Is depreciation under section 32 allowable in respect of emergency spares of plant and machinery, which though acquired during the previous year, have not been put to use in that year?

CIT v. Insilco Ltd. (2009) 179 Taxman 55 (Del.)

On this issue, the Delhi High Court observed that the expression used for the purposes of business appearing in section 32 also takes into account emergency spares, which, even though ready for use, yet are not  consumed or used during the relevant period. This is because these spares are specific to a fixed asset, namely  plant and machinery, and form an integral part of the fixed asset. These spares will, in all probability, be useless once the asset is discarded and will also have to be disposed of. In this sense, the concept of passive  use which applies to standby machinery will also apply to emergency spares. Therefore, once the spares are  considered as emergency spares required for plant and machinery, the assessee would be entitled to capitalize the entire cost of  such spares and claim depreciation thereon.

Note: One of the conditions for claim of depreciation is that the asset must be used for the purpose of  business or profession . In the past, courts have held that, in certain circumstances, an asset can be said to be  in use even when it is kept ready for use . For example, depreciation can be claimed by a transport company  on spare engines kept in store in case of need, though they have not actually been used by the company.  Hence, in such cases, the term use embraces both active use and passive use. However, such passive use  should also be for business purposes.


The Contributor is CA. Priya Subramanian

Can exemption under section 54 available on sale of a residential house be extended to the extent of investment in two flats, if such flats were combined to make one residential unit?

CIT v. D. Ananda Basappa (2009) 309 ITR 0329 (Kar.)

The assessee-HUF sold its residential house in Mumbai and purchased two residential flats adjacent to each other (from two different persons) on the same day vide two separate registered sale deeds. The builder had certified that he had effected necessary modification to make it one residential apartment. The assessee sought exemption under section 54 in respect of the investment made in purchase of the two residential flats. The Assessing Officer, however, gave exemption under section 54 to the extent of purchase of one residential flat only contending that

(i) Sub-section (1) of section 54 clearly restricts the benefit of exemption to purchase of one residential house only; and

(ii) It was found by the Inspector that, before the sale, the residential flats were in occupation of two different tenants.

The order of the Assessing Officer, though confirmed by the Commissioner (Appeals), was set aside by the Tribunal holding that the assessee was entitled to exemption in respect of the amount invested in both theflats,  since they were to be treated as one single residential apartment.

The Karnataka High Court observed that the assessee had shown that the flats were situated side by side and  the builder had also certified that he had effected modification of the flats to make them one unit by opening the door between the apartments. Therefore, it was immaterial that the flats were occupied by two different tenants prior to sale or that it was purchased through different sale deeds. The Court observed that these were not the grounds to hold that the assessee did not have the intention to purchase the two flats as one unit. The Court held that the assessee was entitled to exemption under section 54 in respect of purchase of both the  flats to form one unit.


The Contributor is CA. Priya Subramanian

Can refund collected from the Income-tax Department by fabricating TDS certificates be treated as income and subject to tax?

CIT v. K. Thangamani (2009) 309 ITR 0015 (Mds.)

On this issue, the Madras High Court observed that the income-tax authorities are not concerned about the manner or means of acquiring income, and allowing tainted income to escape the tax net would be nothing but a premium or reward to the person for doing illegal trade. The Income-tax Act treats the income earned legally as well as illegal income alike. In the event of taxing the income of only those who acquire the same through legal manner, the tendency of those who acquire income by illegal means would increase.

Therefore, even if the assessee has been prosecuted by the law enforcing authorities for commission of  offence, the income earned by him would be an income liable for assessment. It would not be a defence in  such cases that the State is also becoming a party to the illegal act by sharing the ill-gotten wealth. Illegality  tainted with the earning has no bearing on its taxability.

Therefore, where the assessee has filed bogus TDS certificates and collected refund from the Income-tax

Department, income received by the assessee by getting refund from the Income-tax Department is taxable under the residuary head Income from other sources .


The Contributor is CA. Priya Subramanian

Rotork Controls India (P.) Ltd. vs. Commissioner of Income Tax (Supreme Court), 12 May 2009

Section 37 of the Income-tax Act, 1961 - Business expenditure Allowability of Where standard warranty was required to be given during sell and assessee made provision for warranty which exceeded actual expenditure and excess amount was reversed, claim for deduction under section 37 of said excess amount could not be denied .

A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized.

Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation.

Where there are a number of obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole. In this connection, it may be noted that in the case of a manufacture and sale of one single item the provision for warranty could constitute a contingent liability not entitled to deduction under Section 37. However, when there is manufacture and sale of an army of items running into thousands of units of sophisticated goods, the past event of defects being detected in some of such items leads to a present obligation which results in an enterprise having no alternative to settling that obligation.

