Part 1 - Direct Taxes

Deductions and Rebates 1.229 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Assessee Qualifying Payments/ Income Conditions/Incidents Qualifying Amt. Quantum 5. Donations made by companies to Swachh Bharat Kosh and Clean Ganga Fund in pursuance of Corporate Social Responsibility will not qualify for deduction under this section. 80GG Any Assessee [other than having any income falling under section. 10(13A); i.e., House Rent Allowance]. E x p e n d i t u r e incurred towards payment of rent in respect of furnished or unfurnished accommodation occupied for his own residence. 1. This section does not apply where residential accommodation is owned by assessee, his spouse, minor child or by HUF at a place where assessee ordinarily resides or performs the duties of his office or employment or carries on his business or profession. 2. This section does not apply where the assessee owns residential accommodation at any other place, annual value of which has been computed under section 23(2)(a) or 23(4)(a). 3. Assessee to submit a declaration in Form No. 10BA with the Return of Income. 4. Total income means Gross Total Income as reduced by (a) Long Term Capital Gains; (b) Short Term Capital Gain taxable u/s 111A @ 15%; (c) income referred to in Section 115A; and (d) Amount deductible under Section 80C to 80U (except 80GG). Expenditure in excess of 10% of his total income incurred for the purpose mentioned in column 3. Least of – 1. ₹ 2,000/- per month w.e.f. AY 2017-18 ( ₹ 5,000 per month for AY prior 2017- 18); or 2. 25% of the total income whichever is less; or 3. Excess of actual rent paid over 10% of total income. 80GGA Any Assessee other than an assessee whose Gross Total Income includes income chargeable under the head ‘Profits and Gains of Business or Profession’. Payments made for scientific research or research in social science or statistical research or for carrying out any program of rural development or implementing 1. Donee should be approved under section 35 or 35CCA or 35AC. The deduction to which the assessee is entitled in respect of research association, university, college or other institution shall not be denied merely A g g r e g a t e of amounts paid for the purposes and to the persons mentioned in column 3. 100% of the Q u a l i f y i n g A m o u n t mentioned in column 5.

Direct Taxes 1.230 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Assessee Qualifying Payments/ Income Conditions/Incidents Qualifying Amt. Quantum program of rural development or for eligible project / scheme. Payment should be made to scientific research a s s o c i a t i o n , university, college or other institution or to Rural D e v e l o p m e n t Fund or to National Urban Poverty Eradication Fund or to public sector company, or to local authority or to an association or institution for carrying out eligible scheme or project referred in section 35AC. on the ground that after payment of such sum the approval granted to the association has been withdrawn. w.e.f. 1st April, 2007. 2. Payments in respect of which deduction has been claimed under this section do not qualify for deduction under any other provision of the Act for the same or any other assessment year. 3. Donations exceeding ₹ 2,000/- shall qualify for deduction only if such sum is paid by any mode other than cash. 80GGB Indian Company Any sum contributed, in the previous year, to any political party or an electoral trust. 1. For the meaning of term ‘contribute’, refer to Explanation to section 80GGB. 2. For the meaning of term ‘political party’, refer to Explanation to section 80GGC. 3. Contributions to an electoral trust qualify for deduction w.e.f. A.Y. 2010- 11. 4. W.e.f. AY 2014-15 the contributions made in cash will not qualify for deduction. Amount of Contribution 100% of the q u a l i f y i n g a m o u n t mentioned in column 5. 8 0 G G C (w.e.f. 22- 9-2003) Any Assessee [Except local authority and artificial juridical person wholly or partly funded by the Government] — do — 1. For the meaning of term ‘political party’, refer to Explanation to section 80GGC. 2. Contributions to an electoral trust qualify for deduction w.e.f. A.Y. 2010- 11. 3. W.e.f. AY 2014-15 the contributions made in cash will not qualify for deduction. Amount of Contribution. 100% of the q u a l i f y i n g a m o u n t mentioned in column 5.

Deductions and Rebates 1.231 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Assessee Qualifying Payments/ Income Conditions/Incidents Qualifying Amt. Quantum 80JJA Any Assessee, Profits and gains derived from business of collecting and processing or treating of biodegradable waste for generating power or producing bio-fertilizers, biopesticides or other biological agents or for producing bio-gas or making pellets or briquettes for fuel or organic manure Whole of such profits and gains for 5 c o n s e c u t i v e A.Ys. Beginning with the AY relevant to the PY in which such business commences 80JJAA Any assessee who - (i) is engaged in carrying on a business; and (ii) whose accounts are subjected to audit under section 44AB A d d i t i o n a l e m o l u m e n t s paid for eligible employees 1. The assessee incurs additional employee cost in course of such business; 2. The business is not formed by splitting up or reconstruction of an existing business except in the circumstances and period specified under section 33B; 3. The business has not been acquired by way of transfer from any person or as a result of any business reorganization; 4. In case of an existing business - 1. There should be an increase in the total number of employees employed as compared to the last day of the preceding year; and 2. Emoluments should have been paid through normal banking channels (or through such other electronic mode as may be prescribed) 1. Assessee has furnishes a report from an Accountant along with return of income 30% of a d d i t i o n a l e m p l o y e e cost for 3 AYs including the AY relevant to the FY in which the employment was provided for a minimum period of 2 4 0 d a y s (150days in case of apparel, footwear and leather industry w.e.f. AY 2019- 20)

Direct Taxes 1.232 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Assessee Qualifying Payments/ Income Conditions/Incidents Qualifying Amt. Quantum Note: The terms “Additional employee cost”; “additional employee” and “emoluments” have been defined in an Explanation to sub-section (2) of section 80JJAA. 80M D o m e s t i c Company Dividends received from Domestic Company or Foreign Company or Business Trust. 1. Dividend distributed is allowed in one previous year, cannot be allowed in any other previous year. 2. Dividend to be distributed within one month prior to the date of furnishing the return of income u/s. 139. Amount of D i v i d e n d received Not exceeding amount of d i v i d e n d distributed. 80P C o - o p e r a t i v e Society * Excluding all c o - o p e r a t i v e banks other than a primary a g r i c u l t u r a l credit society or a primary c o - o p e r a t i v e agricultural and rural development bank. 1. Profits arising to a co-operative s o c i e t y engaged in the business of - banking or providing credit facilities to its members; c o t t a g e i n d u s t r y ; marketing of a g r i c u l t u r a l produce grown by its members; purchase of a g r i c u l t u r a l i m p l e m e n t s seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members; p r o c e s s i n g , without the aid of power, of the agricultural produce of its members; c o l l e c t i v e disposal of the labour of its members; fishing or allied activities, purchase of 100% of profits attributable to such activities. 100% of profits and gains of such business. p r o f i t s and gains attributable to such activities subject to a – Maximum ₹ 1,00,000 Maximum ₹ 50,000 100% of such income 100%of such income

Deductions and Rebates 1.233 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Assessee Qualifying Payments/ Income Conditions/Incidents Qualifying Amt. Quantum materials and equipment in connection with fishing or allied activities for the purposes of supplying them to its members. 2. Primary Coo p e r a t i v e S o c i e t y engaged in supplying milk, oil seeds, fruits or vegetables grown by its member to specified bodies. 3. Co-operative S o c i e t y engaged in activities other than those specified in (1) and (2) above (either independent of or in addition to all or any of the activities so specified) - (a) if such c o - o p e r a t i v e society is a C o n s u m e r Co-operative Society; (b) in any other case. 4. Income by way of interest or dividends derived from i n v e s t m e n t s with any other Co-operative Societies.

Direct Taxes 1.234 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Assessee Qualifying Payments/ Income Conditions/Incidents Qualifying Amt. Quantum 5. Income derived from letting godowns and w a r e h o u s e s for storage, processing or facilitating the marketing of commodities. 80PA w.e.f AY 2019- 20 P r o d u c e r Companies / Farm Producers Companies Profits and gains attributable to eligible business of Producer Companies / Farm Producer Companies 1. Turnover less than 100 crores 2. Eligible Business : 1. the marketing of agricultural produce grown by the members; or 2. the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to the members; or 3. the processing of the agricultural produce of the members 1. No corresponding exemptions is provided in respect of MAT u/s 115JB 100% Profits and Gains from AY 2019-20 to AY 2024-25 8 0 Q Q B (w.e.f. A.Y. 2004-05) R e s i d e n t Individual a. Lump sum consideration for assignment or grant of any interest in copyright of any book being a work of literary, artistic or scientific nature. Royalty or c o p y r i g h t fees (whether receivable in lumpsum or otherwise) in respect of such book. 1. Income earned outside India should be brought into India within 6 months of the end of the P.Y or the time extended by RBI. 2. Certificate in Form 10CCD should be furnished. 3. In respect of income earned from source outside India, Certificate in Form No. 10H should be furnished. Lump sum consideration in lieu of all rights. Income from such Royalty or Copyright fees. (In case such royalty or the copyright fee is not a lump sum consideration in lieu of all the rights in the book, income by way of royalty or copyright fee, before allowing e x p e n s e s attributable to such income, shall be restricted to a . Lower of – 1. Q u a l i f y i n g Amount; or 2. ₹ 3,00,000 1. Lower of – 1. Q u a l i f y i n g Amount; or 2. ₹ 3,00,000.

Deductions and Rebates 1.235 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Assessee Qualifying Payments/ Income Conditions/Incidents Qualifying Amt. Quantum 15% of the gross sale value of books sold in the previous year.) 80RRB R e s i d e n t Individual who is a patentee Income by way of Royalty in respect of patents. 1. Patents should have been registered on or after 1st April, 2003 under Patent’s Act, 1970. 2. Income earned outside India should be brought into India within 6 months of the end of the P.Y or the time extended by RBI. 3. Certificate in prescribed form should be furnished. Form 10CCE if in India, Form 10H outside India. 4. Various expressions /terms used have been defined in Explanation to Section 80RRB. 5. Amount shall not exceed the amount of royalty under terms and conditions of a license settled by controller under the Act. Income by way of Royalty. Whole of such income or ₹ 3,00,000 whichever is less. 80U R e s i d e n t Individual Income of a person, with disability as defined. Certificate from Medical Authority in the form and manner prescribed (refer section 80DD). Refer to Explanation to S. 80U for definition of the terms disability, medical authority, person with disability and person with severe disability. Ordinary Disability ₹ 75,000/- prior thereto ₹50,000/- Severe Disability ₹1,25,000/- prior thereto ₹1,00,000/-

Direct Taxes 1.236 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Assessee Qualifying Payments/ Income Conditions/Incidents Qualifying Amt. Quantum 80TTA Individual or HUF (other than assesee covered u/s 80TTB) Interest on deposits (not being time deposits) in a savings account with – a. A banking company to which the B a n k i n g Regulation Act, 1949 applies ( i n c l u d i n g a bank or b a n k i n g i n s t i t u t i o n referred to in Section 51 of that Act); b. A co-operative s o c i e t y engaged in carrying on the business of banking (including a co-operative land mortgage bank or a cooperative land development bank); or c. A Post Office as defined in clause (k) of Section 2 of the Indian Post Office Act, 1898. 1. Where income referred to in col. 3 is derived from any deposit in a savings account held by, or on behalf of, a firm, an AOP or a BOI, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body. 2. “time deposits” means the deposits repayable on expiry of fixed periods. Whole of the amount mentioned in column 3 Lower of – 1. Q u a l i f y i n g amount; OR 2. ₹ 10,000. 8 0 T T B (w.e.f AY 2019-20) Individual being a senior citizen (above the age of 60years) Interest on deposit in (a) a banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in Section 51 of that Act); (b) a co-operative Where income referred to in col. 3 is derived from any deposit in a savings account held by, or on behalf of, a firm, an AOP or a BOI, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body Whole of the amount mentioned in column 3 Lower of – 1. Q u a l i f y i n g amount ; OR 2. ₹ 50,000.

Deductions and Rebates 1.237 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Assessee Qualifying Payments/ Income Conditions/Incidents Qualifying Amt. Quantum society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or (c) a Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 REBATES: 87A R e s i d e n t Individual Total Income does not exceed ₹ 5,50,000 (w.e.f. from A.Y. 2020-21) Amount of Rebate LOWER OF – 1. 100% of the amount of incometax on total income; OR 2. ₹ 12,500 88E All assessees Business income arising from Taxable Securities Transaction. Proof of payment of Securities Transaction Tax (STT) in the prescribed form to be furnished with return. Amount of STT paid. Amount of Rebate LOWER OF – 1. Amount of STT paid; OR 2. T h e income tax calculated at the average rate of tax.

