the Transfer Pricing Officer after expiry of a period of two months from the end of the month in which the reference from the Assessing officer under sub-rule(4) or sub-rule (10), as the case may be, is received by him;

(iii) the order under sub-rule (8) shall be passed by the Commissioner within a period of two months from the end of the month in which the objection filed by the assessee under sub-rule (7) is received by him.

(15) If the Assessing Officer or the Transfer Pricing Officer or the Commissioner, as the case may be, does not make a reference or pass an order, as the case may be, within the time specified in sub-rule (14), then the option for safe harbour exercised by the assessee shall be treated as valid.]

 [Safe harbour rules not to apply in certain cases.

10TFNothing contained in rules 10TA, 10TB, 10TC, 10TD or rule 10TE shall apply in respect of eligible international transactions entered into with an associated enterprise located in any country or territory notified under section 94A or in a no tax or low tax country or territory.]

 [Mutual Agreement Procedure not to apply.

10TGWhere transfer price in relation to an eligible international transaction declared by an eligible assessee is accepted by the income-tax authorities under section 92CB, the assessee shall not be entitled to invoke mutual agreement procedure under an agreement for avoidance of double taxation entered into with a country or specified territory outside India as referred to in section 90 or 90A.]

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