The assessee-company had been manufacturing and selling Valve Actuators. At the time of sale the assessee provided a Standard Warranty for a period and undertook to rectify or replace the defective part free of charge. This warranty is given under certain conditions stipulated in the warranty clause.

The assessee made a provision for warranty at the rate of 1.5% of the turnover. This provision was made by the assessee on account of warranty claims likely to arise on the sales effected by the appellant and to cover up that expenditure. During the assessment year 1991-92, since the provision made was for Rs.10,18,800/- which exceeded the actual expenditure, the assessee reversed Rs.5,00,246 as Reversal of Excess Provision. Consequently, the assessee claimed deduction in respect of the net provision of Rs.5,18,554/- which was disallowed by the revenue on the ground that the liability was merely a contingent liability not allowable as a deduction under Section 37. The Supreme Court held that Valve Actuators are sophisticated goods. Over the years appellant had been manufacturing Valve Actuators in large numbers. The statistical data indicated that every year some of these manufactured Actuators were found to be defective. The statistical data over the years also indicated that being sophisticated item no customer was prepared to buy Valve Actuator without a warranty. Therefore, warranty became integral part of the sale price of the Valve Actuator(s). In other words, warranty stood attached to the sale price of the product. These aspects were important. Obligations arising from past events have to be recognized as provisions. These past events are known as obligating events. In the instant case, therefore, warranty provision needed to be recognized because the appellant was an enterprise having a present obligation as a result of past events resulting in an outflow of resources.

Lastly, a reliable estimate could be made of the amount of the obligation. In short, all conditions for recognition of a provision were satisfied in this case.


When Valve Actuators were sold and the warranty costs were an integral part of that sale price then the appellant had to provide for such warranty costs in its account for the relevant year, otherwise the matching concept would fail. In such a case the option of making a provision for warranty only when the customer would make a claim was also inappropriate. Under the circumstances, the option of providing for warranty at 2% of turnover of the company based on past experience (historical trend) was most appropriate because it fulfilled accrual concept as well as the matching concept.

For determining an appropriate historical trend, it is important that the company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently. Thus, the decision on the warranty provision should be based on past experience of the company. A detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilized at the end of the period prescribed in the warranty. Therefore, one should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it.

On this basis a sensible estimate should be made. The warranty provision for the products should be based on the estimate at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent years, may not arise in a significant way.

On the facts and circumstances of this case, provision for warranty was rightly made by the appellantenterprise because it had incurred a present obligation as a result of past events. There was also an outflow of resources. A reliable estimate of the obligation was also possible. The appellant had incurred a liability, during the relevant assessment year which was entitled to deduction under Section 37. Therefore, all conditions for recognizing a liability for the purposes of provisioning stood satisfied in this case. It is important to note that there are four important aspects of provisioning.

They are - provisioning which relates to present obligation, it arises out of obligating events, it involves outflow of resources and lastly it involves reliable estimation of obligation.

The present value of the contingent liability like the warranty expense, if properly ascertained and discounted on accrued basis, could be an item of deduction under Section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting being adopted by the assessee. It will also depend upon the historical trend. It would also depend upon the number of articles produced. If it is a case of single item being produced then the principle of estimation of contingent liability on pro rata basis may not apply. However, in the instant case, it was not so. In the instant case large number of items being produced. They were sophisticated goods. They were supported by the historical trend, namely, defects being detected in some of the items. The data also indicated that the warranty cost(s) was embedded in the sale price. The data also indicated that the warranty was attached to the sale price.

A liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation.

If the historical trend indicates that large number of sophisticated goods were being manufactured in the past and in the past if the facts established show that defects existed in some of the items manufactured and sold, then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipts under section 37. It would all depend on the data systematically maintained by the assessee. In view of the above, the assessee succeeded.

These cases is compiled by Mr. Susanta K. Sahu, Secretary, Committee on Economic and Commercial Laws.

Presumptive tax net widened to cover all small businesses

The presumptive taxation scheme, so far restricted to civil construction and retail trade, would now cover all small businesses with gross turnover/gross receipts of up to Rs.40 lakh. Individuals, HUFs and partnership firms would be covered under this scheme. The rate of tax would be 8% of gross turnover or gross receipts. The intention of widening the scope of this scheme is to reduce the compliance burden on small businessmen and relieve them from the requirement of maintaining books of account. Further, they would also be relieved from the requirement of advance tax payments. It would be sufficient compliance if they pay their tax while filing their return of income before the due date.The only drawback of this scheme is that the presumptive rate of 8% may be on the higher side for these small businesses.

No advance tax liability if tax payable is less than Rs.10,000

There is some relief on the advance tax liability front also. Currently, the liability to pay advance tax arises when the amount of tax payable is Rs.5,000 or more. This limit was also fixed way back in 1996 and revision of the same was on the cards for quite some time. This budget has now revised this limit and from financial year 2009-10 onwards, advance tax liability would arise only if the tax payable is Rs.10,000 or more.