Direct Taxes 1.238 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Eligible undertaking/enterprises Date of Commencement Conditions/Incidents Amount of Deduction and Period 1 2 3 4 5 80-IA 1. Infrastructure enterprise : business of 1. developing, 2. operating and maintaining, or 3. developing, operating and maintaining any -infrastructure facility — i.e., road including toll road, bridge, airport, port, inland waterway, inland port or navigational channel in the sea, rail systems, highway project including housing or other activities being an integral part of the highway project, water treatment/water supply/irrigation/ sanitation/sewerage/solid waste management systems. 1. Telecommunication undertakings : basic or cellular, radio paging, domestic satellite service or network of trunking and electronic data interchange services, broadband network & internet services. 2. Industrial parks including Special Economic Zone : undertaking that 1. develops; 2. develops and operates; or 3. maintains and operates a notified industrial park or a notified SEZ. 4. Power undertakings : – undertakings engaged in 1. Generation; or 2. Generation and distribution of power. – undertakings engaged in transmission or distribution (only profits derived from laying of such network of new lines) – undertakes substantial renovation and modernization (i.e., increase Between 1st April,1995 up to 31st March,2017 (nothing contained in this section will apply to any enterprise which states development or operation and maintenance of i n f r a s t r u c t u r e facility after 1st April,2017) 1-4-1995 to 31-3- 2005 In case of an industrial park 1/4/1997 to 31/3/2011. In case of a SEZ 1.4.1997 to 31.3.2006. 1.4.1993 to 31.3.2017 1/4./999 to 31/3/2017 1.4.2004 to 31/3/2017 Up to 31.3.2011 Up to A.Y. 2009-10 Up to A.Y. 2009-10 Infrastructure facility, starts providing Telecommunication Service or Developing an Industrial Park or Developing a Special Economic Zone or Generates Power or commences Transmission or Distribution of Power or undertakes substantial renovation and modernization of the existing trans-mission or distribution lines, now it will also be available to an undertaking which lays and begins to operate cross country natural gas distribution network w.e.f. from 1-4- 2008; i.e., A.Y. 2008-09. The benefit of section 80-IA shall not be available to an amalgamated or demerged entity after 1-4-2007. 80-IA benefit will not be available to a person who executes a works contract w.e.f. 1-4-2000. In case there is a transfer of goods or services from eligible business to any other business or vice versa and in either case the consideration for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of transfer then for the purposes of the deduction under this section, the profits and gains of eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. “market value” in relation to any goods or services, means – 1. The price that such goods or services would ordinarily fetch in the open market; or 2. The arm’s length price as defined in clause (ii) of S. 92F, where the transfer of such goods or services is a specified 100% for 10 consecutive A.Ys. out of 15 A.Ys. In case of road, highway project water supply project, port, etc. 100% for consecutive A.Ys. out of 20 A.Ys. 100% for first 5 A.Ys., 30% for next 5 years. Any 10 consecutive A.Ys. out of first 15 years. 100% for 10 consecutive A.Ys. out of 15 years. 100% for 10 consecutive A.Ys. out of 15 years.

Deductions and Rebates 1.239 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Eligible undertaking/enterprises Date of Commencement Conditions/Incidents Amount of Deduction and Period in book value of plant & machinery by 50% as compared to book value as on 1-4-2004) of existing transmission or distribution lines as defined in Explanation to sec. 80- 1A(4)(iv)(c) 1. Undertaking owned by an Indian company and set up for reconstruction or revival of a power generating plant: 1. Indian company should be formed before 30-11-2005 and notified by Cent. Govt. before 31-12-2005; 2. Undertaking should begin to generate or transmit or distribute power before 31-3-2007. Note: 1) All the assesses claiming benefit under 80-IA is required (including companies and cooperative societies) to furnish separate Audit Report in Form No. 10CCB u/s 80-IA w.e.f. A.Y. 2003-04. 1. The assessee needs to comply with the conditions stipulated in subsections (3), (4) and (7) of section 80-1A. 2. Explanation below sub-section (13) is substituted retrospectively with effect from 1-4-2000 to clarify that the section shall not apply to business in the nature of works contract awarded by any person including the Central & State Governments executed by the undertaking or enterprises. 1. Any undertaking carrying on the business of laying and operating a cross country natural gas distribution network, including pipelines and storage facilities being an integral past of such net work which has started or starts operation on or after 1-4-2007. domestic transaction referred to in S. 92BA. Where it appears to the AO that, owing to the close connection between the assesse carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than ordinary profits which might be expected to arise in such eligible business, the AO shall, in computing the profits and gains of such eligible business for the purposes of deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. Provided that in case the aforesaid arrangement involves a specified domestic transaction referred to in S. 92BA, the amount of profits from such transaction shall be determined having regard to arm’s length price as defined in S. 92F(ii).

Direct Taxes 1.240 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Eligible undertaking/enterprises Date of Commencement Conditions/Incidents Amount of Deduction and Period 80-IAC Eligible start-up engaged in eligible business: Company engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation. Conditions: 1. The company is incorporated on or after 1st April, but prior to 1st April,2022 2. The total turnover of its business does not exceed ₹ 100 crores in any financial year from 1st April, 2016 to 31st March,2022 3. It holds a certificate of eligible business from Inter-Ministerial Board of Certification Note : The assessee company needs to comply with the conditions stipulated in sub-sections (5) and (7) to (11) of section 80-IA. The assessee should not be formed by splitting up or reconstruction of a business already in existence or by transfer of machinery or plant previously used for any purpose subject to certain exceptions. 100% for any 3 consecutive A.Ys. out of 7 year starting from the year in which the eligible start-up is incorporated. 80-IB 1. Industrial Undertakings: 1. Other than clause (b), (c) & (d) 1. SSI U/Cold Storage other than (c) & (d) below 2. 1. Backward State (Eighth Schedule) (In the case of State of Jammu & Kashmir, the date of commencement has been extended to 31-3-2007) 2. Notified Industries in N.E. Region 1. Backward District — Category ‘A’ — Category ‘B’ 2 Hotels (approved by prescribed authority) : — Hilly Area/Rural Area/Place of Pilgrimage/other notified areas — Other places 3 Undertaking developing & building housing projects Conditions : 1. Minimum plot area : one acre; 2. Where the buyer of the residential unit is not an individual, not more than one unit in the project shall be allotted to such buyer and 1.4.1991 to 31.3.1995 1-4-1995 to 31-3-2002 1.4.1993 to 31.3.2004 1.4.1993 to 31.3.2004 1.10.1994 to 31.3.2004 1.10.1994 to 31.3.2004 1.4.1990 to 31.3.1994 or 1.4.1997 to 31.3.2001 1.4.1991 to 31.3.1995 or 1.4.1997 to 31.3.2001 On or after 1.4.2001 25% (30% for Cos.) 100% 25% (30% for Cos.) 100% 100% 25% (30% for Cos.) 100% 25% (30% for Cos. 50% 30% 100% 100% 25% (30% for Cos.) 50% 50% First 10 A.Ys. First 5 A.Ys. Next 5 A.Ys. First 10 A.Ys. First 5 A.Ys. Next 5 A.Ys. First 3 A.Ys. Next 5 A.Ys. First 10 A.Ys. First 10 A.Ys. Project wise First 5. A.Ys. Next 5 A.Ys. First 5 A.Ys. First 5 A.Ys. First 5 A.Ys. Next 5 A.Ys. First 5 A.Ys. [12 A.Ys. if assessee is a co-op. society] [12 A.Ys. if assessee is a co-op. society] [12 A.Ys. if assessee is a co-op. society] [12 A.Ys. if assessee is a co-op. society] 1. The assessee has to comply with the conditions stipulated in sub-section (10). 2. Also refer to the definitions of relevant terms given in sub-section (10).

Deductions and Rebates 1.241 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Eligible undertaking/enterprises Date of Commencement Conditions/Incidents Amount of Deduction and Period where the buyer is an individual, no unit in the project shall be allotted to the spouse, minor children or (Applicable from A.Y. 2010-11; 3. Residential unit has maximum built up area of 1,000 sq. ft. in Delhi/ Mumbai; 1,500 sq. ft. in other areas. Built up area of shops/other commercial establishments not to exceed 3% (w.e.f. AY 2010-11) (prior thereto it was 5%) of aggregate ; built up area or 5,000 sq. ft. (w.e.f. A.Y. 2010-11 prior thereto it was 2,000 sq. ft.), whichever is higher (w.e.f. A.Y. 2010-11 prior thereto it was whichever is less). 4. Construction should be completed –Where project is approved before 1.4.2004 : on or before 31.3.2008 Where project is approved between 1.4.2004 and 31.3.2005 : within 4 years from the end of the F.Y. in which the project is approved by the local authority. Where housing project is approved on or after 1.4.2005 : within 5 years from the end of the F.Y. in which the project is approved by the local authority. An Explanation has been inserted with retrospective effect from 1st April 2001 to clarify that deduction shall not be available to person executing the project as a works contract. 1. Undertaking engaged in integrated business of handling, storage and transportation of food grains or the business of processing, preservation of packaging of fruits and vegetables, 2. Business of building, owning and operating a multiplex theatre other than in Mumbai, Delhi, Kolkata or Chennai. 01.04.2002 to 31.03.2005 01.04.2002 to 31.03.2005 01.04.1999 to 31.03.2004 Hospital constructed between 1.10.2004 and 31.3.2008 Starts refining before 1.4.2009. Constructed & started between 1.4.2008 and 31.3.2013. 100% 25% (30% for Cos.) 100% 100% Effective from A.Y. 2008-09. 100% Effective from A.Y. 2009-10. 7 consecutive A.Y.s including the initial A.Y. 5 year tax holiday. [12 A.Ys. in case of co-op. society]. The assessee has to comply with conditions stipulated in sub-section (11B). To new Hospitals constructed and has started/starts functioning between 1-4-2008 and 31-3-2013, especially in tier-2 and tier-3. In case of industrial undertaking in State of J & K, the provision of the 1st provision shall have effect as if for the figures, letters & words 31/3/07 has been substituted by the figures, letters & words 31/3/2012. 3. Business of building owning and operating a convention centre. 4. Undertaking engaged in setting up and operating a cold storage facility for agricultural produce,

Direct Taxes 1.242 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Eligible undertaking/enterprises Date of Commencement Conditions/Incidents Amount of Deduction and Period 5. Undertaking engaged in operating and maintaining a hospital with at least 100 beds in a rural area. Note 1 : Deduction u/s 80-IB shall not be allowed w.e.f. A.Y. 2004-05 to those undertaking covered u/s. 80-IC, Note 2 : No deduction u/s. 80-IB (4) will be available to an industrial undertaking set up in the State of Jammu & Kashmir, which is engaged in the manufacture or production of any item listed in Part C of the Thirteenth Schedule (“the Negative List”), 1. An Industrial undertaking engaged in refining of oil. 2. Hospitals located in any place outside the urban agglomerations [80-IB(11C)]. Industrial undertaking other than infrastructure & development undertaking. 80-IBA Any assessee who is engaged in business of developing and building housing projects subject to fulfillment of all the following conditions: 1. The project is completed within a period of 5 (Earlier it was 3 years but with effect from A.Y. 2018-19 it is 5 years) years from date of approval by the competent authority; 2. Built up area of shops and other commercial establishments included in the housing project does not exceed 3% of the aggregate built up area; 3. The project is on a plot of land which measures: 1. Not less than 1000 square mts. where the project is located in cities of Chennai, Delhi, Kolkata or Mumbai or within 25 kms from Municipal limits of these cities; or 2. Not less than 2000 square mts. where the project is located within jurisdiction of any other municipality or cantonment board; Project is Approved by competent authority after 1st June,2016 but on or before 31st March,2021 1. Not applicable to an assessee who executes housing project as a works contract awarded by any person. 2. Where a deduction has been claimed and allowed under this section and subsequently the project is not completed in the stipulated time, then the deduction so allowed shall be deemed to be the income of the year in which the stipulated time expires. 3. Any profits claimed and allowed under this section will not be eligible for deduction under any other provisions of the Act The terms “built-up area”, “competent authority”, “floor area ratio” and “residential unit” are defined in subseciton (6) of this section. Further, the term “stamp duty value” is defined (w. e. f. 2010-21) 100% of the profits derived from such business.