Wealth-tax exemption limit “up”

At present, wealth-tax liability is attracted in the hands of every individual, HUF and company at the rate of 1% of the net wealth in excess of Rs.15 lakh. This limit, fixed way back in 1992, was long due for revision. Accordingly, the limit is now proposed to be enhanced to Rs.30 lakh for the valuation of net wealth as on 31.3.2010 and thereafter.

FBT has been eliminated, but tax incidence shifted to employees

The budget has delivered the long standing demand of the corporates to abolish FBT. This tax posed a compliance burden on the tax payer as well as an administrative burden on the Department. However, the actual tax burden on fringe benefits would not be completely eliminated but would be shifted from the employer to the employee. The employer, instead of paying FBT, would now have to deduct tax at source from the employees in respect of certain fringe benefits, including ESOPs and contribution to superannuation fund in excess of the prescribed limit. These would now be taxed as perquisites in the hands of the employees. The employees may be put to difficulty on account of the liquidity problem which may arise on payment of tax on such perquisites at the time they exercise the option (in case of ESOPs) and at the time of employer’s contribution to superannuation fund in excess of the prescribed limit. They would not be receiving any cash benefit at the time when the tax payment on such perquisites is due, which may give rise to a liquidity problem.

Gifts-in-kind to attract income-tax

Cash gifts are taxable under the head “Income from other sources”, if the aggregate of such gifts from non-relatives exceeds Rs.50,000 in a year. However, gifts received on the occasion of marriage, gifts received under a will or by way of inheritance or in contemplation of death of the payer etc. are not taxable.

It is proposed to bring gifts-in-kind, whose value exceeds Rs.50,000, also within the purview of section 56 with effect from 1st October, 2009. Accordingly, it has been provided that the value of the property received without consideration or for inadequate consideration, would be included in the computation of the total income of the recipient.

If an immovable property is received without consideration, the stamp duty value of such property would be taxed as the income of the recipient if it exceeds Rs.50,000. In case the immovable property is received for inadequate consideration, and the difference between the stamp duty value and such consideration exceeds Rs.50,000, such difference would be taxed as the income of the recipient.

If movable property is received without consideration, the aggregate fair market value of such property on the date of receipt would be taxed as the income of the recipient if it exceeds Rs.50,000. In case movable property is received for inadequate consideration, and the difference between the aggregate fair market value and such consideration exceeds Rs.50,000, such difference would be taxed as the income of the recipient.

Therefore, the income-tax net has been widened to cover gifts-in-kind in addition to cash gifts.

Increase in quantum of deduction under section 80DD and scope of coverage of section 80E

The proposed increase in deduction under section 80DD, in respect of maintenance, including medical treatment of a dependent with severe disability, from Rs.75,000 to Rs.1,00,000 and expansion of scope of section 80E to cover all fields of study after Class XII or its equivalent, including vocational study, for the purpose of interest deduction in respect of loan taken for pursuing such courses, are the plus features on the personal taxation front.

AMENDMENT IN SUCHARGE APPLICABILITY

Barring the two cases given below, surcharge and education
cess will not be added to TDS with effect from April 1, 2009–

1. Under section 192, education cess and secondary and
    higher education cess will be added to the rate of tax
    deduction at source.

2. If the recipient is a foreign company and the payment
    subject to TDS exceeds Rs. 1 crore, surcharge at the rate of
    2.5 per cent will be applicable.

Changes in TDS rate for other section such as 192, 194A etc.

Apart from TDS rates under sections 194C and 194-I
as discussed in other blogs, the following changes have been made in
the rates of TDS –

1. TDS from salary - Exemption limit has been revised.
    Consequently, the tax deductible from salary under section
    192 will be governed by enhanced exemption limit with
    effect from April 1, 2009. The general basic exemption
    limit is proposed to be increased from Rs.1,50,000 to
    Rs.1,60,000. For women assessees, the limit would go
    up from Rs.1,80,000 to Rs.1,90,000 and for senior
    citizens, from Rs.2,25,000 to Rs.2,40,000.

2. TDS under section 193 - Tax will be deducted under section
    193 at the rate of 10 per cent in all cases whether the
    debentures are quoted or unquoted. This will be applicable
    from April 1, 2009.

3. TDS under section 194 -Deemed dividend under section
    2(22)(e) will be subject to 10 per cent TDS with effect from
    April 1, 2009.

4. TDS under section 194A or 194D - Tax will be deducted at
    the rate of 10 per cent even if recipient is a corporate
    assessee. This will be applicable from April 1, 2009.