Deductions and Rebates 1.243 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Eligible undertaking/enterprises Date of Commencement Conditions/Incidents Amount of Deduction and Period 1. The residential units comprised in the project do not exceed: 1. 30 square mts. where the project is located in cities of Chennai, Delhi, Kolkata or Mumbai or within 25 kms. from Municipal limits of these cities; or (This restriction of 30 square meters shall not apply to the place located within a distance of 25 kms from the municipal limits of Chennai, Delhi, Kolkata or Mumbai w.e.f. A.Y. 2018-19 2. 60 square mts. where the project is located within jurisdiction of any other municipality or cantonment board; 3. The size of the residential unit shall be measured by taking into account the “carpet area” as defined in Real Estate (Regulation and Development) Ac,t 2016, and not the “Built-up area” 1. Where a residential unit has been allotted to an individual no other unit in the same project can be allotted to - 1. The individual; or 2. Spouse of the individual; or 3. Minor children of such individual; 1. The project uses permissible floor area ratio in respect of plot of land which is not less than: 1. 90% where the project is located in cities of Chennai, Delhi, Kolkata or Mumbai or within 25 kms from Municipal limits of these cities; or 2. 80% where the project is located within jurisdiction of any other municipality or cantonment board 1. Separate books of accounts are maintained in respect of such project. 80-IAB Undertaking or an enterprise which is engaged in development of Special Economic Zones (SEZ). SEZ notified on or after 1st April,2005 under the SEZ Act, 2005. 100% for 10 Consecutive A.Ys. out of 15 years beginning from the year in which a SEZ has been notified.

Direct Taxes 1.244 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Eligible undertaking/enterprises Date of Commencement Conditions/Incidents Amount of Deduction and Period Notes: 1. Where a Developer transfers the operation and maintenance of such SEZ to another Developer, the deduction under sub-section (1) shall be allowed to the latter for the remaining period in the ten consecutive assessment years; 2. Where an undertaking, being a developer, had claimed deduction under section. 80IA(13) it shall be entitled to claim deduction under this section only for the unexpired period of ten consecutive assessment years and thereafter it shall be eligible for deduction from income as provided in sub-section (1) or (2) as the case may be. 3. Provisions of sub-sections (5), (7) to (12) of section 80-IA shall apply to the SEZ. 4. “Developer” and “Special Economic Zone” shall have meanings assigned to them in clauses (g) and (za) of section 2 of SEZ Act, 2005. 80-IC 1. Undertaking or an enterprise which has begun or begins to manufacture or produce or which manufactures or produces any article or thing not being article or thing specified in Thirteenth Schedule and undertakes substantial expansion during the period mentioned in column 3 in Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Park or Software Technology Park, or Industrial Area or Theme Park as notified by board and Central Government in : 23.12.2002 - 1.4.2007 7.1.2003 - 1.4.2012 24.12.1997 - 1.4.2007 23.12.2002 - 1.4.2007 7.1.2003 - 1.4.2012 24.12.1997 - 1.4.2007 100% 100% 25% (30% for Cos.) 100% 100% 100% 25% (30% for Cos.) 100% First 10 A.Ys. First 5 A.Ys. Next 5 A.Ys. First 10 A.Ys. First 10 A.Ys. First 5 A.Ys. Next 5 A.Ys. First 10 A.Ys. 2. 1. State of Sikkim; 2. States of Himachal Pradesh &Uttaranchal; 3. North-Eastern States.

Deductions and Rebates 1.245 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Eligible undertaking/enterprises Date of Commencement Conditions/Incidents Amount of Deduction and Period 1. Undertaking or an enterprise which has begun or begins to manufacture or produce any article or thing specified in the Fourteenth Schedule or commences any operation specified in that Schedule or which manufactures or produces any article or thing specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period mentioned in column 3: 1. State of Sikkim; 2. States of Himachal Pradesh &Uttaranchal; 3. North-Eastern States Note : i. Deduction under sub-section (1) shall be available only if - 1. The eligible business is not formed by splitting up or reconstruction of business already in existence except in respect of an undertaking which is formed as a result of the re-establishment, re-construction or revival of the assessee of the business of any such undertaking referred to in S. 33B in the circumstances and within the period specified in that section. 2. Not formed by transfer to a new business of machinery or plant previously used for any purpose; For this purpose provisions of Explanations 1 & 2 to Section 80IA(3) shall apply as they apply for the purposes of Section 80IA(3)(ii); 3. Report of audit in such form and containing such particulars as may be prescribed is furnished along with the return of income. 1. No deduction under any other section in Chapter VIA or 10A or 10B.in relation to the profits and gains of the undertaking or enterprise. iii) Period of 10 A.Ys. shall include period deduction availed under section 80-IB/10C. iv) Provisions of Section 80IA(5)

Direct Taxes 1.246 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Eligible undertaking/enterprises Date of Commencement Conditions/Incidents Amount of Deduction and Period and Section 80IA(7) to 80IA(12) , so far as may be, apply to the eligible undertaking or enterprise under this section. v) The terms “industrial area”, “industrial estate”, “industrial growth centre”, “industrial park”, “initial assessment year”, “integrated infrastructure development centre”, “north-eastern states”, “software technology park”, “substantial expansion” and “theme park” shall have the meanings assigned to them in Section 80IA(8). 80 ID New hotels & convention centre Profits derived by an undertaking engaged in the business of – 1. Hotel of two-star, three-star or fourstar category located in the specified area; 2. Building, owning and operating a convention centre located in the specified area; 3. Hotel of two-star, three-star or fourstar category located in the specified district having a World Heritage Site. Notes : 1. The terms “convention centre”, “specified area”, “specified district having a world heritage site”, “hotel” and “initial assessment year” shall have the meanings assigned to them in Section 80ID(6). 2. Provisions of Section 80IA(5) and Section 80IA(8) to 80IA(11), so far as may be, apply to the eligible business under this section. F u n c t i o n i n g should commence between 1st April, 2007 and 31st July, 2010 C o n v e n t i o n Centre should be constructed between 1st April,2007 and 31st July, 2010. Constructed and has started or starts functioning between 1st April, 2008 and 31st March, 2013. Deduction under sub-section (1) shall be available only if 1. The eligible business is not formed by splitting up or reconstruction of business already in existence 100% 100% 100% For First 5 years For first 5 years For first 5 years 2. Not formed by transfer to new business of building p r e v i o u s l y used as hotel or convention centre 3. Not formed by transfer to a new business of machinery or plant p r e v i o u s l y used for any purpose 4. Report of audit in such form and containing s u c h particulars as may be prescribed is furnished along with the return of income

Deductions and Rebates 1.247 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section Eligible undertaking/enterprises Date of Commencement Conditions/Incidents Amount of Deduction and Period (2) No deduction shall be allowed under section 10AA & any other section contained in Chapter VIA. 2

Direct Taxes 1.248 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication XXX. Deemed Dividend The sub-clauses (a) to (e) of section 2(22) of the Income-tax Act bring into the ambit of dividend certain distributions/outflows which would otherwise not have been considered as dividend in the ordinary sense. ‘Dividend’ includes following disbursements by the company to the shareholders, to the extent of accumulated profits. Section 2(22)(a): Distribution entailing the release of assets of the company • any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company. • Issuing bonus equity shares to equity shareholders does not result in release of assets to the shareholders thereby does not alter the asset position and hence it is not taxable as dividend. While issuing bonus shares, the accumulated profits simply get converted into share capital of the company. • If a company offers shareholders an option to accept bonus shares or cash and the shareholders accept cash, then such act leads to outflow of assets from the company to shareholders. In such cases, it would be taxable as dividend in the hands of the shareholder. • If accumulated profits are capitalised and redeemable preference shares are issued as bonus to equity shareholders, then on redemption of such bonus preference shares there would be release of assets in favour of the shareholders; such pay off of bonus shares would be taxable as dividend. [Shashibala Navnitlal (54 ITR 478) Guj. & Dalmia Investment (52 ITR 567) SC]. Where assets are distributed as dividend, amount of dividend is taken to be the market values of the property on the date on which the shareholders become entitled to receive dividend [CIT vs. Central India Industries Ltd. 82 ITR 555 (SC)]. Section 2(22)(b): Distribution not involving the release of assets of the company Any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent of accumulated profits, whether capitalised or not. Section 2(22)(c): Distribution on liquidation • any distribution made to the shareholders of a company on its liquidation to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not. • Distribution by a liquidator by itself does not trigger taxability as dividend income, unless the company had accumulated profits before it went into liquidation. • Shareholders are subject to capital gains tax under section 46(1) on assets distributed on liquidation. Capital Gain is calculated after deducting from the consideration price or market value, the deemed dividend under section 2(22)(c). Section 2(22)(d): Distribution on reduction of capital Any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits whether capitalised or not. Distribution to shareholders on account of reduction of share capital attracts tax implications under section 2(22)(d) of the Act and also capital gains taxation under section 45 of the Act. [Kartikeya Sarabhai vs. CIT (228 ITR 163) SC]

Deemed Dividend 1.249 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Section 2(22)(e): Loan or advance to shareholder Following types of payments made by a company are treated as dividend under this clause. • Payment of any sum (whether representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder (and payment to concerns in which such shareholder holds substantial interest); • Any payment on behalf of a shareholder; • Any payment for the individual benefit of a shareholder; Any of the above referred payments would be taxed under this sub-clause if the following three conditions are fulfilled; • The company should not be one in which the ‘Public are substantially interested’ within the meaning of section 2(18). In other words this provision applies to closely held companies; • The advance or loan is made to an equity shareholder who beneficially owns at least 10 per cent of the equity capital or to a concern in which he is a member/partner and is beneficially entitled to not less than 20% of income of the concern; • The company should possess accumulated profits at the time it makes the payment. The payment can be deemed to be dividend only to the extent of such profits. Here ‘concern’ means an HUF, a Firm, AOP, BOI, LLP or Company. If a loan or advance is given to a concern, such amount shall be treated as deemed dividend in hands of shareholder and not the concern. [ACIT vs. Bhaumik Colour Pvt. Ltd. 27 SOT 270 Mum (SB) and CIT vs. Universal Medicare (P) Ltd. 324 ITR 263 (Bom.), CIT vs. Jignesh P. Shah 372 ITR 392 (Bom.)] When a loan is deemed to be dividend, the same amount when repaid/relent cannot once again be taxed as dividend. The accumulated profits should be notionally reduced by amount of loan once deemed to be dividend. [CIT vs. G. Narasimhan 236 ITR 327 (SC)]. Exclusions from deemed dividend: a. Distribution to shareholders in the event of liquidation or on reduction of share capital, to the extent of the accumulated profits of the company is included as dividend. But any such distribution in respect of any share issued for full consideration, where the shareholder is not entitled to participate in the surplus assets in event of liquidation is excluded from the definition of dividend. In other words distribution to preference shareholder on liquidation or reduction of capital shall not be treated as deemed dividend. b. In case where money lending is a substantial part of the business of a company, any advance or loan made to a shareholder or the concern by the company in the ordinary course of business is not taxable as dividend. [CIT vs. Sivasubramaniam (231 ITR 656)] c. Any subsequent dividend paid by the company is not taxable as deemed dividend to the extent to which it is set off by the company against any loan or payment that has been earlier treated as dividend within the meaning of sub-clause (e). However, if the dividend paid is not set off against earlier deemed dividend, then in absence of set off such dividend will be taxable. [Walchand & Co. Pvt. Ltd. vs. CIT 204 ITR 146 (Bom.)] d. Any payment made by a company listed on any RSE for buyback of its own shares in accordance with provisions of section 68 of the Companies Act, 2013 is not to be taxed as dividend. It will be taxable as capital gain/ loss to shareholders as per section 46A of the Income Tax Act. e. Distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is reduction of capital in the demerged

Direct Taxes 1.250 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication company) is to be excluded from the definition of dividend. f. Inter-corporate deposits are not ‘loans and advances’ and are not assessable to tax as deemed dividend. [IFB Agro Industries Ltd. vs. JCIT 63 SOT 207 (Kol.).] Accumulated profits “Accumulated profits” mean commercial profits and not profits as assessed for incometax purposes. From accumulated profits all “disbursements legitimately attributable to it by way of expenses, development, dividends and deemed dividends” must be reduced. SC in CIT vs. Damodaran 121 ITR 572 & CIT vs. Ashokbhai Chimanbhai 56 ITR 42 held that ‘accumulated profits’ cannot include current profits. However, Explanation 2 to section 2(22) provides that the expression “accumulated profits” shall include all profits of the company up to the date of distribution or payment or liquidation. These would include development rebate & investment allowance reserve. [P. K. Badiani vs. CIT 105 ITR 642(SC)]. It will even include income which is exempt from tax. [Tea Estate vs. CIT 103 ITR 785 (SC)]. Building & Machinery Depreciation fund not to be included in accumulated profits. [CIT vs. Jaldu Rama Rao 140 ITR 168 (Andhra Pradesh)]. Depreciation calculated at income tax rates should be deducted in computing accumulated profits even if lower depreciation has been provided for in accounts. [CIT vs. Jamnadas 92 ITR 105 (Bom.)]. Share premium is not a part of accumulated profits. [DCIT vs. Maipo India Ltd. 116 TTJ 791 (Delhi)]. Finance Act, 2018 has inserted Explanation 2A with effect from 1-4-2018 stating that in case of amalgamation, the accumulated profits, whether capitalised or not, or loss, as the case may be of amalgamated company shall be increased by accumulated profits, whether capitalised or not of the amalgamating company on the date of amalgamation. Taxability Due to the operation of section 8 of the Act, dividend income becomes taxable in the year in which it is declared, distributed or paid even if it relates to an earlier year in respect of which it is declared. The right of the shareholders to dividend crystallizes only when the dividend is declared. Dividend Distribution Tax (DDT) is payable by an Indian company on deemed dividend arising u/ss. 2(22)(a) to (d). Deemed dividend under section 2(22)(e) of the Act is to be taxed at the rate of 30 per cent in the hands of company. Deemed dividend u/s 2(22)(a) to (d) is exempt in hands of shareholder under section 10(34) r.w.s. 115BBDA to the extent it does not exceed ₹ 10 lakhs. Applicability of Tax Deduction at Source – As per section 194, provisions of tax deduction at source are applicable to deemed dividend under section 2(22) except section 2(22)(e) and the company is bound to deduct tax if the payment is made other than by an account payee cheque and if the amount is more than ₹ 2,500/-. Position with respect to dividend received on or after 1st April 2020 Provisions of Dividend Distribution Tax (DDT) have been made inapplicable by Finance Act 2020 and consequently, exemption u/s. 10(34) available to shareholders will not be available in respect of any income by way of dividend received on or after 1st April, 2020. 2

Income Computation & Disclosure Standard 1.251 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication XXXI. Income Computation & Disclosure Standard Section (S.) 145 of the Income-tax Act, 1961 (ITA) provides that taxable income of an assessee falling under the heads “Profits and gains of business or profession” or “Income from other sources”, shall be computed in accordance with either cash or mercantile system of accounting which is regularly employed by the assessee. The CG vide notification1 dated 31st March, 2015 had notified 10 ICDS (‘erstwhile ICDS’) for compliance by all assessees following mercantile system of accounting w.e.f. 1st April, 2015. These ICDS supersede following two standards2 notified in 1996: a. Tax Standard I - Disclosure of Accounting Policies b. Tax Standard II - Disclosure of prior period and extraordinary items and changes in accounting policies I. Following are key highlights of notified ICDS • ICDS shall apply for computation of income chargeable to income-tax under the head “Profits and gains of business or profession” or “Income from other sources”. Accordingly, ICDS has no impact on minimum alternate tax computation for corporate assessees which will continue to be based on ‘book profit’ determined in accordance with currently applicable AS. • ICDS is applicable to all taxpayers (corporates/non-corporate or resident/ non-resident) except for individuals/ HUFs not liable to tax audit under section 44AB of ITA. • The preamble of each ICDS clarifies that (a) ICDS is applicable for computation of income and not for the purposes of maintenance of books of account; and (b) In case of conflict between the provisions of ITA and ICDS, the provisions of ITA shall prevail to that extent. • All ICDS (except ICDS VIII relating to Securities) contain transitional provisions which, in general, provide for recognition of outstanding contracts and transactions as on 1 April 2016 in accordance with ICDS after taking into account income/expenditure/loss already recognized in the past periods. Thus, there is no ‘grandfathering’ for outstanding contracts or transactions as on 31st March, 2016 except for ICDS III relating to construction contracts and ICDS IV only with respect to service contracts which applies to contracts or transactions undertaken or commenced after 1st April, 2016. • Non-compliance of ICDS empowers Tax Authority to assess income on ‘best judgment’3 basis. Any additions to income declared in return of income may also have potential penalty implications. • Further, Auditors are also required to provide impact of each of the applicable ICDS along with disclosures in the tax audit report [Form 3CD]. • Unlike AS, ICDS does not provide any explanations or illustrations but merely prescribes main principles to be adopted while computing income. 1. Notification No. 33/2015 [F. No. 134/48/2010-TPL] 2. The above two standards were largely comparable to the corresponding ICAI AS (AS-1 and AS-5) 3. S. 144 of the ITA

Direct Taxes 1.252 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication • Following is the list of 10 ICDS notified w.e.f. 1st April, 2016: ICDS Comparable AS Accounting policies (ICDS I) Disclosure of Accounting Policies (AS 1) Valuation of inventories (ICDS II) Valuation of Inventories (AS 2) Construction contracts (ICDS III) Construction Contracts (AS 7) Revenue Recognition (ICDS IV) Revenue Recognition (AS 9) Tangible fixed Assets (ICDS V) Accounting for Fixed Assets (AS 10) Effects of changes in foreign exchange rates (ICDS VI) The Effects of Changes in Foreign Exchange Rates (AS 11) Government Grants (ICDS VII) Accounting for Government Grants (AS 12) Securities (ICDS VIII) Accounting for Investments (AS 13) Borrowing Costs (ICDS IX) Borrowing Costs (AS 16) Provisions, contingent liabilities and contingent assets (ICDS X) Provisions, Contingent Liabilities and Contingent Assets (AS 29) • The following proposed ICDS for which drafts were circulated have not yet been notified: 1. Events occurring after the end of previous year 2. Prior period expense 3. Leases 4. Intangible Assets II. Amendments under the ITA to align with ICDS Following provisions of ICDS did not align with provisions of the ITA and thus provisions under ITA were amended: a. ICDS on Government Grants– So far as Government grants related to acquisition of depreciable assets, both AS and ICDS provide for recognition of such grants either by way of reduction from cost of depreciable asset or as income over the periods necessary to match with the related costs. However, treatment of recognising grants for non-depreciable assets as per AS and ICDS were not in sync with ITA. There was ambiguity or conflict of ICDS with ITA when it required recognition of a grant which is related to non-depreciable asset of capital nature, as assessee’s income.4 FA 2015 amended the definition of ‘income’ under s.2(24) of ITA to include any assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the CG or State Government or any authority or body or agency, in cash or kind, to the assessee. However, subsidy/grant/reimbursement which is taken into account for determination of ‘actual cost’ of depreciable assets in accordance with the provisions of Explanation 10 to s.43(1) shall not be treated as income. However, it was clarified by CG press release and CBDT Circular No. 19 dated 27 November, 2015 that individual welfare subsidies (like LPG subsidy) are not taxable based on the above amendment. 4. Various courts, considering the purpose and object of subsidy, had treated the subsidy to be a non-taxable capital receipt.

Income Computation & Disclosure Standard 1.253 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Finance Bill, 2016 amended the above provision to avoid unintended impact on corpus contributions/budgetary support provided to trust or other entity established by Government for operationalising certain Government schemes and therefore proposed to amend section 2(24) to exclude subsidy or grant by CG for the purpose of corpus of trust or institution established by CG or State Government. b. ICDS on Borrowing costs– ICDS IX relating Borrowing costs provides for capitalisation of borrowing costs in respect of qualifying assets viz. tangible/intangible assets and inventories5 . ITA provides for deduction in respect of all borrowing costs except when they are incurred for acquisition of an asset ‘for extension of existing business or profession’. The condition of acquisition of asset ‘for extension of existing business or profession’ for disallowance of borrowing costs under the ITA was in conflict with ICDS since ICDS does not have this condition. FA 2015 amended to omit the condition of asset acquisition ‘for extension of existing business or profession’ for disallowance of borrowing cost to align the provisions of ITA with ICDS. c. ICDS on Revenue recognition and Provisions, contingent liabilities and contingent assets – Application of some ICDS like Revenue Recognition or Provisions, Contingent Liabilities and Contingent assets may have resulted in accelerated recognition of income for tax purposes though the same may not be recorded in books of account as per applicable AS. It is possible that such income may eventually be found to be irrecoverable. While the ITA provides bad debt deduction for debts which are written off as irrecoverable in accounts, it would be difficult to claim bad debt deduction for income which is irrecoverable but hitherto not recognised in the books. In order to remove this anomaly, the FA 2015 provides that such debt taxed as per ICDS but not recognized in the books shall be allowed as bad debt in the previous year in which it becomes irrecoverable and it shall be deemed as if such debt has been written off as irrecoverable in the accounts of assessee for this purpose. d. Amendments under the ITA vide Finance Act 2008– Subsequent to Delhi High Court Ruling in case of the Chamber of Tax Consultants (159 DTR 313 (Del) (2017) wherein constitutional validity of certain provisions of ICDS was examined, following amendments were made under the ITA vide Finance Act 2018: i. Amendments have been made in Section 36(1) and Section 40A to provide that marked to market loss or other expected loss shall be allowed only to the extent as computed in accordance with ICDS. ii. Section 43AA has been introduced to provide that subject to provisions of section 43A, foreign exchange fluctuation gain or loss on specified transactions computed in accordance with ICDS shall be treated as income or loss iii. Section 43CB has been introduced to provide that profit arising on a construction contract or a service contract shall be determined on the basis of percentage completion 5. Inventory that require a period of 12 months or more to bring them to a saleable condition

Direct Taxes 1.254 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication method in accordance with ICDS. However, where a service contract is for not more than 90 days, profit shall be determined by completed contract method and where it involves indeterminate acts to be performed over a specific period of time, profit shall be determined on the basis of straight line method. iv. Section 145A has been amended to provide that valuation of inventories shall be made in accordance with ICDS. Further Section 145B has been introduced to provide that export incentives / claims for price escalation shall be taxable in the year in which reasonable certainty of its realization is achieved. Further, income referred to u/s 2(24)(xviii) being subsidies, grants etc. received from government shall be taxable on receipt basis, if not charged to tax in earlier years. III. Comparison of ICDS-2016 with comparable AS While ICDS have been broadly framed in accordance with comparable AS, following are certain deviations/carve outs in comparison with existing AS: Readers are required to note the following before giving effect to the provisions provided in ICDS while computing income for the purpose of ITA: 1. In case of conflict between the provisions of the ITA and ICDS, the provisions of ITA shall prevail to that extent. Issue requiring examination is whether the same position would prevail in case of conflict between SC/HC rulings and ICDS 2. Whether method of accounting u/s 145 can enlarge/reduce scope and ambit of income u/s.4 and 5 r.w s. 2(24)? (Refer Note 1) 3. Impact of rulings rendered pre-ICDS which are in cross roads to ICDS needs to be evaluated by readers Caption AS ICDS AS 1 vs. ICDS I – Accounting policies Concept of Prudence modified Provision is made for all known liabilities and losses on best estimate basis Marked to market (MTM) loss or an expected loss shall not be recognised unless permitted by any other ICDS Changes in the Act – Section 36(1)(xviii) to allow deduction of MTM or other expected loss computed as per ICDS is being inserted in Act. Anticipated profits are not recognised ICDS silent on recognition of anticipated profits Materiality omitted Materiality should be considered while selecting and applying accounting policy Concept of Materiality not recognised in ICDS

Income Computation & Disclosure Standard 1.255 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS Change in Accounting Policy Change in accounting policy permitted if (a) required by statute; (b) required for compliance of AS; (c) change results in more appropriate presentation of financial statements Accounting policies shall not be changed without a “reasonable cause” Disclosure of change in accounting policy Required in period of change, if impact is not material in current period but material in later periods Required in period of change and also required in first year in which change has material effect, if impact is not material in current period but material in later periods AS 2 vs. ICDS II – Valuation of inventories Valuation of service inventory No specific provision Valuation at cost6 or net realisable value (NRV), whichever is lower Changes in the Act – Section 145A amended to provide inter alia that inventory shall be valued at lower of actual cost or NRV computed in the manner provided in ICDS. Inventory valuation methods Inventory valuation methods are (a) first-in, first-out (FIFO); (b) weighted average cost formula; (c) specific identification; (d) retail method; (e) standard cost method Same as AS. Kindly note that Standard Costing method which was not permitted under erstwhile ICDS is now permitted under ICDS2016. Opening inventory No specific provision • Value of opening inventory of a business shall be the same as the value of inventory at the end of the immediately preceding financial year • In case of commencement of business, Cost of inventory on the day of commencement of business will be opening inventory 6. Cost of services shall consist of labour and other costs of personnel directly engaged in providing the service including supervisory personnel and attributable overheads.