Amendment to Section 201(1) regarding Providing time limits for passing of orders holding a person to be an assessee in default

Currently, the Act does not provide for any limitation of time for passing an order under section 201(1) holding a person to be an assessee in default. In the absence of such a time limit, disputes arise when these proceedings are taken up or completed after substantial time has elapsed. For this purpose, sub-section (3) has been inserted in section 201

with effect from April 1, 2010. It provides that an order
under section 201(1) for failure to deduct the whole or any
part of the tax as required under this Act, if the deductee is a
resident taxpayer, shall be passed within the time-limit
given below –
1. In case statement is filed by the deductor under section 200 -
Within 2 years from the end of the financial year in which statement is filed under section 200.

2.In case no such statement is filed - Within 4 years from the
end of the financial year in which payment ismade or credit is given.



However, order pertaining to the financial year 2007-08 (or
earlier years) can be passed at any time up toMarch 31, 2011.

* Certain period to be excluded - n computing the period of
limitation for above purposes, certain period prescribed under Explanation 1 to section 153 shall be excluded. For instance, if a Court stays the proceeding under section 200(1), the aforesaid time-limit shall be extended by the period duringwhich the proceeding is stayed by the Court.


* No time-limit in some cases - No time-limit has been prescribed for order under section 201(1) in the following cases—
a. the deductor has deducted but not deposited the tax deducted at source, as this would be a case of defalcation of government dues,
b. the employer has failed to pay the tax wholly or partly, under section 192(1A), as the employee would not have paid tax on such perquisites,
c. The deductee is a non-resident as it may not be administratively possible to recover the tax from the non-resident.

Amendment to Sec. 200A regarding Processing of statements of tax deducted at source [Sec. 200A]

Currently, almost all statements of tax deducted at source

are filed in an electronic mode. The processing of these

statements should, therefore, be done only in a computerized

environment. Section 200A has been inserted for this
purpose with effect from April 1, 2010 to provide for
processing of statements of tax deducted at source on
computer so that liabilities on account of interest and
other defaults in TDS payment are promptly calculated
and intimated to the deductor.The following adjustments
can be made during the computerized processing
of statements of tax deducted at source:

a. any arithmetical error in the statement; or
b. an incorrect claim, if such incorrect claim is apparent
    from any information in the statement, for example, in
    respect of rate of deduction of tax at source where such
    rate is not in accordance with the provisions of the Act.
   After making adjustments, tax and interest [e.g., under section
   201(1A)] would be calculated and sum payable by the deductor
   or refund due to the deductor will be determined. An intimation
   will be sent to the deductor informing him of his tax liability or
   granting him the refund due within one year from the end of the
   financial year in which the statement is filed. Further, it is
   provided that the processing of these statements can be
   undertaken in a centralized processing centre.

Amendment to section 200

Section 200(3) provides that any person deducting tax has to
furnish, within the prescribed time, quarterly statements for
the period ending on June 30, September 30, December 31
and March 31 in each financial year. Similarly, filing of
quarterly returns for tax collection at source (TCS) has been
provided in section 206C(3). Further, section 206A provides
for furnishing of quarterly return in respect of payment of
interest to residents without deduction of tax.
In order to provide administrative flexibility in deciding the
periodicity of such TDS/TCS related statements, the existing
provisions have been modified with effect from October 1,
2009 so as to allow the Government to prescribe periodicity
of such TDS statements besides prescribing their form and
manner.

Amendment to section 197A

A new sub-section (1E) has been inserted in section 197A
with effect from April 1, 2009. It provides that no deduction
of tax shall be made from any payment to any person for, or
on behalf of, theNewPension System Trust.

AMENDMENT IN TDS U/S 194I

1. With effect from October 1, 2009, tax will be deducted at
     source under section 194-I at the rates given below –

For the use of anymachinery or plant or equipment     2%*

For the use of any land or building or furniture or
fittings for all persons                                              10%*

*No surcharge, education cess and secondary and higher

education cess. Tax is not deductible on service tax – Circular

No. 4/2008, dated April 28, 2008.

2.1 Comparison of old and new rates - 

The table given below old and new TDS rates under Sec 194-I –

Nature of Payment                           TDS rate           TDS rate

/Credit                                            up to                 from

                                                     30/9/2009        1/10/2009*

Rent of plant, machinery or                10%                  2%

equipment

Rent of land, building or furniture         15%                 10%

to an individual and Hindu

undivided family

Rent of land, building or furniture          20%                10%

to a person other than an individual

or Hindu undivided family

AMENDMENT IN TDS U/S 194C

TDS from consideration paid or payable to a contractor under section 194C

1.Section 194C has been substituted by a new section with effect from October 1, 2009. The new provisions are given below –

   

1.1 Who is deductor -Any of the following persons responsible for paying any sum to a resident contractor is

                                 Supposed to deduct tax at source under section 194C, if the other conditions are satisfied -