Direct Taxes 1.256 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS Change in method of inventory valuation Change permitted if (a) required by statute; (b) required for compliance of AS; (c) change results in more appropriate presentation of financial statements Method of valuation once adopted shall not be changed without “reasonable cause” Inventory valuation in case of certain dissolutions No specific provision In case of partnership firm, AOP or BOI7 inventory on the date of dissolution shall be valued at NRV, whether or not business is discontinued AS 7 vs. ICDS III – Construction contracts Recognition of contract revenue Contract revenue to be recognised if it is possible to reliably measure the outcome of a contract • The criteria of ‘reliable measurement of outcome of contract’ omitted • ICDS requires recognition if there is reasonable certainty of its ultimate collection Retention money Silent on treatment of accrual of income Retention money to be considered as part of contract revenue and revenue to be recognised on percentage of completion (POCM)8 basis9 Changes in the Act – Section 43CB to provide that contract revenue shall include retention money; Allowability of losses including probable/expected loss Losses fully allowable irrespective of commencement, stage of completion and expected profits from other independent contracts • Losses not allowable unless actually incurred and only on POCM basis • ICDS on accounting policies also does not permit recognition of foreseeable loss Contract Work-in-progress recognition Contract cost which relate to future activity shall be recognised as an asset only if recoverability is probable Contract cost to be recognised as an asset 7. Association of person or Body of individuals 8. Percentage of Completion Method 9. There were judicial precedents pre-ICDS which supports deferral of recognition of retention money for tax purpose till there is no enforceable debt. Readers are required to evaluate the impact of judicial precedents rendered pre-ICDS in light of provisions contained in ICDS.

Income Computation & Disclosure Standard 1.257 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS Early stage of contract – Revenue to be recognised only to the extent of cost • Revenue to be recognised only to the extent of recoverable costs • No profit to be recognised during early stages of contract Same as AS, however ICDS objectively defines early stage as not to exceed beyond 25% Pre-construction incidental income Contract cost may be reduced by any incidental income that is not included in contract revenue Contract cost shall be reduced by any incidental income (except interest, dividend and capital gains) that is not included in contract revenue Changes in the Act – Section 43CB to provide that Contract cost shall not be reduced by incidental interest, dividend and capital gains. AS 9 vs. ICDS IV – Revenue Recognition Postponement of revenue recognition Revenue recognition to be postponed if significant uncertainty exists on measurability and collectability of revenue from sale of goods, rendering of services, interest, royalties and dividends Revenue to be recognised only if there is reasonable certainty of its ultimate collection from sale of goods and rendering of services No specific guidance provided in case of export incentives. Changes in the Act – Section 145B to provide inter alia that the claim for export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved. Method of revenue recognition for service contracts • Proportionate completion method; or • Straight line basis over the specific period10; or • Any other method which better represents the patters of performance; or • Completed service contract method Erstwhile ICDS mandatorily required recognition on POCM basis. ICDS-2016 provides following methods: • POCM; or • Straight line basis over the specific period10; or 10. Only in a case where services are provided by an indeterminate number of acts

Direct Taxes 1.258 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS • Completed service contract method permitted only if duration of service contract does not exceed ninety days. Changes in the Act – Section 43CB to provide that profits arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method except for certain service contracts. Method to recognise interest income Interest accrues, in most circumstances, on time basis Interest shall accrue on time basis except for interest on refund, tax, duty or cess which shall be deemed to be the income in the year of receipt. Disclosure requirement Disclose circumstances in which revenue recognition has been postponed pending significant uncertainties. Disclosures for amounts not recognised as revenue due to lack of reasonable certainty of its ultimate collection along with nature of uncertainty AS 10 vs. ICDS V - Tangible fixed assets Applicability Fixed assets such as land, building, plant and machinery, vehicles, furniture and fittings, goodwill, patents, trademarks and designs. Tangible fixed assets being land, building, machinery, plant or furniture Component of cost ‘Cost’ of fixed asset comprises its purchase price, nonrefundable taxes and any directly attributable cost of bringing the asset to its working condition for its intended use. Trade discount and rebates will be deducted while computing cost. It has similar definition to AS 10 but words used are ‘actual cost’ as compared to ‘cost’ in AS 10. Standby equipment and servicing equipment AS acknowledges capitalisation of stand-by equipment and servicing equipment as a normal practice but does not mandate it. ICDS ‘mandates’ capitalisation of stand-by equipment and servicing equipment.

Income Computation & Disclosure Standard 1.259 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS Machinery spares • It is ‘usually’ charged to P&L a/c on consumption. • However, if spares are used only in connection with the item of fixed asset with irregular use then it ‘may’ be appropriate to capitalise • It ‘shall’ be charged to P&L a/c on consumption. • However, if spares are used only in connection with the item of fixed asset with irregular use then it ‘shall’ be capitalised Asset acquired against nonmonetary consideration In case of acquisition of fixed asset in exchange for another asset, shares or other securities issued, cost of asset acquired should be recorded either at (a) fair market value of asset given up11/shares or securities issued or (b) fair market value of asset acquired, whichever is more clearly evident In case of acquisition of a tangible fixed asset in exchange for another asset, shares or other securities issued, actual cost of the tangible fixed asset shall be recorded at fair value of tangible fixed asset acquired Assets acquired for consolidated price Consolidated price to be apportioned to various assets on a fair basis as determined by competent valuers Consolidated price shall be apportioned to various assets on a fair basis Disclosure requirement Gross and net book values at beginning and end of year showing additions, deletions and other movements, expenditure incurred in course of construction and revalued amount, if any Description of assets/block of assets, depreciation rate and allowable depreciation, actual cost/opening WDV and closing WDV showing additions or deductions including adjustment for CENVAT, exchange difference and subsidy, grant or reimbursement12 AS 11 vs. ICDS VI - Effects of changes in foreign exchange rates Revenue monetary items (like trade receivables, payables) • Converted into reporting currency by applying the closing rate • Exchange difference recognised in P&L a/c • Converted into reporting currency by applying the closing rate • Exchange difference recognised as income or expense in P&L a/c subject to provisions of Rule 115 Revenue non-monetary items If item is carried at historical cost – Reported at the exchange rate on the date of transaction Non-monetary item except inventory – To convert into reporting currency using the exchange rate at the date of the transaction 11. AS also permits recognition at net book value of asset given up under certain circumstances like exchange of similar assets. 12. Disclosure requirement under ICDS is in line with reporting requirement in tax audit report (Clause 18 of Form 3CD)

Direct Taxes 1.260 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS If item is carried at fair value -Reported at the exchange rate that existed when the value was determined Non-monetary item being inventory – Reported using the exchange rate that existed when such value was determined [Inserted in ICDS-2016] Capital monetary items – Relating to imported assets and domestic assets • Requires recognition in P&L A/c • Option of capitalisation u/s 211(3C) of Cos Act, 1956 as per which exchange differences arising in case of long-term foreign currency monetary items shall be either adjusted to capital asset or accumulated in FCMITDA13 (Paras 46 & 46A) • Requires recognition as income or expense subject to provisions of s. 43A 14 • No paras 46 and 46A exists • No distinction recognised between capital and revenue items Foreign operations Foreign operation is a subsidiary, associate, joint venture or branch of the reporting enterprise, the activities of which are based or conducted in a country other than the country of the reporting enterprise. Foreign operations of a person is a branch, by whatever name called, of that person, the activities of which are based or conducted in a country other than India. Integral foreign operation • Same principles as for own assets and liabilities • Exchange differences are recognised in P&L A/c • Subject to S.43A and Rule 115, similar to AS 11 • No distinction recognised between capital and revenue items Non-integral foreign operations • All assets & liabilities and income & expense items are translated at closing rates • Exchange differences are accumulated in FCTR15 A/c and to be taken to P&L a/c on disposal of non-integral foreign operations ICDS 2016 removes distinction between integral and nonintegral foreign operation as provided under erstwhile ICDS and therefore treatment applicable to integral foreign operation (as discussed above) also applicable to non-integral foreign operations 13. Foreign Currency Monetary Item Translation Difference Account 14. S.43A applies only to imported assets 15. Foreign Currency Translation Reserve A/c

Income Computation & Disclosure Standard 1.261 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS Forex derivatives for hedging purpose (Capital and revenue a/c) • Premium/discount is amortised over life of contract • Restated on MTM basis at year end and difference is recognized in P&L • Profit/loss on cancellation or renewal is also recognised in P&L Same as AS without distinguishing between contracts on capital account and revenue account (subject to s.43A applicable to imported assets) Forex derivative for trading/ speculation purposes/firm commitments/highly probable forecast transactions • Forward contract is restated at year end on mark to market basis and difference is recognised in P&L • No amortisation of premium/discount • Premium, discount or exchange difference shall be recognized at the time of settlement • No distinction recognised between contracts on capital account and revenue account Changes in the Act – Section 43AA to provide that subject to the provisions of section 43A, any foreign exchange gain or loss in respect of specified foreign currency transactions shall be treated as income or loss, and such gain or loss shall be computed as per ICDS Forex derivatives not covered by ICDS VI (futures, interest rate swaps, etc.) • Not covered by AS 11 being a derivative contract covered by AS 30, 31 & 32 which are yet to be notified under Companies Act, 2013 • Currently ICAI Guidance Note requires recognition of loss on MTM basis but gain to be ignored • Forex derivatives not covered by ICDS VI. • ICDS I on accounting policies provides that MTM loss or an expected loss shall not be recognised unless permitted under other ICDS.

Direct Taxes 1.262 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS AS 12 vs. ICDS VII – Government Grants Recognition of grant • On reasonable assurance of compliance of attached conditions and reasonable certainty of ultimate collection • Mere receipt of grant is not sufficient • On reasonable assurance of compliance of attached conditions and reasonable certainty of ultimate collection • Recognition cannot be postponed beyond date of actual receipt Changes in the Act – Section 145B to provide that income referred to in section 2(24)(xviii) i.e. grant, subsidy, etc. from the Government, shall be deemed to be the income of the previous year in which it is received, if not charged to income tax for any earlier previous year. Grant in the nature of promoters contribution To be credited to capital reserve and to be treated as shareholders’ funds • ICDS silent on this category 16 • Refer discussion at para II(a) Grants relatable to depreciable fixed assets To be reduced from cost or recognised as deferred revenue by systematic credit to P&L A/c To be reduced from cost of fixed asset [in line with Explanation 10 to S. 43(1)] Relatable to non-depreciable fixed assets • To be credited as capital reserve, if no conditions attached to the grant • To be credited to P&L A/c over period of incurring cost of meeting conditions of grant • To be considered as income on an upfront basis, if there are no conditions attached to grant [Refer discussion at para II(a)] • To be treated as income over period over which cost of meeting conditions is incurred Grants other than those covered above Revenue grant to be credited as income or reduced from related expense Grant17 to be treated as income over period over which cost of meeting conditions is incurred. [Refer discussion at para II(a)] 16. By implication, ICDS will require recognition as income under residuary clause 17. AS covers only revenue grant within its ambit

Income Computation & Disclosure Standard 1.263 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS Compensation for expenses/loss incurred or for giving immediate financial support To be recognised as income in the year in which it is receivable To be recognised as income in the year in which it is receivable Disclosure requirement Accounting policy adopted for grants including the method of presentation, extent of recognition in the financial statements, accounting of non-monetary assets given at concession/free of cost Requires disclosure of nature and extent of recognised as well as unrecognised grants. It also requires disclosure of reasons for non-recognition of grant AS 13 vs. ICDS VIII – Securities Applicability • AS applicable to accounting for investments • AS clarifies that principles applicable to ‘current investments’ can apply to securities held as stock-intrade • ICDS applicable to securities held as stock-intrade 18 • ‘Securities’ defined to have meaning assigned in S.2(h) of SCRA19 and shall include shares of a company in which public are not substantially interested except derivatives referred in S.2(h)(1a) of SCRA Security acquired against nonmonetary consideration In case of acquisition of securities in exchange for shares or other securities issued or another asset, cost of security acquired should be recorded either at (a) fair market value of securities issued or (b) fair market value of asset given up, whichever is more clearly evident In case of acquisition of securities in exchange for other securities issued or another asset, actual cost of security acquired shall be recorded at fair value of security acquired Year-end valuation of securities Current investments to be valued at lower of cost or fair value either on individual investment basis or by category of investment but not on global basis • Securities should be valued at lower of cost or NRV. Comparison of cost and NRV shall be done category-wise. • Securities are classified under following categories (a) shares; (b) debt; (c) convertible securities; and (d) other securities 18. Since ICDS deals with computation of income under under the head “Profits and gains of business or profession” or “Income from other sources”, ICDS only deals with securities held as stock-in-trade. 19. Securities Contract (Regulation) Act, 1956

Direct Taxes 1.264 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS Changes in the Act – Section 145A amended to provide interalia. Inventory of listed securities shall be valued at lower of actual cost or NRV in the manner provided in ICDS and for this purpose, comparison of actual cost and NRV shall be done category-wise. Opening value of securities No specific provision • Value of opening inventory of securities shall be the same as the value of securities at the end of the immediately preceding financial year. • In case of commencement of business, Cost of security on the day of commencement of business will be opening value. Valuation of unlisted or thinly traded securities No specific provision Valuation of unlisted or thinly traded securities shall be valued at actual cost initially recognised Changes in the Act – Section 145A amended to provide inter alia that Inventory of unlisted, or listed but not quoted securities, shall be valued at actual cost initially recognised as per ICDS; Ascertainment of cost Cost formulae are the same as those specified in AS 2 (e.g. FIFO; average cost, etc.) Cost which cannot be ascertained by specific identification shall be determined on the basis of FIFO method or weighted average cost formulae. Securities held by scheduled bank or public financial institutions Nothing specific Provided under Part B of the ICDS-2016 • Securities20 shall be classified, recognised and measured in accordance with RBI guidelines and any excess deduction claim shall be ignored 20. Definition of securities in this regards even includes derivatives referred in s.2(h)(1a) of SCRA

Income Computation & Disclosure Standard 1.265 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS • To such extent provisions of ICDS-VI to not apply AS 16 vs. ICDS IX – Borrowing costs Borrowing cost Borrowing cost includes exchange difference to the extent that they are regarded as an adjustment to interest costs Borrowing cost does not include exchange differences arising from foreign currency borrowings Qualifying assets Qualifying asset defined to be an asset which necessarily takes a substantial21 period of time to get ready for its intended use or sale Qualifying assets means 22 • Inventory that requires a period of 12 months or more to bring them to a saleable condition • Specified tangible and intangible assets are qualifying assets (regardless of substantial period condition for specific borrowing and for a period of 12 months or more in case of general borrowing) Commencement and cessation of capitalisation In case of specific borrowing Capitalisation will commence when all the three conditions are satisfied (a) incurrence of capital expenditure; (b) incurrence of borrowing cost; (c) construction activity is in progress and cessation from the date when asset is ready to use Capitalisation will commence from date of borrowing of funds and cessation from the date when asset is put to use23 In case of general borrowing Same as in the case of specific borrowing Capitalisation will commence from date of utilisation of funds and cessation from the date when asset is put to use24 21. Generally, a period of 12 months is considered as a substantial period of time 22. Proviso to s.36(1)(iii) amended to bring in line with requirements of ICDS (refer discussion at para II(b)) 23. In case of inventory, cessation of capitalisation will be from the date when substantially all the activities necessary to prepare such inventory for its intended sale are complete 24. Specific rules provided for capitalisation in respect of (a) Assets acquired and put to use during same previous year and (b) Assets awaiting capitalisation brought forward from earlier year and put to use during the relevant previous year.

Direct Taxes 1.266 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Caption AS ICDS Methodology of capitalisation In case of specific borrowing Directly attributable to borrowing cost Directly attributable to borrowing cost In case of general borrowing Weighted average cost of borrowing applied to capital expenditure Pro-rata borrowing cost allocation as per normative formulae (Refer note 2) Income from temporary deployment of funds Income from temporary deployment of unutilised funds from specific loans to be reduced from borrowing cost No treatment providedin ICDS Suspension of capitalisation Capitalisation of borrowing costs should be suspended during extended periods in which active development is interrupted No similar provision in ICDS AS 29 vs. ICDS X - Provisions, Contingent Liabilities and Contingent Assets Onerous executory contracts • Includes onerous executory contracts within its scope • Upfront recognition of liabilities required under onerous contracts Onerous executory contracts excluded from the scope of ICDS Recognition of provision • Provision shall be recognised when it is ”probable” that an outflow of economic resources will be required to settle an obligation • Provision is not discounted to NPV • Provision shall be recognised when it is ”reasonably certain” that an outflow of economic resources will be required to settle an obligation • Provision is not discounted to NPV Recognition of contingent asset and reimbursement claims Contingent asset/reimbursement claims are recognised when the realisation of related income is ”virtually certain” Contingent asset/reimbursement claims are recognised when the realisation of related income is ”reasonably certain” Meaning of obligation Clarifies that obligations may be legally enforceable and may also arise from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner. No specific guidance on meaning of ‘obligation’

Income Computation & Disclosure Standard 1.267 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Note 1 – Reference in this regards can be placed on following extracts from Commentary of learned authors of Kanga & Palkhivala on s. 145 (Tenth Edition – Vol II - Page 2139) “Under this section the assessee’s regular method of accounting determines the mode of computing the taxable income but it does not determine or even affect the range of taxable income or the ambit of taxation. Preparation of the statement of accounts in compliance with applicable statutory provisions does not disentitle an assessee to submit the income-tax return on the real taxable income in accordance with the method of accounting adopted consistently and regularly. The provision for computation of income contained in this section cannot derogate from the provisions of the charging section. In other words, the charge on income accruing or received in India, imposed by S.5, cannot be avoided by any method of accounting.” Note 2: Formulae for capitalising general borrowing cost is as under Interest to be capitalised as per ICDS = A X B C A Total borrowings cost excluding specific borrowing cost B Average cost of various qualifying assets excluding qualifying assets which are directly funded out of specific borrowings C Average amount of total assets as appearing in the balance sheet, other than assets to the extent directly funded out of specific borrowing 2

XXXII. Legal Maxims Maxims can be defined as an established principal or proposition. The tenets of law canonized in maxims are the precepts, ideals and techniques of law referring a general truth drawn from experience. The principles enunciated in the maxims should be applied with due care as there are exceptions to the rule and qualification for applicability of dictum. The law of evidence is the most important branch of adjective law. On this subject, a number of maxims have developed. In the paragraphs to follow, a discussion about some of the maxims of common use is being made. Audi Alteram Partem – The other party shall be heard / No man shall be condemned unheard. Lex non cogit ad impossibilia - The law does not compel a man to do that which is impossible. Omnia praesumuntur rite et solemniter esse acta – All things are presumed to have been rightly and duly performed until it is proved to the contrary Comtemporanea expositio est optima et fortissima in lege – That the meaning of words in a document are to be understood in the sense which they bore at the time of the document. Res inter alios acta alteri nocere non debet – A transaction between others does not prejudice one who was not a party to it. Nemo tenetur seipsum accusare – No one be compelled to incriminate or accuse himself. Nemo debet esse judex in propria sua causa – No man can be judge in his own cause. Qui aliquid statuerit parte inaudita altera aequum licet dixerit, haud aequum fecerit – He who determines any matter without hearing both the sides, though he may have decided rightly, has not done justice. Ejusdem generis – Of the same class or kind Noscitur a sociis – The meaning of the doubtful word may be ascertained by reference to the meaning of words associated with it. Ut res magis valeat quam pereat – The language may rather have effect than be void Absoluta sententia expositore non indigent – Plain words require no explanation Construction ex visceribus actus - A statute is to be construed within the four corners of the statute. Leges posteriores priores contrarias abrogant – The later laws repeal earlier conflicting laws. Quod ab initio non valet in tractu temporis non convalescent - Something which was originally void, does not by lapse of time become valid. Salus populi suprema lex – The regard for the public welfare is the highest law. Vigilantibus, non dormientibus, jura subveniunt - The laws assist those who are vigilant, not those who sleep over their rights Falsa demonstratio non nocet - Mere false description does not vitiate, if there be sufficient certainty as to the object 2

1.269 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Interpretation of Taxing Statutes XXXIII. Interpretation of Taxing Statutes I. INTRODUCTION: We, the people of India resolved to constitute India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC in order to secure to all our citizens: Justice, social, economic and political; Liberty of thought, expression, belief, faith and worship; Equality of status and of opportunity; and to promote among all of us Fraternity, assuring the dignity of the individual and the unity and integrity of the Nation. THE THREE ORGANS To govern is the duty of the Executive, headed by the President. To legislate is the duty of the Parliament and State Legislatures. It is for the judiciary to keep a watch, visit and see that the freedom enshrined in the Constitution reach to every citizen and is not jeopardized or tinkered with or obstructed by the executive or any person in authority or otherwise. THE INDIAN LEGAL SYSTEM The Indian legal system is the product of history. It is rooted in our soil; nurtured and nourished by our culture, languages and traditions; fostered and sharpened by our genius and quest for social justice; reinforced by history and heritage inspired and strengthened by English Law guided and enriched by concepts and precepts of justice, equity and good conscience which are indeed the hallmarks of the common law. TAXATION Article 265 of the Constitution mandates that no tax shall be levied or-collected except by the authority of law. It provides that not only levy but also the collection of a tax must be under the authority of some law. THE TAX LAWS Tax laws are highly complex, complicated and beyond understanding of a tax-payer. The words and expressions used are not simple. Many sections contain sub-sections, clauses, subclauses. Many deeming provisions have been inserted. Meaning of an expression is extended by way of Explanation and is curtailed by way of proviso, sometimes by more than one provisos and explanations. Meaning of Interpretation and Construction of Statute According to Salmond interpretation or construction means “the process by which the courts seek to ascertain the meaning of the legislature through the medium of authoritative forms in which it is expressed.” Bhatia International vs. Bulk Trading S.A. - [(2002) 4 SCC 105] There are three bodies which divide government power namely legislature, the executive and the judiciary. It is for the legislature to make laws. It is executive to execute these laws and the function of court is to interpret them. Interpretation of statutes to render justice is primary function of the judiciary. The main body of the law is to be found in statutes, together with the relevant statutory instruments and in case law as enunciated by Judges in the Courts. But the Judges not only have the duty of declaring the law, they are also frequently called upon to settle disputes as to the meaning of words or clauses in a statute. The courts have to interpret the laws and not enact them. The primary function of the courts while interpreting or construing a statute is to see the intention of the legislature. Judiciary is duty bound to act upon the true intention of the legislature. The maxim “Judicis estjus dicere, non dare’’ pithily expounds the duty of the Court. It is to decide what the law is and apply it, not to make. [ACIT vs. Velliappa Textiles Ltd. (2003) 263 ITR 550 (SC)] Statutes are normally drafted by legal experts who are experts in the particular branch of law of which the statute was to be a part. Although such persons are skilled in the law, due to the volume of legislation the statutes are often obscure and cryptic and we find courts and lawyers are

Direct Taxes 1.270 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication busy in unfolding the meaning of ambiguous words and expressions in a statute. The age old process of application of the enacted law has led to formulation of certain rules of interpretation or construction. The Income tax Act is a self-contained code, and provides machinery for imposing and collecting tax, obtaining reliefs and appeals against improper orders, etc. While tax law is a part of the general law, it has got its own distinct features. There are some special provisions which are attracted while interpreting tax laws. The need of interpretation arises only when the words used in the statute are on their own term, ambivalent and do not manifest the intention of legislature. [Keshavji Ravji & Co. vs. CIT – [(1990) 183 ITR 1 (SC)]. Similarly rule of interpretation would come into play only if there is doubt with regard to the express language used. [Pandian Chemicals Ltd. vs. CIT – [(2003) 262 ITR 278 (SC)]. II. BASIC PRINCIPLES / RULES OF INTERPRETATION of TAXING STATUTE: I will deal with the special rules of construction governing a taxing statute. 1. Intention of Legislature The dominant purpose of construction of any statutory provision is to ascertain the intention of the legislature and the primary role is to ascertain the same by reference to the language used. The Supreme Court in Doypack Systems Pvt. Ltd. vs. UOI [1998 (2) SCC 299] laid down: “It has to be reiterated that the object of interpretation of a statute is to discover the intention of Parliament as expressed in the Act. The dominant purpose in construing a statute is to ascertain the intention of the legislature as expressed in the statute, considering it as a whole and in its context that intention, and therefore, the meaning of the statute, is primarily to be sought in the words used in the statute itself, which must, if they are plain and unambiguous be applied as they stand”. The object of all interpretation is to discover the intention of Parliament, but the intention of Parliament must be deduced from the language used.” A statute is an edict of the legislature and the conventional way of interpreting or construing a statute is to seek the ‘intention’ of its maker. A statute is to be construed according “to the intent of them that make it” and “the duty of judicature is to act upon the true intention of the legislature - “the mens or sententia legis”. If a statutory provision is open to more than one interpretation the court has to choose that interpretation which represents the true intention of the legislature, which is also referred to as the ‘legal meaning’ of the statutory provision. The intention of the legislature assimilates two aspects 1. In one aspect it carries the concept of ‘meaning’, i.e. what the words mean. 2. In another aspect, it conveys the concept of ‘purpose and object’ or the ‘reason and spirit’ pervading through the statute. Therefore the process of construction combines both literal and functional approaches. In the case of GEM Granites vs. CIT (2004) 271 ITR 322 (SC) the Hon’ble court observed that what one may believe or think to be the intention of Parliament cannot prevail if the language of the statute does not support that view, thus object of the statute has to be gathered from language and not on what one believes or thinks. 2. Harmonious Interpretation The most common rule of interpretation is that every part of the statute must be understood in a harmonious manner by reading and construing every part of it together. Further, L. J. Denning in Seaford Court Estates vs. Asher [1949] 2 All ER 155 speaks as hereunder: “A Judge must not alter the material of which the Act is woven but he can and should iron out the creases. When a defect appears, a Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of