                                 

        a. the Central Government or any State Government; or

        b.any local authority; or

        c. any corporation established by or under a Central, State or
            Provincial Act; or

        d.any company; or

        e. any co-operative society; or

        f. any authority, constituted in India by or under any law, engaged
           either for the purpose of dealing with and satisfying the need for
           housing accommodation or for the purpose of planning,
           development or improvement of cities, towns and villages, or for
           both; or

        g.any society registered under the Societies Registration Act; or

        h.any trust; or

        i. any university or an institution declared to be a university; or

        j. any Government of a foreign State or a foreign enterprise or any
           association or body established outside India; or

       k. any firm; or

       l. an individual or a Hindu undivided family (HUF) or an association
          of persons (AOP) or a body of individuals (BOI).

* Additional requirement if payer is an individual/HUF/AOP/BOI -



                                            Additional requirement   Additional requirement
                                            in the case of an            in the case of an
                                            individual/HUF                AOP/BOI


Payment/credit should be       It should not be              No such requi-
for business purposes            exclusively for                 rement
                                            personal purposes


Audit of books of account       Books of account are      Books of account 
                                            liable to be audited         are liable to be 
                                            under section 44AB(a)    audited under se-
                                            /(b) during the financial    ction 44AB(a)/(b) 
                                            year immediately prec-     during the financial
                                            ending financial year        year immediately
                                            in which tax is deductibe  preceding financial
                                                                                   year in which tax 
                                                                                  is deductibe

1.2 Who is recipient - Recipient should be a resident contractor.If, 
                                  however, recipient is a transport contractor 
                                  (maybe an individual, firm, company or any 
                                  other person) and he or it furnishes his PAN 
                                  to the deductor, tax is not deductible.
                                  “Transport operator” is a person who is in the
                                  business of plying, hiring or leasing of goods 
                                  carriages.

1.3 Payments subject to tax deduction under section 194C - If the
                                 above two conditions are satisfied, section 194C 
                                 is aplicable in respect of consideration for carrying 
                                  out any works contract (including supply of labour 
                                  for carrying out any work). For this purpose, 
                                  “contract” shall include subcontract.


* Work as defined in section 194C - The expression “work” shall also 
                                  include the following –
                    a. advertising;
                    b. broadcasting and telecasting including production of 
                        programmes for such broadcasting or telecasting;
                    c. carriage of goods or passengers by any mode of 
                        transport other than by railways;
                    d. catering;
                    e. manufacturing or supplying a product according to
                        the requirement or specification of a customer by using
                        material purchased from such customer.


It does not include manufacturing or supplying a product according to 
the requirement or specification of a customer by using material 
purchased from a person, other than such customer.


In other words, the provisions of section 194C are attracted 
only where any sum is paid for carrying out any work 
(manpower is sine qua non and without manpower it cannot
be said that work has been carried out) including supply of
labour and five services noted above – Khaitan & Co.
vs. CIT [2007] 12 SOT 120 (Delhi).

* Payment which are not subject to TDS under section 194C -

  Even though the term ‘work contract’ as used in section 194C is 
inclusive, it does not include each and every work/service. It 
includes carrying out any “work” (where manpower is essential 
requirement), supply of labour and five services (i.e., advertising,
broadcasting and telecasting, carriage of goods/passengers, 
catering and tailor- made manufacturing when raw material is 
supplied by buyer). Section 194C is not applicable in respect of the 
following contracts –


      1. Other services ( i.e, other than 5 services noted above)
          where no work is performed by the service provider nor
          any labour is supplied or engaged to do any work as part of 
          the services so provided or the work so performed, cannot 
          be said to be covered under section 194C –Khaitan &
          Co. (supra).



      2. “Work” shall not include manufacturing or supplying a 
          product according to the requirement or specification
          of a customer by using raw material purchased from a
          person other than such customer as such a contract is a 
          contract for ‘sale’. This will however not apply to a contract
          which does not entail manufacture or supply of an article 
          or thing ( e.g, a construction contract).


      3. Payment to transport operators ( i.e, in the course of 
          business of plying, hiring or leasing goods carriages) is 
          not subject to TDS under section 194C if the recipient 
          furnishes his PAN to the payer. Deductors who
          make payments to transporters without deducting TDS
          (as they have quoted PAN) will be required to intimate 
          these PAN details to the Income TaxDepartment in the 
          prescribed format.

1.4 When tax has to be deducted at source - Tax is to be 
         deducted either at the time of credit of such sum to the 
         account of the payee, or at the time of payment thereof
         in cash or by issue of cheque or by any other mode,
         whichever is earlier.

      For this purpose, any sum credited to any account, whether called
      “Suspense account” or by any other name,in the books of account
      of the payer, is treated as credit of such income to the account of 
      the payee.

1.5 Rate of TDS - In order to reduce the scope for disputes regarding 
     classification of contract as sub-contract, the same rate of TDS 
     has been specified (with effect from October 1,2009) for payments
     to both contractors as well as subcontractors.To rationalise the 
     TDS rates and to remove multiple classifications, the same rate of 
     TDS will be applicable in the case of payment for advertising 
     contracts. With effect from October 1, 2009, the following TDS 
     rate will be applicable under section 194C –


                           If the recipient is an individual/HUF    -    1%
                           If the recipient is any other person     -    2%



* Other points - The following points should be noted –

1. There is no surcharge, education cess or secondary and higher
    education cess.

2. If the recipient is a transport operator and he furnishes his PAN to
    the payer, TDS rate is nil. “Transport operator” is a person who
    is in the business of plying, hiring or leasing of goods carriages.

3. In the case of work contract being manufacturing or supplying
    product according to the specification of customer (by using
    material purchased from such customer), TDS shall be deducted
    on the invoice value excluding the value of material purchased
    from such customer if such value is mentioned separately in the

    invoice. Where the material component has not been separately
    mentioned in the invoice, TDS shall be deducted on the whole
    of the invoice value.

** Comparison of old and new rates - The table given below old 
   and new TDS rates under section 194C –

Recipient                                                           TDS rate             TDS rate

                                                                         up to                   from

                                                                         30/9/2009     1/10/2009*

Individual/HUF contractor                                        2%                    1%

Other than individual/HUF Contractor                       2%                    2%

Individual/HUF sub-contractor                                 1%                     1%

Other than individual/HUF sub-contractor                 1%                     2%

Individual/HUF contractor/sub-contractor for
advertising                                                             1%                    1%

Other than individual/HUF contractor/ sub-
contractor for advertising                                         1%                    2%

Sub-contractor in transport business                       1%                     Nil**

Contractor in transport business                             2%                     Nil**

*If the recipient does not furnish PAN, TDS rate will be 20% from
 April 1, 2010.

** NIL rate will be applicable if the transporter furnishes his PAN.If
    PAN is not furnished, the rate will be 1% for an individual/HUF
    transporter and 2% for other transporters during October 1,2009
    andMarch 31, 2010 and 20% after March 31, 2010.

1.6 When tax is not deductible - In the following cases, tax is not 
      deductible or deductible at lower rate under section 194C –

* Petty cases - To avoid tax deduction in petty cases, tax is required
      to be deducted at source where the amount credited or paid to 
      a contractor exceeds Rs. 20,000 in a single payment or credit 
      or Rs. 50,000 in the aggregate during a financial year. 
      
      In other words, tax is not be deductible under section 194C if 

      the following two conditions are satisfied—

a. the amount of any (single) sum credited or paid (or likely to be
    credited or paid) to the contractor does not exceed Rs. 20,000; and

b. the aggregate of the amounts of such sums credited or paid (or
    likely to be credited or paid) during the financial year does not
    exceed Rs. 50,000.

* Transport operators - Payment to transport operators (i.e., in the 
           course of business of plying, hiring or leasing goods 
           carriages) is not subject to TDS under section 194C if 
          the recipient furnishes his PAN to the payer. Deductors
          who make payments to transporters without deducting 
         TDS (as they have quoted PAN) will be required to 
         intimate these PAN details to the Income Tax 
        Department in the prescribed format.

* Lower rate TDS certificate under section 197 - If the 
        recipient obtains a certificate for no deduction or lower

        deduction of tax at source under section 197, then tax will

        be deductible at the rate given in the certificate.

Amendment in form 3CD under Income Tax Act 1961

FORM NO. 3CD
(as amended by Notification no. 208/2006, dated 10-8-2006)
[See rule 6 G(2)]

Statement of particulars required to be furnished under section 44AB of the Income-tax Act 1961


PART - A

1. Name of the assessee
2. Address
3. Permanent Account Number
4. Status
5. Previous year ended
6. Assessment year

PART - B

7. (a) If firm or Association of Persons, indicate names of partners/members and their

profit sharing ratios.

(b) If there is any change in the partners or members or in their profit sharing ratio since the

last date of the preceding year, the particulars of such change

8. (a) Nature of business or profession (if more than one business or profession is carried on

during the previous year, nature of every business or profession)

(b) If there is any change in the nature of business or profession, the particulars of such

change.

9. (a) Whether boos of account are prescribed under section 44AA, if yes, list of books so
Prescribed.

(b) Books of account maintained.
(In case books of account are maintained in a computer system, mention the books of
account generated by such computer system.)

(c) List of books of account examined.

10. Whether the profit and loss account includes any Profits and gains assessable on

presumptive basis, if yes, indicate the amount and the relevant section (44AD, 44AE, 44AF,

44B, 44BB, 44BBA, 44BBB or any other relevant section.)

11. (a) Method of accounting employed in the previous year

(b) Whether there had been any change in the method of accounting employed vis-à-vis

the method employed in the immediately Preceding previous year.

(c) If answer to (b) above is in the affirmative, give details of such change, and the effect

Thereof on the profit or loss.

(d) Details of deviation, if any, in the method of accounting employed in the previous

year from accounting standards prescribed under section 145 and the effect thereof on

the profit or loss.

12. (a) Method of valuation of closing stock employed in the previous year.

(b) Details of deviation, if any, from the method of valuation prescribed under section

145A, and the effect thereof on the profit or loss.

12A Give the following particulars of the capital asset converted into stock-in-trade: -
(a) Description of capital asset,
(b) Date of acquisition;
(c) Cost of acquisition;
(d) Amount at which the asset is converted into stock-in-trade.

13. Amounts not credited to the profit and loss Account, being, -

(a) the items falling within the scope of section 28;

(b) the proforma credits, drawbacks, refund of duty of customs or excise or service tax, or

refund of sales tax or value added tax where such credits, drawbacks or refunds are

admitted as due by the authorities concerned;

(c) escalation claims accepted during the previous year;

(d) any other item of income;

(e) capital receipt, if any.

14. Particulars of depreciation allowable as per the Income-tax Act, 1961 in respect of each asset

or Block of assets, as the case may be, in the Following form :-
(a) Description of asset/block of assets.

(b) Rate of depreciation.

(c) Actual cost of written down value, as the case may be.

(d) Additions/deductions during the year with dates; in the case of any addition of an asset,
date put to use; including adjustments on account of
i) Modified Value Added Tax credit claimed and allowed under the Central Excise
rules, 1944, in respect of assets acquired on or after 1st March, 1994,

ii) change in rate of exchange of currency, and

iii) subsidy or grant or reimbursement, by whatever name called.

(e) Depreciation allowable.

(f) Written down value at the end of the year

15. Amounts admissible under sections -
(a) 33AB
(b) 33ABA
(c) 33AC (wherever applicable)
(d) 35
(e) 35ABB
(f) 35AC
(g) 35CCA
(h) 35CCB
(i) 35D
(j) 35DD
(k) 35DDA
(l) 35E”

(a) debited to the profit and loss account (showing the amount debited and deduction

allowable under each section separately);

(b) not debited to the profit and loss account

16. (a) Any sum paid to an employee as bonus or commission for services rendered, where such

sum was otherwise payable to him as profits or dividend. [Section 36(1)(ii)]

(b) Any sum received from employees towards contributions to any provident fund or

superannuation fund or any other fund mentioned in section 2(24)(x); and due date for
payment and the actual date of payment to the concerned authorities under section

36(1) (va).


17. Amounts debited to the profit and loss account, being :-
(a) expenditure of capital nature;

(b) expenditure of personal nature;

(c) expenditure on advertisement in any souvenir, brochure, tract, pamphlet or the like,

published by a political party;

(d) expenditure incurred at clubs, -

(i) as entrance fees and subscriptions.

(ii) as cost for club services and facilities used.

(e) (i) expenditure by way of penalty or fine for violation of any law for the time being in

force;
(ii) any other penalty or fine :

(iii) expenditure incurred for any purpose which is an offence or which is prohibited by law;

(f) amounts inadmissible under section 40(a);

(g) interest, salary, bonus, commission or remuneration inadmissible under section

40(b)/40(ba) and computation thereof;

(h) (A) whether a certificate has been obtained from the assessee regarding payments

relating to any expenditure covered under section 40A(3) that the payments were

made by account payee cheques drawn on a bank or account payee bank draft, as the

case may be, [Yes/No]

(B) amount inadmissible under section 40A(3), read with rule 6DD [with break-up of

inadmissible amounts]

(i) provision for payment of gratuity not allowable under section 40A(7);

(j) any sum paid by the assessee as an employer not allowable under section 40A(9);

(k) particulars of any liability of a contingent nature.

(l) amount of deduction inadmissible in terms of section 14A in respect of the expenditure

incurred in relation to income which does not form part of the total income, amount

inadmissible under the proviso to section 36(1)(iii)

17A Amount of Interest inadmissible under section 23 of Micro, Small and Medium Enterprises

Development Act, 2006

(This Point has been inserted in form 3CD for the Financial Year 2008-09 onwards)

18. Particulars of payments made to persons specified under section 40A(2)(b).

19. Amounts deemed to be profits and gains under section 33AB or 33ABA or 33AC.

20. Any amount of Profit chargeable to tax under section 41 and computation there of

21. *(i) In respect of any sum referred to in clause (a),(b), (c), (d), (e) of section 43B, the

liability for which;

(A) pre-existed on the first day of the previous year but was not allowed in the

assessment of any preceding previous year and was
(a) paid during the previous year;
(b) not paid during the previous year;


(B) was incurred in the previous year and was

(a) paid on or before the due date for furnishing the return of income of

the previous year under section 139(1);

(b) not paid on or before the aforesaid date.

* State whether sales tax, customs duty, excise duty or any other indirect tax, levy, cess,

impost etc. is passed through the profit and loss account.

22. (a) Amount of Modified Value Added Tax credits availed of or utilised during the

previous year and its treatment in the profit and loss account and treatment of

outstanding Modified Value Added Tax credits in the Accounts.

23. Details of any amount borrowed on hundi or any amount due thereon (including interest on

the amount borrowed) repaid, otherwise than through an account payee cheque.

[Section 69D]

24. *(a) Particulars of each loan or deposit in an amount exceeding the limit specified in

section 269SS taken or accepted during the previous year :-
(i) name, address and permanent account number (if available with the assessee)

of the lender or depositor;

(ii) amount of loan or deposit taken or accepted;

(iii) whether the loan or deposit was squared up during the previous year;

(iv) maximum amount outstanding in the account at any time during the

previous year;

(v) whether the loan or deposit was taken or accepted otherwise than by an account

payee cheque or an account payee bank draft.

*(These particulars needs not be given in the case of a Government company, a banking

company or a corporation established by a Central, State or Provincial Act.)

(b) Particulars of each repayment of loan or deposit in an amount exceeding the limit

specified in section 269T made during the previous year :-
(i) name, address and permanent account number (if available with the assessee) of the

payee;

(ii) amount of the repayment;
(iii) maximum amounts outstanding in the account at any time during the previous year;
(iv) Whether the repayment was made otherwise than by account payee cheque or account

payee bank draft.
(c) Whether a certificate has been obtained from the assessee regarding taking or accepting

loan or deposit, or repayment of the same through an account payee cheque or an account

payee bank draft. [Yes/No]

The particulars (i) to (iv) at (b) and the Certificate at (c) above need not be given in the case of a repayment of any loan or deposit taken or accepted from Government, Government company, banking company or a corporation established by a Central, State or Provincial Act

25(a) Details of brought forward loss or depreciation allowance, in the following manner, to the

extent available:

Serial Assessment Nature of Amount as Amount as Remarks

Number Year Loss/allowance Returned Assessed

(b) whether a change in shareholding of the company has taken place in the previous year due

to which the losses incurred prior to the previous year cannot be allowed to be carried

forward in terms of section 79.

26. Section-wise details of deductions, if any, Admissible under Chapter VIA.

27. (a) Whether the assessee has complied with the provisions of Chapter XVII-B regarding

deduction of tax at source and regarding the payment thereof to the credit of the Central

Government. [Yes/No]
(b) If the provisions of Chapter XVII-B have not been complied with, please give the

following details*, namely:-

(i) Tax deductible and not deducted at all

(ii) shortfall on account of lesser deduction than required to be deducted

(iii) tax deducted late

(iv) tax deducted but not paid to the credit of the Central Government

“Please give the details of cases covered in (i) to (iv) above.”

28. (a) In the case of a trading concern, give quantitative details of principal items of goods

traded :
(i) Opening Stock;
(ii) Purchases during the previous year;
(iii) Sales during the previous year;
(iv) Closing Stock;
(v) Shortage/excess, if any

(b) In the case of a manufacturing concern, give quantitative details of the principal items of

raw materials, finished products and by-products :
A Raw Materials :
(i) opening stock;
(ii) Purchases during the previous year;
(iii) Consumption during the previous year;
(iv) sales during the previous year;
(v) closing stock;
(vi)* yield of finished products;
(vii)* Percentage of yield;
(viii)* Shortage/excess, if any.

B. Finished products/By-products :
(i) opening stock;
(ii) purchase during the previous year;
(iii) quantity manufactured during the previous year;
(iv) sales during the previous year;
(v) closing stock;
(vi) shortage/excess, if any.
*Information may be given to the extent available.

29. In the case of a domestic company, details of tax on distributed profits under section 115O in

the following form :-
(a) total amount of distributed profits;
(b) total tax paid thereon;
(c) dates of payment with amounts.

30. Whether any cost audit was carried out, if yes, Enclose a copy of the report of such audit

[See section 139(9)].

31. Whether any audit was conducted under the Central Excise Act, 1944, if yes, enclose a

copy of the report of such audit.

32. Accounting ratios with calculations as follows :-

(a) Gross profit/Turnover;
(b) Net profit/Turnover;
(c) Stock-in-trade/Turnover;
(d) Material consumed/Finished goods produced.