1.271 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Interpretation of Taxing Statutes finding the intention of the Parliament and then he must supplement the written words so as to give force and life to the intention of the Legislature.” Also referred in Nasiruddin vs. Sita Ram Agarwal – [(2003) 2 SCC 577] The art of correct interpretation would depend on the ability to read what is stated in plain language, read between the lines, read ‘through’ the provision, examining the intent of the Legislature and call upon case laws and other aids to interpretation. Rules of interpretation are applied only to resolve the ambiguities. The object and purpose of interpretation is to ascertain the mens legis, i.e., the intention of the law, as evinced in the statute. The key to the opening of every law is the reason and spirit of law. To be literal in meaning is to see the body and miss the soul. The judicial key to interpretation is the composite perception of the Deha (body) and the Dehi (Soul) of the provision. Wherever it is possible to do so, the provision must be harmoniously constructed by avoiding a conflict. A construction which reduces the statute to a futility has to be avoided. A statute or any enabling provision therein must be so construed as to make it effective and operative on the principle expressed in maxim “UT RES MAGIS VALEAT QUAM PAREAT” i.e. a liberal construction should be put upon written instruments, so as to uphold them, if possible and carry in to effect the intention of the parties. CIT vs. Hindustan Bulk Carrier (2003) 259 ITR 449 (SC) The provisions of two enactments must be read harmoniously so as not to subject them to any strained construction giving rise to an artificial inconsistency or repugnance. Sankaranarayanan Bhattathirpad vs. ITO – [(1985) 153 ITR 562, 567 – 68 (Ker)] Every clause of a statute should be construed with reference to the context and other clauses of the statute so as, as far as possible, to make a consistent enactment of the whole statute CIT vs. R. M. Amin – [(1971) 82 ITR 194 (Guj)] Parliament is normally presumed to legislate in the knowledge of, and having regard to, relevant judicial decisions. If, therefore, Parliament has a subsequent opportunity to alter the effect of a decision on the legal meaning of an enactment, but refrains from doing so, the implication is that Parliament approves of that decision and adopts it. That was amply demonstrated by the amendment of Sec. 36 (1) (viii) made in 1985. CIT vs. West Bengal Industrial Development Corporation Ltd. – [(1993) 203 ITR 422, 430 (Cal)]. 3. Literal rule: Language of Statute should be read as it is The first and the most elementary rule of construction is that it is to be assumed that the words and phrases of legislation are used in their technical meaning if they have acquired one, or otherwise in their ordinary meaning, and the second is that the phrases and sentences are to be construed according to the rules of grammar. Krishi Utpadan Mandi Samiti vs. UOI (2004) 267 ITR 460 (All.). Pure, simple and grammatical sense of language used by Legislature is best way of understanding as to what Legislature intended. Coal Mines Officers’ Association of India vs. UOI (2004) 266 ITR 429 (Cal.). A taxing statute should be strictly construed even if the literal interpretation results in hardship or inconvenience, common sense approach equity, logic and morality have no role to play. CIT vs. Calcutta Knitwears (2014) 362 ITR 673 (SC). If the language of the statute is clear and unambiguous, words must be understood in their plain meaning. The wordings of the Act must be construed according to its literal and grammatical meaning, whatever the result may be. While interpreting tax statute, the function of the court of law is not to give words in the statute a strained and unnatural meaning to cover and extent its applicability to the areas not intended to be covered under the said statute. Vidarbha Irrigation Devs. Corpn. vs. ACIT [(2005) 278 ITR 521 (Bom)].

Direct Taxes 1.272 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication It is not permissible to construe any provision of a statute, much less a taxing provision, by reading into it more words than it contains. CIT vs. Vadilal Lallubhai [(1972) 86 ITR 2 (SC)]. Literal construction means that there is no room for any intendment. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. Voltas Ltd. vs. State of Gujarat (2015) 12 STD 658 (SC) ICAI vs. Price Waterhouse, (1997) 90 Comp. Case 113, 140, 141 (SC) State of West Bengal vs. Scene Seven P. Ltd. AIR 2000 SC 3089, 3094 Harbajan Singh vs. Press Council of India (2002) 3 SCC 722, 727. District Registrar and Collector vs. Canara Bank, (2005) 1 SCC 496. 4. The Mischief Rule of Interpretation (Heydon’s rule) A statute is to be construed so as to suppress the mischief in the law and advance the remedy. This was set out in Heydon’s case (1584) 3 Co. Rep. 7a. Under this rule the judge will look at the Act to see what was it’s purpose and what mischief in the common law it was designed to prevent. Broadly speaking, the rule means that where a statute has been passed to remedy a weakness in the law, the interpretation which will correct that weakness is the one to be adopted. This rule is also one of the cardinal rules of interpretation when the words of a taxing statute are ambiguous and incapable of a literal interpretation and generally takes into account four parameters, namely i. What was the Law prior to enactment of the statute in question; ii. What was the defect or mischief for which the earlier law did not provide; iii. What remedy had the Legislature intended to remedy the defect; iv. The true Legislative intent behind the remedy. This rule would come into play only if the words of the taxing statute were silent or ambiguous on an issue and the General Clauses Act also did not throw light on the interpretation CIT vs. Shahzada Nand & Sons. (1966 ) 60 ITR 392 (SC) Classic Builders & Developers vs. UOI (2001) 251 ITR 492, 497 (MP) Reckitt Colman of India Ltd. vs. ACIT (2001) 252 ITR 550 (Cal.). 5. The Golden Rule: Purposive interpretation This rule is to some extent an extension of the literal rule and Mischief Rule and under it the words of a statute will as far as possible be construed according to their ordinary, plain, and natural meaning, unless this leads to an absurd result. It is used by the courts where a statutory provision is capable of more than one literal meaning and leads the judge to select the one which avoids absurdity, or where a study of the statute as a whole reveals that the conclusion reached by applying the literal rule is contrary to the intention of Parliament. One of the principle laid down by the courts is that regard should be given to the object and purpose of the introduction of a particular provision in the Income-tax Act. It emerges that this rule of interpretation has been often applied in India. The object and the rules of Interpretation being what they are it is only natural that the rules of interpretation should not be static but dynamic. Rules of interpretation are not the rules of law and have to evolve constantly to ensure that they lie in sync with the march of the society. It is in this context that the Supreme Court in Kehar Singh vs. State (A.I.R. 1988 Supreme Court 1883) gave a go-by to the golden rule by which statutes were to be interpreted according to the grammatical and ordinary sense of the word. The Golden rule implies that if a strict interpretation of a statute would lead to an absurd

1.273 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Interpretation of Taxing Statutes result then the meaning of the words should be so construed so as to lead to the avoidance of such absurdity. A further corollary to this rule is that in case there are multiple constructions to effect the Golden rule the one which favours the assessee should always be taken. This rule is also known as the Rule of Reasonable Construction. However the application of this rule in the interpretation of taxing statutes is rather limited since the literal rule is more often applicable and it is often remarked that equity and taxation are strangers A construction which would defeat the very object of the legislature should be avoided. Keshavji Ravji & Co. vs. CIT (1990) 183 ITR 1 (SC) CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149 (SC) Vikrant Tyres Ltd vs. ITO (2001) 247 ITR 821, 826 (SC) 6) Strict construction A tax is imposed for public purpose for raising general revenue of the state. A taxing statute is to be strictly construed. Lord Hasbury and Lord Simonds stated: “The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words.” It is settled law that a taxation statute in particular has to be strictly construed and there is no equity in a taxing provision. H. H. Lakshmi Bai vs. CIT - [(1994) 206 ITR 688, 691 (SC)]. “The subject is not to be taxed without clear words for that purpose …..” CIT vs. Provident Invs. Co. Ltd. (1954) 32 ITR 190 (SC) J.K. Steel Ltd. vs. UOI AIR 1970 SC 1173 CIT vs. Indo Oceanic Shipping Co. Ltd. (2001) 247 ITR 247 (Bom) Hansraj & Sons vs. State of J & K (2002) 6 SCC 227, 237-39 In A. V. Fernandez vs. State of Kerala, [AIR 1957 SC 657] His Lordship Bhagwati J. has stated the principle of taxing laws as follows: “ In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of law. If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.” In Associated Cement Co. Ltd. vs. Commercial Tax Officer AIR 1981 SC 1887, E. S. Venkataramiah J. of the Supreme Court, speaking for the majority said “Tax, interest and penalty are three different concepts. Tax becomes payable by an assessee by virtue of the charging provision in a taxing statute. Penalty ordinarily becomes payable when it is found that an assessee has willfully violated any of the provisions of the taxing statute. Interest is ordinarily claimed from an assessee who has withheld payment of any tax payable by him and it is always calculated at the prescribed rate on the basis of the actual amount of tax withheld and the extent of delay in paying it. It may not to be wrong to say that such interest is compensatory in character and not penal.” Remedial statutes are known as welfare, beneficial or social justice oriented legislations. Penal statutes, on the other hand, are those which provide for penalties for contravention of the law and are directed against the offender in relation to the state by making him liable to imprisonment, fine, forfeiture or other penalty. A remedial statute receives a liberal construction, whereas a penal statute is strictly construed. In case of remedial statutes the doubt is resolved in favour of the class of persons for whose benefit the statute is enacted; whereas in case of penal statutes the doubt is resolved in favour of the alleged offender.

Direct Taxes 1.274 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication The principle applied in constructing a penal act is that if, in construing the relevant provisions, “there appears any reasonable doubt or ambiguity”, it will be resolved in favour of the person who would be liable to the penalty. If there are two reasonable constructions we must give the more lenient one. The court must always see that the person to be penalised comes fairly and squarely within the plain words of the enactment. It is not enough that what he has done comes substantially within the mischief aimed at by the statute. A penal provision has to be construed strictly. ACIT vs. Velliappa Textiles Ltd. (2003) 263 ITR 550 (SC) 7) Ejusdem generis rule Under this rule where general words follow particular words the general words are construed as being limited to persons or things within the class outlined by particular words. The words used together should be understood as deriving colour and sense from each other. They should be read together as one. The true scope of the rule of ‘ejusdem generis’ is that the words of general nature following specific and particular words should be construed as limited to things which are of the same nature as those specified. When the particular words pertaining to a class, category or genus are followed by general words, the general words are construed as limited to the things of the same kind as those specified. The phrase “any other person” in Rule 6D(2) of the Income-tax Rules, 1962, would draw its colour from the preceding word, namely, “employee”. Held accordingly, that a trustee was not an employee or not akin to an employee and the amounts paid to trustees by the trust could not be disallowed under Rule 6D(2). CIT vs. Shivalik Drug (Family Trust) (2008) 300 ITR 339 (All.). The rule of ejusdem generis is to be applied “with caution” and “not pushed too far”. It may not be interpreted too narrowly or unnecessarily if broad based genus could be found so as to avoid cutting down words to dwarf size. — U.P. State Electricity Board vs. Hari Shanker Jain AIR 1979 SC 65 — Rohit Pulp & Paper Mills Ltd. vs. Collector of Central Excise AIR 1991 SC 754 8) Expressio unius est exclusio alterius The expression of the thing implies the exclusion of another. It conveys an important rule of interpretation to signify the circumstances where the express mention of one person or thing results in totality the exclusion of another. In other words, in any particular provision where the statutory language is plain or straight and its meaning is apparently clear, there is no scope of applying the rule. However, this maxim could be accepted as a valuable servant but it is definitely a dangerous master in the construction of statutes and documents. It is used when there is imperfect enactment of statutory language. Coming corollary to this maxim is expressum facit cessare facitum which states that when there is express mention of certain things, then anything not mentioned is excluded. III. AIDS TO CONSTRUCTION OF STATUTE A. INTERNAL AID TO CONSTRUCTION OF STATUE 1. Long title It is now settled that the long title of an Act is a part of the Act and is admissible as an aid to its construction. A long title of a Legislation may not control, circumscribe or widen the scope of the legislation, if the provisions thereof are otherwise clear and unambiguous, but if the terms of the legislation are capable of both a wider and a narrower construction, that construction which would be in tune with the avowed object manifested in the preamble or declared in the long title, ought to be accepted. The title although a part of the Act is in itself not an enacting provision and though useful in case of ambiguity of the enacting provisions is ineffective to control their clear meaning. [Manoharlal vs. State of Punjab AIR 1961 SC 418];[Urmila Bala Dasi vs. Probodh Chandra Ghosh (1990) 184 ITR 604 (Cal)].

1.275 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Interpretation of Taxing Statutes 2. Marginal notes and headings The courts have held that ‘Headings’, ‘Marginal Notes’ and ‘Marginal Headings’ can be referred to while interpreting the particular provision of the act. It has been held by Courts that Headings etc. do not decide the construction of the section, but Headings etc. are indicative of the meaning and purpose of the section. “The marginal note to a section cannot be referred to for the purpose of construing the section but it can certainly be relied upon as indicating the drift of the section or to show what the section is dealing with. It cannot control the interpretation of the words of a section, particularly when the language of the section is clear and unambiguous but, being part of the statute, it prima facie furnishes some clue as to the meaning and purpose of the section.” [K.P. Varghese vs. ITO 131 ITR 597 (SC)]. “Marginal notes are not decisive in interpreting a substantive provision of law, but, in case of doubt, they can be relied upon as one of the aids for construction.” R. B. Shreeram Religious & Charitable Trust vs. CIT (1988) 172 ITR 373 (Bom)]. “The marginal note for section 44F reads “Avoidance of tax by sales-cum-dividend”. This marginal note also gives an indication as to what exactly was the mischief that was intended to be remedied. The legislature was evidently trying to circumvent the devices adopted by some of the assessees to convert their revenue receipts into capital receipts. The marginal note also throws light on the intention of the legislature”. CIT vs. Vadilal Lallubhai 86 ITR 2 (SC) 11 3. Punctuation Punctuation marks cannot control, vary or modify the plain and simple meaning of the language of the statute. At the most they can aid in the construction of ambiguous statutes. “There are three activities serially set out in that sub-clause, namely, construction, manufacture or production. A comma is, therefore, legitimately and as per the rules of grammar, required after the first activity to separate it from the second activity of manufacture. Since the second activity is followed by the word “or”, no comma is required after the second activity to separate it from the third activity. Therefore, punctuation is put as grammatically required. It does not disclose any intention of providing for a separate kind of business altogether. Punctuation, in any case, is a minor element in the construction of a statute. Only when a statute is carefully punctuated and there is no doubt about its meaning can weight be given to punctuation. It cannot, however, be regarded as a controlling element for determining the meaning of a statute.” [Hindustan Construction vs. CIT (1994) 208 ITR 291 (Bom)]. 4. Non-obstante clauses The expression “non obstante” means notwithstanding. Ordinarily, it is a legislative device to give such a clause an overriding effect over the law or provision that qualifies such clause. When a clause begins with “notwithstanding anything contained in the Act or in some particular provision/provisions in the Act”, it is with a view to give the enacting part of the section, in case of conflict, an overriding effect over the Act or provision mentioned in the non obstante clause. It conveys that in spite of the provisions or the Act mentioned in the non obstante clause, the enactment following such expression shall have full operation. It is used to override the mentioned law/provision in specified circumstances. “A non-obstante clause is usually used in a provision to indicate that the provision should prevail despite anything to the contrary in the provision mentioned in such non-obstante clause. In case there is any inconsistency or a departure between the non-obstante clause and another provision, one of the objects of such a clause is to indicate that it is the non-obstante clause which would prevail over the other clause.” [Parasuramaiah vs. Lakshamma AIR 1965 AP 220]. It is fairly common in different enactments to use the expression ‘notwithstanding anything

Direct Taxes 1.276 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication contained in this Act or other Acts’ in order to make such provision as superseding to the other provisions.’ The Supreme Court in Maharashtra Tubes Ltd. vs. State Industrial and Investment Corporation of Maharashtra Ltd. (1993) 78 Comp Case 803 has held in no uncertain terms that where two statutes contain similar non obstante clauses, it is the latter which is to prevail over the former, for, the Legislature is supposed to be aware of the fact that the statute already in force contains a non obstante clause but still incorporates such non obstante clause in order to obliterate the effect of the non obstante clause contained in the former statute. 5. Definition clause and undefined words (a) Judicially defined words “It has long been a well-established principle to be applied in the construction of an Act of Parliament that where a word of doubtful meaning has received a clear judicial interpretation, the subsequent statute which incorporates the same word or the same phrase in a similar context, must be construed so that the word or phrase is interpreted according to the meaning that has previously been assigned to it.”[Barras vs. Aberdeen Steam Trawling and Fishing Co. Ltd. (1933) AC 402 (HL)]. “Interpretation of a provision in a taxing statute rendered years back and accepted and acted upon by the department should not be easily departed from.” [CIT vs. Balkrishna Malhotra (1971) 81 ITR 759 (SC)]. (b) Definitions in other statutes When a particular expression is clearly defined, the court has no alternative but to give the meaning to expression as defined in the statute. Shaw Wallace & Co. Ltd. vs. UOI (2004) 267 ITR 248 (Cal.)(High Court) The word “means” can only have one meaning that is, it is an exclusive definition: P. Kasilingam vs. P. S .G. College of Technology 1995 Supp. 2 SCC 348. In Krishi Utpadan Mandi Samiti vs. Shankar Industries 1993 Supp. 3 SCC 361 (II), question arose for interpretation about the definition of “Agricultural Produce”. The Supreme Court observed at Page 364 as follows:¬— “It is a well settled rule of interpretation that where the Legislature uses the words “means” and “includes” such definition is to be given a wider meaning and is not exhaustive or restricted to the items contained or included in such definition. Thus the meaning of “agricultural produce” in the above definition is not restricted to any products of agriculture as specified in the Schedule but also includes such items which come into being a processed form and further includes such items which are called as gur, rab, shakkar, khandsari and jaggery.” Similarly in CIT vs. Raja Benoy Kumar Sahas Roy 32 ITR 466 (SC) 476 observed as under “Whether the narrower or the wider sense of the term “agriculture” should be adopted in a particular case depends not only upon the provisions of the various statutes in which the same occurs but also upon the facts and circumstances of each case. The definition of the term in one statute does not afford a guide to the construction of the same term in another statute and the sense in which the term has been understood in the several statutes does not necessarily throw any light on the manner in which the term should be understood generally”. Similarly decision of a court interpreting Excise Act is not binding in interpreting provision of Income Tax Act – Ambiguity of object. An interpretation placed on a particular enactment cannot be just engrafted to the provisions of another enactment. CIT vs. ECOM Gill Cofee Trading P. Ltd (2014) 362 ITR 204 (Karn). 6. Schedule The Schedules appended to a statute form part of it. They are generally added to avoid encumbering the statute with matters of excessive details, guidelines to work out the policy of the statute,

1.277 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Interpretation of Taxing Statutes transitory provisions, rules and forms which need frequent amendment and the like. Much importance is not given to the forms unless they contain requirements of a mandatory nature. 7. Exemptions An exemption clause in a taxing statute must be, as far as possible, liberally construed and in favour of the assessee, provided no violence is done to the language used. [CIT vs. Dungarmal Tainwala (1991) 191 ITR 445 (Patna)]. “It is true that an exemption provision should be liberally construed, but this does not mean that such liberal construction should be made even by doing violence to the plain meaning of such exemption provision. Liberal construction will be made wherever it is possible to be made without impairing the legislative requirement and the spirit of the provision.” [Petron Engineering Construction Pvt. Ltd. vs. CBDT (1989) 175 ITR 523 (SC)] 8. Proviso The function of a proviso is generally to provide an exception to the main provision. A proviso cannot be read independently of the section under which it is incorporated and vice-a-versa. Proviso may either carve out an exception to the section or may qualify a part of the section. Provisions for deduction, exemption and relief should be interpreted liberally, reasonably and in favour of the assessee. CIT vs. South Arcot District Co-operative Marketing Society Ltd. (1989) 176 ITR 117 (SC), CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. – [(1992) 196 ITR 149 (SC)] Proviso should be read as if providing something by way of addition to main provision CIT vs. Udaipur Distillery Co. [(2004) 274 ITR 429 (Raj)]. Proviso to a particular provision of a statute only embraces the field which is covered by the main provision and it carves out an exception to the main provision to which it has been enacted as a proviso, and to no other. {Mohamad Anwar Khan vs. State of J. & K. & Others AIR 2015 (NOC) 869 (J & K) 323} In Allied Motors, 224 ITR 677, the Supreme Court has held: “A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the Section and is required to be read into the Section to give the Section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the Section as a whole.” In Shah Bhojraj Kuverji Oil Mills & Ginning Factory vs. Subhash Chandra Jograj Sinha, AIR, 1961 SC 1596, at page 1600, the parameters of a proviso was summed up by the Supreme Court: “The Law with regard to provisos is well-settled and well-understood. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule.” Proviso to a section would normally be controlled by main section; proviso normally should be construed strictly and more so when it relates to fiscal provisions even inviting penalty consequences, whenever there is default in compliance. Sony India Ltd. vs. CIT (2005) 276 ITR 278 (Delhi) A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it Bajaj Tempo Ltd. vs. CIT [(1992) 196 ITR 188 (SC)] 9. Explanation It is understood that an Explanation is incorporated in a particular section to explain a phrase or certain words in that section. An explanation may be appended to a section to explain the meaning of the words used in the section. There is no presumption that an Explanation which is inserted subsequently

Direct Taxes 1.278 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication introduces something new which was not present in the section before. Ordinarily, an Explanation is inserted to clear up any ambiguity in the section and it should be so read as to harmonise it with the section and to clear up any ambiguity in the main section. CIT vs. Banque Nationale De Paris – [(1992) 194 ITR 167 (Bom) 168] ; Keshavji Ravji & Co. vs. CIT [ 183 ITR 1 (SC)]. An Explanation appended to a section or a sub - section becomes an integral part of it and has no independent existence apart from it. CIT vs. Reunion Engg. Co. – [(1993) 203 ITR 274 (Bom)]. Explanation below a particular sub-section or a clause is intended to explain that particular subsection or a clause only. But when Explanation is at the end of the section it is meant to explain the entire section. (A.Y. 2003-04) DIT (Exemption) vs. Bagri Foundation (2010) 192 Taxman 309 (Delhi) An explanation, if it changes the law, is not presumed to be retrospective irrespective of the fact that phrase used is “it is declared” or “for removal of doubts”. Sedco Forex International Drill Inc. & Others vs. CIT (2005) 279 ITR 310 (SC). 10. CASUS OMISSUS The Court only interprets the law and cannot legislate. To legislate is the prerogative of the Parliament or the State Legislature. A casus omissus should not be readily inferred and for the purpose all the parts of the statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. It is not open to court to add something or read something in statute on basis of some supposed intendment of statute. The maxim “Judicis estjus dicere, non dare’’ pithily expounds the duty of the Court. It is to decide what the law is and apply it, not to make. ACIT vs. Velliappa Textiles Ltd. (2003) 263 ITR 550 (SC). Normally the Court cannot supply any assumed omission in the statute except in case of necessity, within the four corners of the statute. (Union of India vs. Rajiv Kumar (AIR 2003 SC 2917) The courts have held that a Casus Omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself. However a Casus Omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on the particular provisions makes a consistent enactment to the whole statute. In CIT vs. National Taj Traders 121 ITR 535 (SC). The court was considering the period of limitation for passing order in Revision by the Commissioner. In that context it was held as under at page 541: “Two principles of construction – one relating to casus omissus and the other in regard to reading the statute as a whole –appear to be well settled. In regard to the former the following statement of law appears in Maxwell on the Interpretation of Statutes (12th end.) at page 33: “Omissions not to be inferred- It is a corollary to the general rule of literal construction that nothing is to be added to or taken from a statute unless there are adequate grounds to justify the inference that the legislature intended something which it omitted to express. Lord Mersey said : ‘It is a strong thing to read into an Act of Parliament words which are not there, and in the absence of clear necessity it is a wrong thing to do’. ‘We are not entitled’, said Lord Loreburn L.C., ‘to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself’. A case not provided for in a statute is not to be dealt with merely because there seems no good reason why it should have been omitted, and the omission appears in consequences to have been unintentional”. In regard to the latter principle the following statement of law appears in Maxwell at page 47: