Kanga & Palkhivala: The Law and Practice of Income Tax 11th ed / Kanga & Palkhivala: The Law

and Practice of Income Tax, 11th ed / S. 2. Definitions

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THE INCOME-TAX ACT, 1961

CHAPTER I Preliminary
S. 2. Definitions
In this Act, unless the context otherwise requires,—

1. [(1) "advance tax" means the advance tax payable in accordance with the provisions of Chapter XVII-C;]
The Income-tax Act is a self-contained Code and the taxability of any amount is to be determined on the basis of the
meaning given to the words or phrases in the Act.2. The meanings given in various clauses of this section prevail 'unless the
context otherwise re-quires'.3. [See also ante under s 1, 'Definition clause and undefined words'.]

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4. [(1A)] "agricultural income" means—

5. [(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes;]
(b) any income derived from such land by—
(i) agriculture; or
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or re-
ceiver of rent-in-kind to render the produce raised or re-ceived by him fit to be taken to market; or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no
process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause;
(c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or
occupied by the cultivator, or the receiver of rent-in-kind, of any land with respect to which, or the produce of which,
any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on:
6. [Provided that—

(i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue
or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling
house, or as a store-house, or other out-building, and
(ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of
the Government as such, or where the land is not so assessed to land revenue, or subject to a local rate, it is not
situated—
(A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal
corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment
board and which has a population of not less than ten thousand, 7.[* * *]
8. [(B) in any area within the distance, measured aerially,—

(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in
item (A) and which has a population of more than ten thousand but not exceeding one lakh; or
(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in
item (A) and which has a population of more than one lakh but not exceeding ten lakh; or
(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in
item (A) and which has a population of more than ten lakh.]]
9. [10. [Explanation
1].—For the removal of doubts, it is hereby declared that revenue derived from land shall not include
and shall be deemed never to have included any income arising from the transfer of any land re-ferred to in item (a) or
item (b) of sub-clause (iii) of clause (14) of this section.]
11. [Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any building or land referred
to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose
or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall
not be agricultural income.]
12. [Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall
be deemed to be agricultural income.]
13. [Explanation4.—For the purposes of clause (ii) of the proviso to sub-clause (c), "population" means the population
according to the last preceding census of which the relevant figures have been published before the first day of the
previous year;]

1. Clause (1A): Agricultural Income.—

Article 366(1) defines "agricultural income" to mean agricultural income as defined for the purpose of enactments relating to
Indian Income-tax. This is strange because the definition in the Constitution depends on how it is defined by Parliament for the
purpose of the Income-tax Act. This definition has been copied without any change from the definition of the same expression in
s 311(2) of the Government of India Act, 1935. The difference is that the 1935 Act was an ordinary law like the Income-tax Act
but the relationship between Article 366(1) and statutory provisions of the Income-tax Act is quite different. The net result is that
the scope of the definition in the Constitution can expand or contract depending on the definition given in the Income-tax Act,

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1961. The definition of "agricultural income" is also important in the context of Article 274 which prohibits any amendment which
may vary with the expression of "agricultural income" as defined in the Income-tax Act unless it is introduced or moved in either
House of Parliament on the recommendation of the President. Therefore, the definition of "agricultural income" that prevailed in
1950 cannot be changed except in the manner prescribed in Article 274. This restriction would apply even to any variation to the
meaning of the expression "agricultural income". The recommendation of the President is, inter alia, necessary while moving a
Finance Bill under Article 117(1) of the Constitution of India. As the power to tax agricultural income has been given to the States,
Entry 82 of List-I enables Parliament to levy tax on income other than agricultural income.
The definition of 'agricultural income' was the same in this Act as in the 1922 Act. However, in 1970 it was amended with
retrospective effect from the commencement of this Act. In order to constitute agricultural income it is no longer required that
the land from which the income is derived should be assessed to land revenue or to a local rate, while income from buildings
which are situated in urban areas or their vicinity is now excluded from the definition of 'agricultural income' in certain
circumstances. In 2002, Explanation 2 was inserted which declared that income derived from any building or land referred to in
sub-cl (c) arising from its use for any purpose other than agriculture shall not be agricultural income.
Section 10(1) provides that agricultural income is not to be included in the total income of the assessee. The result is that
agricultural income is not only exempt from tax but, under the scheme of this Act, is also to be excluded in computing the total
income on the basis of which the rate applicable to the taxable income is determined. [See post under ss 2(45) and 66.] However,
since 1973 the annual Finance Acts have superseded this scheme by providing for inclusion of agricultural income in the total
income for the limited purpose of determining the rate applicable to the taxable income. These provisions are constitutional.14.
Agricultural income has to be exempted from tax under this Act because Parliament has no power under the Constitution to levy
tax on agricultural income. However, Parliament has power to levy tax on capital gain arising from transfer of agricultural land.15.
State legislatures are entitled to impose a tax on any of the categories of agricultural income which are exempted from tax under
this Act.16.
Like all other income, agricultural income may be realised in cash or in kind: agricultural produce which is used by the assessee as
raw material in his business may constitute agricultural income,17. or the landlord may recover rents in the form of a share of
crops. Where an assessee obtains a decree against his tenant for arrears of rent for agricultural lands and in execution of the
decree puts up the tenant's holding for sale and purchases it himself, setting off the purchase price against the decretal dues,
there is a receipt or realisation of agricultural income.18.
(a) Clause (1A)(a): Agricultural Rent or Revenue.—
This sub-clause requires three conditions to be satisfied:

(i) the rent or revenue should be derived from land;

(ii) the land should be situated in India; and
(iii) the land should be used for agricultural purposes.
(i) Rent or Revenue Derived from Land.—
Rent is a technical conception, its leading characteristic being that it is a payment in money or in kind by one person to another in
respect of the grant of a right to use land.19. Revenue is used in the broad sense of return, yield or income, and not in the sense
of land revenue.20.
A 'mustajiri lease' is a lease which creates an interest in land and under which the proprietor gives up his right to collect the rents
from the tenants and grants the same to the mustajir in return for a fixed annual payment. That fixed payment is the 'rent' which
the proprietor re-serves under the mustajiri lease, and therefore should be regarded as agricultural income, provided the other
conditions are fulfilled.21.
The word 'derived' is not a term of art22. but is synonymous with 'arising' or 'accruing'.23. Capital gain arising from a transfer of
agricultural land had been held by the Bombay High Court to be revenue derived from that land;24. while the Delhi25. and
Kerala26. High Courts had taken a contrary view. The Bombay view was superseded by the explanation to cl (1A) inserted by the
Finance Act, 1989 with retrospective effect from April 1, 1970. The Supreme Court has held that Explanation 1 is validly
enacted.27. This explanation has been applied by various High Courts in the undermentioned cases.28. It does not apply to
assessment year 1969–70 and earlier years.29.
Revenue can be said to be 'derived from land' only if land is the immediate and effective source of the revenue and not the
secondary and indirect source.30. If a person transfers his agricultural land to another in consideration inter alia of a life annuity
which is charged upon the land, the annual payment is not agricultural income.31. It is not rent or revenue derived from land; it is
money payable under a contract imposing a personal liability on the covenantor, the discharge of which is secured by a charge on
land. The covenantor is at liberty to make the payments out of any moneys and is bound to make them whether the land is
sufficiently productive or not. The source of the life annuity is the covenant, not land.32. Similarly, an amount paid annually in
consideration of feudal proprietors of the land relinquishing their claims to the land is not agricultural income, whether or not
secured by a charge on the land, for the source of the income is not land but the covenant to pay. 33. An allowance called

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'malikana' paid by the government under a statutory obligation to a proprietor dispossessed of his land is not revenue derived
from land, for the immediate and effective source of the income is the Government's statutory obligation to pay and not land.34.
But compensation received for requisition of land which continues to be used for agricultural purposes after the requisition, is
revenue derived from agricultural land.35. [See further post under 'Non-agricultural income does not become agricultural by
reason of indirect connection with agricultural land'.]
Setting at rest a conflict of opinion among Indian High Courts, the Privy Council held in CIT v Kamakshya Narain Singh,36. that
interest on arrears of rent payable in respect of agricultural land is not agricultural income, for it is neither 'rent' nor 'revenue
derived from land'. Similarly, where a zamindar obtains from defaulting tenants promissory notes in respect of such arrears of
rent, the interest which accrues due on the promissory notes is not agricultural income.37.
On general principles, if salami or premium paid in respect of tenancies or holdings is capital in character, as normally it would be,
it would not be taxable as income under the Act38. and in that case no further question would arise as to whether it is exempt
from tax as being agricultural income. If salami or premium is income in nature, it would be 'revenue derived from land' where it is
paid for the settlement of lands or abandoned holdings or for recognition of transfer of holdings.39. Similarly, jagir income
received from the state government which was in the nature of land revenue assigned under the implied grant from the time of
the British Government is revenue derived from land.40. Mutation fees exacted from tenants upon their succeeding to occupancy
holdings, or fees exacted for the grant of a renewal of a lease, are also revenue derived from land, and it is immaterial whether the
executions are illegal or legally recoverable.41. Nazarana may or may not be agricultural income, it depends on the occasion and
the purpose for which the payment is made.42.

(ii) Land situated in India.—

For income to be 'agricultural income' the land should be situated in India. This condition, like the third one mentioned below, is
to be fulfilled not only under sub-cl (a) but also under sub-cll (b) and (c), since those sub-clauses refer to 'such land', i.e. the land
mentioned in sub-cl (a). Foreign agricultural income falls outside this definition and is not entitled to exemption under s 10(1). See
further post under 'Old law: land assessed to land revenue or local rate in India.'

(iii) Land used for Agricultural Purposes.—

Whether exemption as agricultural income is sought under sub-cl (a) or (b) or (c), the primary condition must be satisfied that the
land in question is used for agricultural purposes.43. The land must be actually used for agricultural purposes in the accounting
year; the purpose for which the land is leased or the purpose for which the land was used when the lease was originally made, is
an immaterial consideration.44.
The judgments of the Supreme Court in CIT v Benoykumar Sahas Roy,45. and the Federal Court in Meghraj v Alla Rakhia,46. are
leading authorities on the connotation of 'agricultural land' and 'agricultural purposes'.
On the question whether land is used for agricultural purposes, the Privy Council laid down two propositions in Mustafa Ali Khan
v CIT:47. (i) no assistance is to be got from the meaning ascribed to the word 'agriculture' in other statutes; and (ii) though it must
always be difficult to draw the line, yet, unless there is some measure of cultivation of the land, some expenditure of skill and
labour upon it, it cannot be said to be used for agricultural purposes within the meaning of this Act. All courts agreed that income
from the sale of forest trees, fruits and flowers growing on land naturally, spontaneously and without the intervention of human
agency, is not agricultural income. 48. But there was a conflict of judicial opinion on the question whether in cases where there is
no tilling or cultivation of the land and the trees are all of spontaneous germination, regular operations in forestry to aid the
growth of the trees would constitute agriculture. This conflict was resolved by the Supreme Court in CIT v Be-noykumar Sahas
Roy.49. After exhaustively discussing the case-law on the subject, Bhagwati J laid down in that case the following principles:

(1) Some basic operation, prior to germination, involving expenditure of human skill and labour on the land itself and not merely
on the growths from the land, is essential to constitute agriculture; illustrative instances of such basic operations are tilling of
the land, sowing or disseminating of seeds, and planting.
(2) Subsequent operations, i.e. operations performed after the produce sprouts from the land,—eg weeding, digging the soil
around the growth, removal of undesirable under-growths, tending, pruning, cutting, felling and preservation of the plants
from insects, pests and other animals, by themselves, would not constitute agriculture.50. But in cases where the subsequent
operations are combined with the basic operations, the subsequent operations would also constitute part of the integrated
activity of agriculture.
(3) Agriculture connotes not merely the raising of grain and food products for men and animals but also the raising of all
commercial crops, e.g. the cultivation of a casuarina plantation,51. tea,52. coffee,53. tobacco,54. cotton,55. sugar-cane,56. toddy-
trees,57. rubber,58. jute, hemp and indigo.

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(4) Activities not involving any basic operation on the land would not constitute agriculture merely because they have relation to
or connection with the land. For instance, breeding and rearing of livestock, dairy farming, butter-and cheese-making, and
poultry farming would not by themselves be agricultural purposes.59. [For assessment years 1964–65 to 1975–76 the entire
income derived from a business of livestock breeding or poultry or dairy farming was exempt from tax under s 10(27) (now
deleted); and from the assessment year 1976–77 to 1985–86 a limited deduction in respect of such income was allowed
under the old s 80JJ. From the assessment year 1990–91 a limited deduction in respect of income from poultry farming is
reintroduced by the present s 80JJ. In cases where livestock breeding or poultry or dairy farming is an integral part of
agricultural operations, the income therefrom may be regarded as part of agricultural income and would be exempt from tax
as such, and the question of claiming relief under s 80JJ or the old s 10(27) would not arise.]
Applying the above principles the Supreme Court held in CIT v Jyotikona Chowdhurani,60. Kameshwar Singh v CIT,61. and CIT v
Ramakrishna Deo,62. that in a forest where there is no tilling of the land or other basic operations like sowing or planting, and all
the trees are of spontaneous germination, subsequent operations for the conservation, growth and improvement of the forest
trees would not constitute agricultural operations.63. However, in CIT v Be-noykumar Sahas Roy,64. where the denuded parts of
the forest were replanted and subsequent operations in forestry were carried out, the income from the sale of such replanted
trees was held to be agricultural income.
Income derived from sale of wild grass and reeds of spontaneous growth is not agricultural income—wild grass and forest trees of
spontaneous growth stand on the same footing.65. However, land leased for grazing or pasturing animals required for agricultural
pursuits is used for an agricultural purpose and the grazing fee realised from such a lease is agricultural income, irrespective of
whether the grass on the land is cultivated or of spontaneous growth.66. Running a dairy as purely incidental to agriculture, where
cattle are pastured upon agricultural lands, has been held to be an agricultural purpose.67. So too, the sale proceeds of plants
raised in a nursery have been held to be agricultural income.68. Indeed, Explanation 3, inserted by the Finance Act, 2008, clarifies
that any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
Rent of the site of a flour mill,69. income derived from land used for potteries or as brickfields70. or as stone quarries71. or from
land let out for storing crops or stacking timber, 72. ground rent for permanent shops, at bazaars and stall fees paid by temporary
daily sellers at bazaars,73. hire charges for shooting films on gardens,74. compensation for requisition of land for military
purposes,75. compensation for breach of agreement for sale of agricultural land,76. income from fisheries,77. and income from
ferries or moorings,78. are not derived from land 'used for agricultural purposes' and none of them can be regarded as agricultural
income. Similarly, income derived from letting land and trees for cultivation of lac,79. or income from tapping and vending
toddy,80. or the profits of salt produced by flooding the land with sea water81. are not income derived from land used for
agricultural purposes. The Kerala High Court has held that the rubber replantation subsidy received by an assessee is not
agricultural income82. and a full bench thereof has held it to be a capital receipt.83.

Old Law: Land Assessed to Land Revenue or Local Rate in India.—

Unlike the present definition of 'agricultural income' (as substituted in 1970 with retrospective effect from the commencement of
the Act), the definition under the 1922 Act imposed the further condition that the land from which the income was derived
should be either (a) assessed to land revenue in India84. or (b) subject to a local rate assessed and collected by officers of the
government as such. If the land was situate outside India and was assessed to land revenue by another state, the income
therefrom was not agricultural income.85.
If the local rate was assessed and collected not by the officers of the government but by a local authority, e.g. a municipality, the
income from such land was not agricultural income although it might be derived purely from agriculture.86. However, if a road
cess levied upon land outside municipal limits was assessed and collected, not by the District Board, but by the Collector acting as
an officer of the government and not as a delegate or functionary of the district board, the condition was satisfied; and the
capacity in which the collector assessed and levied the cess was not affected by the destination of the proceeds of the cess when
collected or by the fact that the rate of the cess was determined in each year by the District Board.87. The use of the phrase 'local
rate' clearly implied that rates levied for the benefit of a local body intended to be comprised in the definition, provided they were
assessed and collected by an officer of the government like the collector.88.

(b) Clause (1A)(b): Income from Agricultural Produce and from Manufacturing Process.—
This sub-clause deals with 'income derived from such land' by the methods specified. The phrase 'such land' refers to land
described in sub-cl (a), viz 'land which is situated in India and is used for agricultural purposes'.89. If this primary condition
regarding the quality of the land is not satisfied, the case for bringing the income in question within the ambit of sub-cl (a) or (b)
must fail.90.
A cultivating owner or tenant of land who sells a standing crop, or the produce after harvest, derives his income from his land by
agriculture within the meaning of s 2(1A)(b)(i); but not so a merchant who purchases a standing crop and sells it after harvest; his
profit from the trading operation of purchase and sale of the crop is not agricultural income.91.

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Sub-clause (a) refers to income derived from land which is used directly for agricultural purposes; and sub-cl (b) also covers by-
products, such as the selling of milk, the pasturing of cattle etc, provided the endeavour is agricultural and provided it is
reasonably connected with land used for agricultural purposes.92. Even under sub-cl (b) the income must be 'derived from land'. If
a farmer has cattle pastured on the farm and the cattle are kept solely for agricultural purposes, the income from the sale of milk
as well as of cream and butter made on the farm would be agricultural income as being income 'derived from land used for
agricultural purposes'. However, if the farmer contents himself with separating his cream and sending it to the creameries or
butter factories, the making of butter would be a factory process, separated from the farm, and the income from the sale of
butter would not be income 'derived from land'.1. The treatment to which the raw material is subjected and the circumstances in
which it is accorded that treatment, may be such that the finished article cannot be fairly regarded as a product of the use of the
land to which the raw material owes its origin.2.
This is further made clear by the provision in sub-cll (ii) and (iii) under which the process to which the agricultural produce is
subjected should not be other than that ordinarily employed by a cultivator to render the produce fit to be taken to market. Sub-
clauses (ii) and (iii) require two conditions to be fulfilled. First, the process must be one which is ordinarily employed by a cultivator
—it is immaterial whether the process is manual or whether it involves the use of machinery.3. Secondly, the process must be
employed to render the produce fit to be taken to the market. In other words, the produce must retain its original character in
spite of the process unless there is no market for selling it in that condition.4. These clauses contemplate the marketing of the
produce in the ordinary way and not the mere possibility of selling it; the process must be one ordinarily employed by the
cultivators of a particular locality at the relevant time to render the produce fit for the market.5. Thus the process employed by
the assessee of cleaning raw tamarind and converting it into 'flower tamarind' would be one covered by these sub-clauses if it is
ordinarily employed by other cultivators of the locality before marketing the produce, although tamarind may be saleable in its
raw state before cleaning.6. The raw peas being perishable item converted into pea seeds by just uprooting the plant as a whole
and then by drying, thrashing and winnowing the uprooted pea plant, income derived by the assessee from pea seeds was
agricultural income.7. Tobacco leaves are ordinarily dried to make them suitable for the market, hence income from the sale of
dried tobacco leaves would be agricultural income.8. But if sugar-cane is ordinarily marketed in a given area without being
subjected to any process, the process of converting sugar-cane into gur or refined sugar would not be a process which can be
said to be employed 'to render the produce fit to be taken to market,' and the profits attributable to the process of converting
sugar-cane into gur or refined sugar would not be agricultural income.9. Similarly, the green tea leaf is a marketable commodity,
and the process of manufacturing it into tea fit for human consumption cannot be said to yield agricultural income. 'The
manufacturing process cannot properly be said to be employed to render the tea leaves fit to be taken to market'.10. Eucalyptus
leaves also have a market and hence the oil extracted from them cannot be considered to be an agricultural produce.11. So also
unginned cotton has a ready market, and the profit attributable to the ginning operation is not agricultural income.12. But on the
finding that there was no market for raw aloe leaves, the process of converting aloe leaves into sisal fibre was held to be a process
employed to render the produce fit to be taken to market.13.
In a case where the farmer makes available the land for cultivation of seeds supplied by the assessee, and the farmer carries out
the process of cultivation with the seeds and other facilities for cultivation made available to him by the assessee on promise of
assured price for the produce, it was held that since the assessee neither had derivative interest in the land nor did it actually
cultivate the land the income earned by the assessee is not agricultural income.14. It is submitted that this view is incorrect, when
the assessee has provided all facilities for the purpose of cultivation, it is deemed to have been carrying out agricultural activity
and its income is from agricultural produce. In a later decision, it has been held that processing of seeds, even by hybrid method
and use of technology, is an agricultural activity. 15. The Court observed: 'Maybe a few hybrid seeds could be produced by artificial
method in a laboratory. The seeds so produced with non-agricultural activity again will have to be sown in the agricultural field to
have a larger quantity for sale in the market'.
Apportionment.—Where the assessee's income is partly agricultural and partly from manufacture, e.g. in the aforesaid cases
where the assessee grows tea, cotton, tobacco or sugarcane, subjects it to a manufacturing process, and sells the manufactured
product, the profits on the sales would have to be apportioned, and the element in the profits referable to the manufacturing
process would be taxable as business profits, while the balance referable to agricultural activities may be exempt as being
agricultural income.16. In such cases the task of apportionment of profits is simplified by rr 7 and 8 made in exercise of the powers
conferred by s 295(2)(b). Under r 7, the market value of the agricultural produce used as raw material in the business is deductible
from the business profits, as representing agricultural income.17. Under r 8, which is valid18. and which applies only in cases where
the assessee himself grows tea leaves and manufactures tea in India,19. 40 per cent. of the profits on sales is taxable as business
income, while the balance is exempt as representing agricultural income.20. But insurance money received for damage to green
leaf is wholly agricultural income, and the question of applying r 8 does not arise.21. [See Infra under 'Disintegration of income
into agricultural and non-agricultural elements'.]
If the income is derived from agricultural lands situate in a foreign state, the income would fall outside the definition of
'agricultural income' in this clause, and the entire income, from purely agricultural operations as well as from manufacture, would
be taxable under s 28 as income from business.22.

(c) Exemption of Capital Gain on Transfer of Agricultural Land.—

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[See under s 2(14)(iii), 'Agricultural land', and under s 54B.]

(d) Clause (1A)(c): Agricultural House Property.—

Income from house property is taxable under s 22 on the basis of its bona fide annual value. Income from such house property
as satisfies the conditions of this sub-clause would be agricultural income and would consequently be exempt from tax. Broadly
speaking, the main cumulative requirements of this sub-clause are:

(a) the building should be on or in the immediate vicinity of agricultural land in India;23.
(b) it should be occupied by the cultivator or the recipient of agricultural income;
(c) the cultivator or the recipient should, by reason of his connection with the land, re-quire it as a dwelling house or as a
storehouse or other outbuildings;24. and
(d) (i) the land should be assessed to land revenue in India or be subject to a local rate assessed and collected by officers of the
Government as such;25. or
(ii) where the land is not so assessed to land revenue or to a local rate, it should not be situated within the urban areas
specified in the section or their vicinity notified by the Central Government.26.
As regards cl (c) above, once it is shown that the assessee by reason of his connection with the land does require a dwelling house
in the vicinity, it is not open to the department to raise the further question whether the house is more commodious than other
persons in the assessee's position would consider sufficient for their actual needs.27.
However, income derived from letting out a building for residential purpose or any other non-agricultural purpose shall not be
agricultural income.28.
Clause (ii)(A) of the proviso excludes lands that are located within municipalities. 'Municipality' has been defined in arts 243P and
243Q of the Constitution to include Nagar Panchayats, municipalities and municipal corporations. However, it is submitted that
the word 'municipality' was introduced in this proviso in 1970, whereas the definition under the Constitution, was only added in
1992. The intention of introducing cl (ii)(A) to the proviso was to take lands situated in urban areas outside the scope of the
meaning of 'agricultural land',29. and the clause must be interpreted in that light.
The Finance Act, 2013 has substituted the conditions set out in proviso (ii)(B) to cl (1A)(c) with respect to location of the land
wherein it is situated. The substituted clause now provides that land should not be situated in any area within the specified
distance measured aerially from the municipality or cantonment area. For measuring the distance between the municipality and
the land, the report of the State revenue department and survey authorities should be preferred over that of the investigation
wing of the income-tax department.30.

(e) Agricultural Income is Exempt, Howsoever and by Whomsoever it is Received: Agricultural Income as Part of Business
Profits.—
Income falling within the definition in this clause would be agricultural income, and exempt from tax as such, howsoever and by
whom-soever it may be received.31. 'The exemption is conferred, and conferred indelibly, on a particular kind of income and does
not depend on the character of the recipient'.32. Agricultural income does not lose its right to exemption merely because it can be
brought under one or other of the heads of income set out in s 14 of the Act.33. For instance, agricultural income does not lose
the benefit of the statutory exemption and become assessable as business profits merely because it is received by the assessee,
not as an ordinary landlord or proprietor, but as part of the profits of a moneylending or other business carried on by him.34.
Rent for agricultural land received from the tenants by a mortgagee in possession, e.g. a usufructuary mortgagee, would be
agricultural income and exempt as such, it being immaterial whether any part of the rent in any account as between mortgagor
and mortgagee is or ought to be appropriated to the payment of principal or of interest or to any other purpose.35.

(f) Non-agricultural Income does not become Agricultural by Reason of Indirect Connection with Agricultural Land.—
As stated above, where the income falls within the definition of agricultural income it earns exemption, in whatever character the
assessee receives it. Conversely, as the Privy Council laid down in Premier Construction Co Ltd v CIT,36. 'Where, an assessee
receives income, not itself of a character to fall within the definition of agricultural income contained in the Act, such income does
not assume the character of agricultural income by reason of the source from which it is derived or the method by which it is
calculated'. In that case the assessee, as the managing agent of a company, received remuneration calculated at the rate of 10 per
cent. of the net profits of the company. A part of the company's income was agricultural income. The Privy Council rejected the
assessee's claim that such part of its remuneration as was proportionate to the agricultural income of the company was itself
agricultural income and as such exempt from tax. Interest received by the lender in the form of agricultural produce,37. interest or

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salary received by a partner from his firm out of its agricultural income,38. interest on compensation for compulsory acquisition of
land,39. compensation for extension of time for payment of sale price of agricultural land,40. a share of agricultural produce given
by way of price for water supplied to the land,41. income derived by a state farming corporation from sale of tender forms to
tenderers42. or the profit made by a trader who purchases a standing crop from a cultivator and sells it after harvest,43. is not
agricultural income. Similarly an annual payment made under a contract imposing personal liability on the covenantor is not
agricultural income, though it may be secured by a charge on agricultural land.44. The fact that a pecuniary legacy or a periodic
allowance, say under a will, deed or compromise, is or may be paid out of agricultural income or is secured by a charge upon
agricultural land, does not make the legacy or allowance agricultural income in the hands of the recipient.45. Remuneration for
managing an agricultural estate,46. even remuneration paid to the shebait of a trust of agriculture land calculated on a
percentage of the trust income,47. or remuneration for collecting revenue in respect of agricultural land, or commission earned by
the landlord for selling the agricultural produce of his tenants,48. is not agricultural income. Where the mutawalli of a wakf
received as remuneration for his services a monthly salary, it was held that the fact that the income of the wakf was derived from
agricultural land did not make the remuneration paid to the mutawalli 'agricultural income', since the remuneration did not
depend either on the nature of the wakf properties or on the amount of income derived therefrom by the wakf estate.49. But
where the mutawalli of a wakf was entitled, under the wakf-deed, by way of remuneration for his services, to retain as a
beneficiary, a part of the agricultural income of the wakf estate, such remuneration was held to be agricultural income and as such
exempt from tax.50. [See further ante under 'Rent or revenue derived from land'.]

(g) Dividend Paid by Company out of Agricultural Income.—

The Supreme Court held in Bacha Guzdar v CIT,51. that a dividend paid by a company out of its agricultural income is not exempt
from tax as being agricultural income in the hands of the shareholder. Applying the test laid down by the Privy Council in CIT v
Kamakshya Narain Singh,52. the Supreme Court held that the immediate and effective source of the dividend being the
shareholding and not the land, the dividend could not be said to be revenue or income derived from land; and observed,
'Agricultural income as defined in the Act is obviously intended to refer to the revenue received by direct association with the land
which is used for agricultural purposes and not by indirectly extending it to cases where that revenue or part thereof changes
hands either by way of distribution of dividends or otherwise'.53. [See also post under s 2(22), 'Dividend properly so called under
general law, paid out of capital profits', and under deleted s 235.]

(h) Disintegration of Income into Agricultural and Non-agricultural Elements.—

If an in-come receipt comprises both agricultural and non-agricultural elements, it should be disinte-grated, and that portion
which represents agricultural income should be exempted from tax.54. Thus composite revenue derived from land which is partly
agricultural and partly non-agricultural may be apportioned.55. Where a co-owner of an agricultural estate employs another co-
owner to manage it in consideration of a periodic allowance, the income of the latter from the estate should be apportioned, and
that part of it which he receives by virtue of his co-ownership of the land would be exempt from tax as being agricultural income
while the balance would be taxable as salary in his hands.56. Similarly, where a man subjects agricultural produce to a
manufacturing process before selling it, the profits on the sale would have to be disintegrated and the portion representing
agricultural income would be exempt from tax but the portion attributable to the manufacturing process would be taxable as
business profits.
A composite contract involved two activities: (i) sowing seeds and developing nurseries on own lands; and (ii) transplanting the
grown plants to areas specified by its customer and maintaining the same. The latter was held to be income derived from service
and not agriculture.57. The court held that the second activity of maintaining the plants will not fall within the expression 'fit to be
taken to the market' of s 2(1A)(b)(ii). It is submitted that this decision requires reconsideration. The Court did not examine
applicability of s 2(1A)(a) or s 2(1A)(b)(i), as the question of law framed by the Court did not require the court to consider these
clauses of s 2(1A). It is submitted that the latter activity of maintaining the plants is part of the agriculutural operations and the
court ought not to have given such a narrow interpretation. [See ante under 'Income from agricultural produce and from
manufacturing process'.]

(i) Burden of Proof.—

The burden is on the assessee who claims exemption from tax to prove that the income in question is agricultural income.58.

(j) Reference to Court.—

The question whether a particular item of income is 'agricultural' within the meaning of the statutory definition is a mixed
question of fact and law.59. Whether a piece of land is agricultural land or not is essentially a question of fact; land lying fallow and
in a developed locality are not sufficient factors to render it non-agricultural.60.

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In the context of s 2(1A), the undernoted cases held that referable questions of law arose61. or did not arise62. under s 256.
In the context of s 2(1A), the undernoted cases held that substantial question of law did not arise.63.

64. [65. [(1B)] "amalgamation", in relation to companies, means the merger of one or more companies with another company or the
merger of two or more companies to form one company (the company or companies which so merge being referred to as the
amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as
the amalgamated company) in such a manner that—

(i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of
the amalgamated company by virtue of the amalgamation;
(ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of
the amalgamated company by virtue of the amalgamation;
(iii) shareholders holding not less than 66.[three-fourths] in value of the shares in the amalgamating company or companies
(other than shares already held therein immediately before the amalgamation by, or by a nominee for the amalgamated
company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation,
otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of
such property by the other company, or as a result of the distribution of such property to the other company after the winding-
up of the first mentioned company;]
Clause (1B) [Explanation to Section 10(2)(vi-c)(i) of 1922 Act]: Amalgamation.—This definition is relevant to inter alia ss
10A(7A), 10B(7A), 32(fifth proviso), 32A(5) and (6), 33(3), 33A(4) and (5), 34(3)(b) (proviso), 35(5), 35A(6), 35AB(3), 35ABB(6),
35D(5), 35DD, 35DDA(2) and (5), 35E(7), 41(1) (Expln 2), 41(2) (now deleted), 41(4) (Expln (2), 42(2) (proviso), 43(1) (Expln 7),
43(6) (Expln 2), 43C, 47(vi), (via) and (vii), 49(l)(iii)(e) and (2), 72A, 79(a) (second proviso), 80-IA(12), 80-IB(12), 80JJA(2), 115AC(5)
and 155(4A), (5) and (5A). The main questions, of depreciation, development rebate, expenditure for the purpose of
amalgamation, balancing charge, cost of acquisition, capital gains tax, and set-off and carry-forward of loss and depreciation
allowance, which arise on amalgamation, are dealt with under ss 32, 33(3), 35DD, 43C, 47, 72A and 79 respectively.
In this clause, 'shares' would include all classes of shares, whether voting or non-voting, and therefore, 'three-fourths in value of
shares' means three-fourths in value of the aggregate share capital and not merely equity capital of the demerged company.
An amalgamation is effected by shareholders of one or both of the amalgamating companies exchanging their shares (either
voluntarily or as the result of a legal operation) for shares in the other or a third company. The arrangement is frequently effected
by means of a take-over bid by one of the companies for the shares of the other, or of a take-over bid by a third company for the
shares of both.67.
68. [(1C)"Additional Commissioner" means a person appointed to be an Additional Commissioner of Income-tax under sub-
section (1) of section 117;
(1D) "Additional Director" means a person appointed to be an Additional Director of Income-tax under sub-section (1) of section
117;]
(2) "annual value", in relation to any property, means its annual value as determined under section 23;
69. [(3) *****]

(4) "Appellate Tribunal" means the Appellate Tribunal constituted under section 252;
(5) "approved gratuity fund" means a gratuity fund which has been and continues to be approved by the 70.[Principal Chief
Commissioner or Chief Commissioner or Principal Commissioner or Commissioner] in accordance with the rules contained in Part
C of the Fourth Schedule;
(6) "approved superannuation fund" means a superannuation fund or any part of a superannuation fund which has been and
continues to be approved by the 71.[Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or
Commissioner] in accordance with the rules contained in Part B of the Fourth Schedule;
(7) "assessee" means a person by whom 72.[any tax] or any other sum of money is payable under this Act, and includes—

(a) every person in respect of whom any proceeding under this Act has been taken for the 73.[assessment of his income or
assessment of fringe benefits] or of the income of any other person in respect of which he is assessable, or of the loss
sustained by him or by such other person, or of the amount of refund due to him or to such other person;
(b) every person who is deemed to be an assessee under any provision of this Act;
(c) every person who is deemed to be an assessee in default under any provision of this Act;

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1. Clause (7) [Section 2(2) of 1922 Act]: Assessee.—

The corresponding definition in the 1922 Act did not include sub-cll (b) and (c). 'Assessee' is defined as meaning a person by
whom any tax or any other sum of money (which includes penalty or interest) is payable under this Act.74. It also includes every
person in respect of whom any proceeding under this Act is taken for the assessment (a) of his income, (b) of his loss or (c) of the
amount of refund due to him. Thus, the definition covers two categories: first, persons by whom any tax, penalty or interest is
payable under this Act, whether any proceeding under this Act has been actually taken against them or not; and secondly,
persons against whom any of the proceedings specified in this clause has been taken, whether they are or are not liable to pay
any tax, penalty or interest.75. This clause makes explicit (what was implicit in the 1922 Act) that 'assessee' includes a person who
is assessable in respect of the income or loss of another, 76. or who is deemed to be an assessee or an assessee in default under
any provision of the Act. Thus, under this clause, 'assessee' includes a registered firm which is made liable under s 182(4) to pay
tax payable by a partner.77.
A person who has deducted excess tax at source and paid the same to the Department is not an assessee-in-default. He is not
even a representative assessee, since he is not an agent of the recipient. However, the Bombay High Court has interpreted s 2(7)
(c) to include such a person within the meaning of 'assessee' and held that he could claim refund under s 240 of the Act.78.
Representative assessees are deemed under s 160 to be assessees in respect of another person's income or loss and, under s 201,
a person who is bound to deduct tax at source and who does not deduct or after deducting fails to pay the tax, is deemed to be
an assessee in default.

2. Assessee – seven categories.—

Under s 2(31) person includes:

(a) an individual,
(b) a Hindu undivided family
(c) a company
(d) a firm
(e) an association of persons or a body of individuals, whether incorporated or not
(f) a local authority, and
(g) every artificial juridical person, not falling within any of the preceding sub-clauses.
These are the seven categories of assessees chargeable under the Act.
The expression "assessee" means a person by whom any tax or other sum of money is payable under the Act and a manager of a
Hindu undivided family (HUF) cannot be deemed to be the assessee where the income assessed is of the HUF. The manager
cannot be treated as the assessee for the purpose of assessment and recovery of tax.79. This decision would no longer come to
the rescue of a manager or a karta after October 1, 1975 because an Explanation was added to r 73 of Schedule –II to specifically
provide that if the defaulter is a Hindu undivided family, its karta shall be deemed to be the defaulter.
The word "assessee" includes a deemed assessee and it would, therefore, not be correct to contend that a person cannot be
considered as an assessee in the absence of actual proceedings pertaining to him.80. The partner of a firm is also an assessee and
entitled for deduction under s 35CCA in respect of payments which he makes out of his share of income from the firm.81.
Although the definition of "assessee" includes an assessee in default, it has to be read in the context of s 226 which bears a
different connotation in view of the provisions of the Second Schedule.82.
If, under an agreement A promises to pay the tax dues of B, the Revenue, not being a party to the agreement, cannot treat A as
the assessee and demand from him the tax due by B.83.
In the context of s 2(7), the undernoted case held that referable question of law did not arise84. under s 256.

85. [(7A) "Assessing Officer" means the 86.[Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy
Director] or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-
section (1) or sub-section (2) of section 120, or any other provision of this Act, and the 1. [Additional Commissioner or],
2. [Additional Director or,] 3. [Joint Commissioner or Joint Director] who is directed under clause (b) of sub-section (4) of that
section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this
Act;]
Clause (7A): Assessing Officer.—The expression 'assessing officer' in this clause is not confined to the assessing officer making

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the regular assessment but includes all the authorities mentioned in this clause.4.
(8) "assessment" includes re-assessment;
Clause (8): Assessment.—This definition, which did not occur in the 1922 Act, expressly provides that 'assessment' includes
reassessment. Thus the definition gives statutory effect to the decision of the Supreme Court in Lakshman Shenoy v ITO.5. [Cf
under cl (40).]
The word "assessment" has different connotations when used in different sections of the Income-tax Act. As the Privy Council
pointed out:
"One of the peculiarities of most Income-tax Acts is that the word assessment is used as meaning sometimes computation of
income, sometimes determination of the amount of tax payable and sometimes the whole procedure laid down in the Act
imposing liability upon the tax payer. The Indian Income-tax Act is no exception in this respect."6.
The word "assessment" is comprehensive and can comprehend the whole procedure by ascertaining and imposing liability on the
taxpayer.7. Proceedings taken for rectification are also proceedings for assessment.8. The words "assessment and re-assessment"
cannot be treated as mutually exclusive and the word "assessment" cannot be given a restricted meaning.9. Assessment is the
process of determining the total income of the assessee and the sum payable towards Income-tax, surcharge, super tax, etc.10.
There is a difference between a regular assessment under s 143 and an assessment by settlement under Chapter XIX-A. The steps
required to be followed under the former category are absent in proceedings under Chapter XIX-A.11.
In cases where s 144C is applicable, issuance of draft assessment order is mandatory.12. [For further discussion, see commentary
under s 144C at p 2549, under 'Procedures…].
(9) "assessment year" means the period of twelve months commencing on the 1st day of April every year;
Clause (9): Assessment Year.—This clause defines 'assessment year' to be the period of twelve months commencing on the first
day of April every year. It is as invariable as the calendar year.13.
14. [(9A)
"Assistant Commissioner" means a person appointed to be an Assistant Commissioner of Income-tax 15.[or a Deputy
Commissioner of Income-tax] under sub-section (1) of section 117;]
16. [(9B) "Assistant Director" means a person appointed to be an Assistant Director of Income-tax under sub-section (1) of section
117;]
(10) "average rate of income-tax" means the rate arrived at by dividing the amount of income-tax calculated on the total income,
by such total income;
Clause (10): Average Rate of Income-Tax.—Average rate of income-tax means the rate arrived at by dividing the amount of
income-tax calculated on the total income including capital gain, if any, by such total income.17.
18. [(11) "block of assets" means a group of assets falling within a class of assets comprising—

(a) tangible assets, being buildings, machinery, plant or furniture;

(b) intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial
rights of similar nature,
in respect of which the same percentage of depreciation is prescribed;]
Clause (11): Block of Assets.—[See under s 32, 'Law from assessment year 1988–89'.]
(12) "Board" means the 19. [Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (LIV of
1963)];
20. [(12A) "booksor books of account" includes ledgers, day-books, cash books, account-books and other books, whether kept in
the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device;]
Clause (12A): Books or Books of Accounts.—The obligations regarding the maintenance of books of accounts are imposed by
s 44AA and they are prescribed by r 6F.
"Books" or "books of account" include ledgers, day-books, cash books, account books and other books, whether kept in the
written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device.
Pucca book of cash sales and purchase register are books of accounts.21.
(13) "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or
manufacture;
BUSINESS

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1. Clause (13) [Section 2(4) of 1922 Act]: Business.—

In the words of S.R. Das J., 'The word "business" connotes some real, substantive and systematic or organised course of activity or
conduct with a set purpose'.22.
The definition of business in this clause is reproduced without any change from the 1922 Act. It is inclusive and not exhaustive, it
has an extending force and does not limit the meaning of the term.23. For instance, the rendering of various and continuous
services as managing agents to a company amounts to carrying on a business even though such services are not covered by this
inclusive definition.24. The case-law on the concept and various aspects of 'business' is dealt with post under s 28(i).
Business is defined by s 2(13) as including 'any trade, commerce or manufacture or any adventure or concern in the nature of
trade, commerce or manufacture'. 25. The word 'business' is a word of large and indefinite import; it is something which occupies
the attention and labour of a person for the purpose of profit; it is an activity carried on continuously in an organised manner
with a set purpose and with a view to earn profit.26.
The term 'business' is a word of very wide connotation and by no means determinate in its scope and has to be concerned with
reference to each particular kind of activity and occupation of the person concerned.27. The frequency or repetition of the activity,
though at times a decisive factor, is by no means an infallible test, 28. and a transaction, though repeated, may not amount to a
trade or an adventure in the nature of trade.29. Conversely, a single and isolated adventure may fall within the definition of
'business'30. and as explained in s 4 under the heading "Single or isolated transaction".
An activity carried on under strict statutory control may nevertheless be business.31.

2. Trade, Commerce or Manufacture.—

The Act has been amended in 2009 to define "manufacture" in section 2(29BA) but trade or commerce has not been defined.
'Trade' is not only in the etymological or dictionary sense, but in legal usage, a term of the widest scope; it may mean the
occupation of a small shopkeeper equally with that of a commercial magnate, and may also mean a skilled craft. It is true that it is
often used in contrast with "profession". 32. The word 'business' has an even wider content than the word 'trade'.33. The trend of
judicial decisions has been in the direction of enlargement rather than restriction of the connotation of trade and business.34.
"Commerce" is a term of the largest import. It comprehends intercourse for the purposes of trade in any and all its forms,
including transportation, purchase, sale and exchange of commodities between the citizens of one country and the citizens or
subjects of other countries, and between the citizens of different provinces in the same state or country.35. The word "commerce"
involves essentially an exchange or buying and selling of commodities.36.
"Trade" in its primary meaning is the exchanging of goods for goods or goods for money; in its secondary meaning, it is repeated
activity in the nature of business carried on with a profit-motive, the activity being manual or mercantile, as distinguished from
the liberal arts or learned professions or agriculture.37.
It is difficult to define what constitutes a trading activity with comprehensiveness and precision. The matter has to be judged by
taking note of the totality of the circumstances and by referring to the "badges of trade" referred to in the Report of the Royal
Commission on Taxation of Profits and Income, 1955.38.

(i) Business and profession mutually exclusive: Although the word "business" is of wide import, for the purpose of this Act,
"business" and "profession" have to be treated as mutually exclusive. 39. The latter word has been defined in section 2(36) to
include a vocation. The observation that the word "business" will include within its scope any vocation is, it is submitted, not
correct.40.
(ii) Profit motive not essential: It is not essential to the carrying on of a business or vocation that the person carrying it on
should make a profit, or even that he should desire or wish to make a profit.41. Hence, an assessee running captive power
plants as separate, identifiable units and making profits from them, even though its intention was not to engage in profits
from such plants, is engaged in the business of generation of electricity. 42. Similarly, co-operative societies43. or mutual
insurance companies44. must be held to carry on business, although they may not make and may not want to make any
profit. [See s 4, under 'Mutual concerns'.]
The fundamental idea of "business" as a source of taxable income is the continuous exercise of activity; there must be a business
carried on by the assessee. Being a word of wide import, it will embrace within itself dealing in real property, setting up and letting
out a market.45.

3. Adventure in the Nature of Trade.—

This expression is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterized
by some of the essential features that make up trade or business but not by all of them. The Supreme Court has set out various

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tests to determine whether a transaction comes within this expression or not46. and whether a particular activity amounts to such
an adventure is a difficult question to answer and each case must be decided on its own circumstances47. and no firm law or legal
test is possible.48. The magnitude of the transaction, the subsequent dealings, and the manner of disposal may be such that the
transaction may be stamped with the character of a trading venture.49. A single and isolated transaction may fall within the
definition of business, as being an adventure in the nature of trade; but to bring it within the definition, the transaction must bear
clear indicia of 'trade', 50. like a regular activity of purchasing and selling plots of land.51. A series of transactions of purchasing
lands will be called as an "adventure in the nature of trade".52.
An isolated transaction can satisfy the description of an adventure in the nature of a trade; a single plunge in the waters of trade
may partake of the character of a trade.53. It would depend on the facts of each case,54. the onus being on the Department to
prove that a transaction was an adventure in the nature of trade.55. The question whether a transaction is an adventure in the
nature of trade is a mixed question of law and fact.56.
On facts, the following were some cases where the activity or transaction was an adventure in the nature of trade57. while some
other cases were not such adventures.58.
In the context of s 2(13), the undernoted case held that referable question of law did not arise59. under s 256.
The case law on the elusive boundary-line separating transactions on capital account from transactions constituting adventures in
the nature of trade, is dealt with post under s 4, 'Capital sales and business sales', and under s 10(3), 'Receipts arising from
business' and 'Isolated speculations'. The question of the date of accrual of income from a single venture is dealt with post under
s 5, 'Single transaction'.

60. [(13A) "business trust" means a trust registered as,—

(i) an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts)
Regulations, 2014, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or
(ii) a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations,
2014, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) 61.[*]
62. [* * * * * *];]

(14) 63. ["capital asset" means—

(a) property of any kind held by an assessee, whether or not connected with his business or profession;
(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations
made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),
but does not include—

(i) any stock-in-trade [other than the securities referred to in sub-clause (b)]], consumable stores or raw materials held for the
purposes of his business or profession;
64. [(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the
assessee, or any member of his family dependent on him, but excludes—
(a) jewellery;
(b) archaeological collections;
(c) drawings;
(d) paintings;
(e) sculptures; or
(f) any work of art.
Explanation.—For the purposes of this sub-clause, "jewellery" includes—

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such
precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn
into any wearing apparel;
(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into
any wearing apparel;]

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65. [(iii) agricultural land in India, not being land situate—

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal
corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment
board and which has a population of not less than ten thousand 66.[* * *]; or
67. [(b) in any area within the distance, measured aerially,—
(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to
in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or
(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in
item (a) and which has a population of more than one lakh but not exceeding ten lakh; or
(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to
in item (a) and which has a population of more than ten lakh.
Explanation.—For the purposes of this sub-clause, "population" means the population according to the last preceding
census of which the relevant figures have been published before the first day of the previous year;]]

68. [(iv) 6½ per cent Gold Bonds, 1977, 69.[or 7 per cent Gold Bonds, 1980,] 70. [or National Defence Gold Bonds, 1980,] issued by
the Central Government;]
71. [(v) Special Bearer Bonds, 1991, issued by the Central Government;]
72. [(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999, 73. [or deposit certificates issued under the Gold
Monetisation Scheme, 201574.,] notified75. by the Central Government.]
76. [77. [Explanation
1].—For the removal of doubts, it is hereby clarified that "property" includes and shall be deemed to have
always included any rights in or in relation to an Indian company, including rights of management or control or any other rights
whatsoever.]
78. [Explanation 2.—For the purposes of this clause—

(a) the expression "Foreign Institutional Investor" shall have the meaning assigned to it in clause (a) of the Explanation to section
115AD;
(b) the expression "securities" shall have the meaning assigned to it in clause (h) of section 279. of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);]
CAPITAL ASSET
1. Clause (14) [Section 2(4A) of 1922 Act]: Capital Asset.—
The expression 'capital asset' has a wide connotation.80. Capital asset includes a fixed deposit in a bank or a public sector
company,81. foreign currency, 82. a business undertaking,83. a partner's share in a firm,84. a route permit,85. a manufacturing
licence,86. intellectual property which includes a trade mark, brand, goodwill and technical knowhow,87. technology information in
the form of a dossier, 88. a leasehold right,89. a mortgage,90. the contractual right to obtain conveyance of property1. or a lease,2.
and the right to subscribe for shares of a company, 3. shares held in a company, 4. or a stock exchange membership card,5. but not
a bare right to sue,6. or a mere right to performance of a contract.7. However, it has been held that the giving up of a right to
specific performance of a contract in return for consideration would amount to the extinguishment of a capital asset on the basis
that the right to specific performance of a contract is a capital asset.8. The definition expressly excludes stock-in-trade,9. personal
effects, some agricultural lands in India, Gold Bonds and Special Bearer Bonds.10. Further exclusions have been made from
assessment year 2008-09 and a few other items like painting and sculptures have also been excluded.11. The question whether an
asset is a 'capital asset' within this clause is to be decided having regard to the facts prevailing at the time it is transferred and not
at the time it was acquired.12.
For the purposes of this clause the word 'held' includes constructive or symbolic possession.13. Capital gains arising from the
transfer of a capital asset are assessable under s 45; and transfer, in relation to a capital asset, is defined by s 2(47).

2. Controlling Interest not Capital Asset.—

Where there is transfer of shares, lock-stock and barrel, such a transaction cannot be broken up into separate individual
components such as the right to vote, controlling rights, control premium and so on. The shares constitute a bundle of rights and
any controlling interest cannot be treated as a separate asset.14. Controlling interest, therefore, is not an identifiable or distinct
capital asset independent of holding of shares. Such interest is an incident of ownership and flows out of the holding of shares.
Controlling interest is inherently a contractual right and not a property right. Controlling interest forms an inalienable part of

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share itself and the same cannot be traded separately unless otherwise provided by the statute. The transfer of shares and
transfer controlling interest cannot be considered as two distinct and separate transactions. The transfer of shares automatically
results in a host of consequences including transfer of controlling interest. In two earlier cases15. , the Madhya Pradesh and
Madras High Courts had held that controlling interest is not an asset.16. Even after the retrospective amendment, it was held that
a call option to purchase or sell shares is not a capital asset.17.

3. Sub-clause (ii): Personal Effects.—

This sub-clause explains 'personal effects' as meaning 'movable property (including wearing apparel and furniture…) held for
personal use by the assessee or any member of his family dependent on him'. This is a clear and precise definition and it is
eminently desirable to adhere to the statutory words. In Hemant Singhji v CIT,18. the Supreme Court while holding that bullion or
coins which are meant to be used for puja or worship of deities on special occasions are not personal effects, observed that by the
expression 'personal effects' 'the legislature intended only those articles to be included in the definition which are intimately and
commonly used by the assessee'. In CIT v Usha Devi,19. it reiterated these observations while clarifying that the phrase 'intimately
and commonly' should not be taken literally and that what was meant was property individually or personally used. It held that
the frequency of use depends on the nature of the property and that heirloom jewellery meant for use by an ex-ruler only on
ceremonial occasions constituted her personal effects. The expression 'personal effects' includes silver utensils meant for personal
though not daily use.20.
From the assessment year 1973–74 onwards, jewellery has been excluded from the category of 'personal effects'.21. The list of
items excluded from the term "personal effects" has been expanded from the year 2007-08 onwards, and now includes
archaeological collections, drawings, paintings, sculptures or any work of art. The amendment made by the Finance Act, 2007 is
prospective.22.

4. Sub-clause (iii): Agricultural Land.—

The corresponding provision in s 2(4A)(iii) of the 1922 Act excluded from the definition of capital asset 'any land from which the
income derived is agricultural income',23. whereas the present definition excludes 'agricultural land in India' irrespective of whether
any income is derived from it or not. This exclusion of agricultural land is only for the purpose of not treating such land as capital
asset to provide for exemption from capital gains tax and it is not relevant for the purposes of construing other provisions of the
Act.24.
The question whether a particular land is agricultural land is to be decided on a totality of relevant facts and circumstances. In
Sarifabibi v CIT,25. and Gemini Pictures v CIT,26. the Supreme Court held that the land was not agricultural land having regard to
the following frequently occurring factors: sale of land for housing purposes; obtaining permission to sell the land for non-
agricultural purposes; absence of cultivation for four years prior to sale; absence of intention to cultivate land in the future;
location of land within municipal area; the nature of the surrounding area; the price at which the land was sold; and entry in
municipal records as urban land.
Recent cases demonstrate that the process of urbanisation has brought about a significant change in the approach to deal with
the above question in comparison to the earlier conventional approach and courts have discarded some of the tests previously
applied. In earlier cases it was held that the tests for determining whether land is agricultural bear mainly on the nature or
character of the land, and not merely on the actual user or non-user at a particular point of time.27. If the land is not actually
appropriated for agricultural purposes, the minimal requirement is that it should be set apart for being used for agricultural
purposes and should be such as could reasonably be so used without alteration of its character, entries in revenue records being
prima facie, but not conclusive, evidence.28. The evidences from State revenue records cannot be brushed aside by the
Department, unless the contrary is proved.29. If the land is held to be agricultural land in the hands of one co-owner, the
Department cannot take a contrary stand in the case of the other co-owner.30. The Gujarat High Court had laid down thirteen
tests to determine whether the land would be agricultural land.31.
In order to qualify for exemption it is not enough that the land was once agricultural land; it must be agricultural land at the time
of sale.32. But a land which was continuously used for agricultural purposes should be presumed to be agricultural land at the
time of sale unless there is evidence to prove the contrary.33. The future intended use of the land is immaterial.34. The fact that
the purchaser pays a high price for the potential non-agricultural value would not detract from the character of the land as
agricultural land at the date of sale.35.
'Agricultural land' may include a leasehold interest in such land36. or standing trees sold along with the land,37. but not things
attached to or situate on such land which are sold separately, e.g. trees38. or houses for agricultural labourers.39.
Just as agricultural income is exempt from tax under s 10(1), capital gain arising from the transfer of agricultural land in India was
exempt from tax in all cases prior to 1970. However, this sub-clause was amended by the Finance Act, 1970 with effect from the
assessment year 1970–71 to bring within the definition of 'capital asset' those agricultural lands which are situate in the urban or
semi-urban areas specified in the sub-clause or in their vicinity notified by the Central Government.40. At the same time cl (viii)

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was inserted in s 47 to exempt from capital gains tax any transfer of agricultural land in India effected before March 1, 1970, i.e.
before the introduction of the Finance Bill 1970. The Supreme Court,41. Punjab and Haryana,42. Gujarat43. and Karnataka44. High
Courts have held that the amendment of s 2(14)(iii),45. which has the effect of charging the capital gains made on the transfer of
agricultural lands in certain areas and not in others, is constitutional. However, the Bombay High Court had earlier held in
Manubhai Sheth v Nirgudkar,46. as follows:

(i) Capital gains arising from the sale of land situate in India and used for agricultural purposes would be revenue derived from
such land and therefore 'agricultural income' within s 2(1A) of this Act;47. Parliament would have no legislative competence to
tax such agricultural income.
(ii) The amended sub-cl (iii) of s 2(14) should be read down to preserve its constitutionality.48. All land in India used for
agricultural purposes—including the land situate in the areas mentioned in paragraphs (a) and (b) of that sub-clause—should
be held to be excluded from the definition of 'capital asset'. Thus the opening words of sub-cl (iii) should be read as excluding
from the definition of capital asset 'agricultural land in India, not being land (other than land which is used for agricultural
purposes) situate' in the areas mentioned in paragraphs (a) and (b).
(iii) Upon such a construction, s 2(14)(iii) does not serve to levy tax on capital gains arising from a transfer of any land in India
which is used for agricultural purposes, even though it may be situate in an area mentioned in paragraph (a) or (b) of sub-cl
(iii).
The Andhra Pradesh High Court came to a similar conclusion on a combined reading of s 2(1A) and s 2(14).49. The Bombay and
Andhra Pradesh views have been superseded by the Explanation to s 2(1A) inserted by the Finance Act, 1989 with effect from
April 1, 1970.
In this connection, one issue which may arise is as to the date on which the cost of acquisition is to be calculated – should the
cost on the date of acquisition of the land be considered, or should the cost be considered as on the date from which the
agricultural land has been deemed to become a capital asset within the meaning of s 2(14) for the purposes of capital gains. The
Punjab and Haryana High Court has stated that the cost of acquisition would have to be taken as the price of the land on the
date on which agricultural lands were deemed to be covered i.e., the cost as on April 1, 1970 would have to be taken as the cost
of acquisition even if, factually, the land was acquired earlier.50.
Section 54B grants relief from capital gains tax in certain cases of transfer of agricultural land.

5. Land Within or in Vicinity of Municipality or Cantonment: Items (a) and (b).—

Agricultural land referred to in items (a) and (b) of s 2(14)(iii) is to be regarded as 'capital asset' and consequently capital gain
arising from transfer of such land is taxable. Thus, capital asset includes land within a municipality or cantonment having a
population of not less than ten thousand according to the relevant census.51. The words 'which has a population of not less than
ten thousand' appearing in item (a) qualify 'municipality or cantonment' and not the expression 'area'.52.
The expression 'by any other name', appearing in item (a) of s 2(14)(iii), has to be read ejusdem generis with the preceding
expressions, i.e., 'municipal corporations, notified area committee, town area committee, town committee'. A local authority under
s 3(31) of the General Clauses Act, 1897, means a municipality. Therefore, a local authority will also be included within the
meaning of municipality.53.
Capital asset also includes land situated within eight kilometres from the local limits of such municipality or cantonment as
notified in the Official Gazette.54. The distance between municipal limits and the land is to be measured having regard to the
shortest road distance.55. Such distance is to be measured from the agricultural land in question to the outer limit of the
municipality by road and not by the straight line or the aerial route.56.
Capital gain arising from the transfer of such land is taxable only if the transfer has taken place after the date of the notification57.
and the land is included in the notification.58. Land falling within a panchayat59. or within a township constituted by a state
legislation60. but not falling within a municipality has been held not to be a capital asset. Agricultural land located in one State but
within the municipality of another State was held to be capital asset.61.
By virtue of substitution of cl (b) by the Finance Act, 2013 with effect from April 1, 2014, such distance is to be measured aerially,
two, six or eight kilometers from the local limits of the municipality or cantonment board as the case may be.

6. Explanation.—
The Explanation was inserted by Finance Act, 2012 with retrospective effect from 1-4-1962. This is one of the several
amendments that were made retrospectively to nullify the decision of the Supreme Court in the Vodafone case.62. The Supreme
Court had held that rights of management or control do not constitute separate assets but are incidental to the holding of
shares. The control of a company depends on the voting power of the shareholders. The controlling interest is an incidence of

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ownership and something that flows out of the holding of shares. Controlling interest is not an identifiable or distinct capital asset
independent of holding of shares.63. Ironically, the Department had itself successfully argued that a controlling interest is not an
asset before the Madhya Pradesh High Court.
With this amendment, the transfer of shares which takes place outside India will result in transferring the rights of management
or control or any other right whatsoever in India. Therefore, if the shares of a foreign holding company are transferred, those
shares, if significant in number, may result in transferring management or control. These rights will be treated as capital assets
and be liable to capital gain tax. But how are these rights are to be valued? If shares are transferred overseas for a USD 1 billion,
what is the percentage is attributable to management or controlling rights? Suppose 48 per cent. shares are transferred which
does not give any management or controlling rights, then what is the liability to tax? Will the Department still bring the
transaction to tax on the ground that the voting rights have been transferred and seek to place a value on them? It can be
argued that in the absence of a mechanism to compute the value, no capital gains tax can be levied following the principles laid
down in Srinivasa Setty.64.
This amendment has been wrongly characterized as clarificatory. It was never in doubt that management/controlling rights have
no independent existence but are only incidental to the ownership of shares. But Parliament has freely used the words "for
removal of doubts" and treated retrospective amendments as clarificatory. It is submitted that a mere use of these words will not
make an amendment clarificatory. Similarly, the absence of these words will not mean that the amendment is not clarificatory.
In the context of this amendment, reference should be made to a letter dated May 29, 2012 bearing reference
No.F.No.500/111/12009-FTD-1(Pt.), whereby the Board has clarified that assessments which are completed under s 143(3) before
April 1, 2012 will not be reopened under s 147 on the basis of this amendment. But an assessment which stands validated
because of the clarificatory amendment will be enforced. In other words, if an assessment order has treated a management right
as an independent asset and proceedings are still pending, the retrospective amendment would be applied.

7. Burden of Proof.—
The burden is on the assessee to prove that the land was agricultural land on the date of the transfer.65. In this connection,
insofar as sub-clause (iii) is concerned, it has been held that the distance referred to in the clause has to be measured not as a
straight distance, but as distance in terms of the approach by road.66. Further, it has been held that a certificate of a district
authority or Tehsildar in this respect would be given weight in determining whether the distance requirements are satisfied. 67.
These decisions are no longer good law as the newly amended provision provides for measurement aerially.

8. Reference to Court.—
The question whether the land is agricultural land is essentially a question of fact.68.
In the context of s 2(14), the undernoted case held that a referable question of law did not arise69. under s 256.

70. [(15)"charitable purpose" includes relief of the poor, education, 71. [yoga,] medical relief, 72.[preservation of environment
(including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and
the advancement of any other object of general public utility:
73. [Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the
carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any
trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or
retention, of the income from such activity, unless—

(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public
utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total
receipts, of the trust or institution undertaking such activity or activities, of that previous year;]
Clause (15) [Section 4(3) of the 1922 Act]: Charitable Purpose.—This sub-section defines "charitable purpose" and is closely
connected with ss 10(23C)(iv), 11 to 13A and 80G of the Act. A recent spate of amendments to this section has gravely
jeopardised the work of many charitable organisations, with the result that what is given with one hand is taken away by the
other.
The definition in the 1922 Act was nearly identical to the original 1961 Act and mentioned four categories of activities:—(i) relief
of the poor, (ii) education, (iii) medical relief and (iv) advancement of any other object of general public utility. The only addition in
the 1961 Act were the words "not involving carrying on any activity of profit", which implied that an organisation carrying on a
profitable activity would not be "charitable". The Finance Act, 1983 amended s 11 and granted an exemption to profits and gains

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of businesses of charitable organisations as long as the conditions in s 11(4) were fulfilled. Consequentially, the words "not
involving the carrying on any activity of profit" were removed.
The present definition in s 2(15) was substituted by Finance Act, 2008 and the first proviso was added to state that the
advancement of any other object of general public utility will cease to be a "charitable purpose" if it involves any "trade, commerce
or business". The proviso was very widely worded and implied that even the smallest commercial activity would render the entire
organisation non-charitable. Indeed, several charitable trusts rendering yeoman service were seriously affected.
From April 1, 2009, preservation of environment, and preservation of monuments or places or objects of historical or artistic
interest and from April 1, 2016, yoga, have been added to the definition, implying that these are now taken out of the category
of "general public utility". There are now six specific categories and the seventh category refers to "advancement of any other
object of public utility".
The Finance Minister, in his budget speech of 2008, mentioned that the CBDT would issue guidelines to determine whether an
entity is carrying on any activity in the nature of trade, commerce of business, and had stated that Chambers of Commerce and
similar organisations would not be affected by this amendment. However, no such guidelines were issued, and the Department
issued notices to hundreds of organisations who were forced to file writs in various High Courts for appropriate orders. Even
today, the draconian proviso is being made applicable to charitable trusts without having regard to their objects and these
charitable organisations have incur the cost of litigation and await relief either at the Tribunal or the High Court.
The first and second provisos have been substituted by the Finance Act, 2015. Earlier, it provided that if activities of any trust or
institution is of the nature of advancement of any other object of general public utility and it involves carrying any activity in
nature of trade, commerce or business; but the aggregate value of receipts from such commercial activities does not exceed Rs.
25 lakhs in the previous year, the purpose of such trust shall be deemed as charitable despite it deriving consideration from such
activities. Thus, an entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in
one year and not in other year depending on the aggregate value of receipts. This has been substituted by a new proviso under
which conditions have been revised to state that the exemption will be available if the commercial activity is under-taken in the
course of actual carrying out of advancement of any other object of general public utility and receipts from such commercial
activities is not in excess of 20% of the total receipts of the institution during the previous year. The Board has also clarified that
registration under s 12AA (now s 12AB) is not required to be cancelled just because the receipts are in excess of the stipulated
amount.74.
A plain reading of the proviso shows that it is linked only to the residuary category, i.e. general public utility, and not the first six
categories. Therefore, the benefits of ss 11 to 13A and 80G cannot be denied to institutions and organisations falling within the
categories of medical relief, relief of the poor, education, wildlife and heritage conservation etc. or yoga, merely because they carry
on an activity generating profit. For instance, if an organisation seeks to advance AIDS awareness and sells contraceptives, the
proviso will not apply to it since its object falls under "medical relief". Similarly, if a wildlife conservation organisation sells books or
runs wildlife tours to spread awareness, it will not attract the proviso, since that would fall under "preservation of wildlife". The
Department, however, has taken a contrary stand that if any organisation indulges in the slightest trace of any commercial
activity, it will fall within the scope of this proviso. This is completely at odds with the words of the section and the explanatory
circular issued by the CBDT.
The scope of these amendments was discussed at length by the Delhi High Court which had to consider whether activities carried
on for imparting education amounted to business within the meaning of this clause.75. In a later decision, the Delhi High Court
upheld the constitutional validity of the proviso, but read it down to restrict its applicability to cases where the dominant
intention of the trust or the institution is profit making.76.
On interpretation of the proviso, keeping in mind the intention of the legislature with which it was introduced, the Gujarat High
Court has held that merely because the trust is carrying out activities for the purpose of achieving the objects of the trust, certain
incidental surpluses are generated, will not render the activity in the nature of trade, commerce or business.77. The legal terms
"trade, commerce, or business" in proviso mean activity undertaken with a view to make or earn profit78. . The purport of the
proviso is not to exclude entities which are essentially for charitable purposes but are conducting some activities for a
consideration or a fee.79. Occasional sales and fund generating activity for furthering the object will not be indicative that the trust
is in trade, commerce or business.80. A trust which has the power to carry out activity of business without profit motive whose
object is education or relief of poor will not be denied benefit of exemption because of the proviso.81.
[For detailed reading on the seven limbs, please see 'Charitable Purpose' under commentary to s 11 at p 657.]
82. [(15A) "Chief Commissioner" meansa person appointed to be a Chief Commissioner of Income-tax 83.[or a Director General of
Income-tax] or a Principal Chief Commissioner of Income-tax 84. [or a Principal Director General of Income-tax] under sub-section
(1) of section 117;]
85. [86. [(15B)] "child", in relation to an individual, includes a step-child and an adopted child of that individual;]

Clause (15B): Child.—In view of this definition a child includes a step-child,87. notwith-standing the fact that the expression
'step-child' is alien to the personal law of the assessee.88.
89. [(16) "Commissioner" means a person appointed to be a Commissioner of Income-tax or a Director of Income-tax or a Principal

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Commissioner of Income-tax or a Principal Director of Income-tax under sub-section (1) of section 117;]
90. [(16A) "Commissioner (Appeals)" means a person appointed to be a Commissioner of Income-tax (Appeals) under sub-section
(1) of section 117;]
91. [(17) "company" means—

(i) any Indian company, or

(ii) any body corporate incorporated by or under the laws of a country outside India, or
(iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under
the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for
any assessment year commencing on or before the 1st day of April, 1970, or
(iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by
general or special order of the Board to be a company:
Provided that such institution, association or body shall be deemed to be a company only for such assessment year or
assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the
declaration;]
COMPANY
Clause (17) [Section 2(5A) of 1922 Act]: Company.—
The original definition,92. which was replaced by the present one in 1971, was the same as in the 1922 Act, except that it included
an 'Indian company' which is defined by cl (26) in wider terms than under the 1922 Act. Under the general law a company is a
juristic person and is distinct from the shareholders; it is the company which owns the property and not the shareholders.93. For
the purposes of this Act, 'company' has a much wider connotation than the word bears under the Indian company law. Under this
Act, 'company' includes even an unincorporated institution, association or body, whether Indian or non-Indian, which is declared
by the Board to be a company. In such cases, what is not a legal entity would yet be assessable as a company. Further, from the
assessment year 1971–72 onwards the present definition brings within its fold every company incorporated in a foreign country,
irrespective of any other consideration. For the prior assessment years a foreign company could be declared by the Board to be a
company.
A company which is registered under the Indian company law would fall within cl (i) of the definition, and must be assessed as a
company, even though its certificate of incorporation might have been improperly obtained, for the certificate is conclusive under
s 35 of the Companies Act, 1956. A company may be incorporated for a purpose other than that of carrying on business.94. A
company registered under s 25 of the Companies Act, 1956 without a commercial or profit-making motive must nevertheless be
assessed as a company under this Act.95.
A company in liquidation is a 'company' within the meaning of this sub-section, and the department is entitled (without leave of
the winding up court) to call upon the liquidator of the company, as its principal officer, to make a return.1. Likewise, penalty
proceedings may be commenced against a company in liquidation for a default committed prior to liquidation.2.
Limited companies who carry on business are separate taxable persons, and the profits and gains of their several businesses are
separate profits and gains for the purposes of the Income-tax Acts. This is none the less true if one of the companies should be
the parent company, and the other or others may be its subsidiaries of which the shares are held or owned by the parent
company.3.
Under the Government Trading Taxation Act, 1926, the government of any part of Her Majesty's Dominions, which carries on a
trade or business, is deemed to be a company within the meaning of this Act for the purposes of levy and collection of tax on its
business profits.4.
(a) One-man Company.—
A one-man company is a distinct assessable and legal entity as much as any other company.5. 'A company may control another
company or an individual, or an individual may control a company; but it does not necessarily follow, because the individual
controls the company, or the company controls the company, or the company controls the individual, that the business carried
on by the person or company controlled is necessarily a business carried on by the controller. 6. But in a fit case the principle of
piercing the corporate veil may be invoked.7. If the person who holds the beneficial interest in all or almost all the shares of the
company causes such an arrangement to be entered into between himself and the company as constitutes the company as
merely his agent for the purpose of carrying on his own business, the business will become, for all taxing purposes, his business
and not that of the company, and he himself would be assessable on the profits of the business. 8. Whether the company is a
sham or simulacrum or mere cloak for the principal whose business the company carries on as the agent or nominee, is a
question of fact depending upon the special circumstances of each case.9. The burden of proving that the company is a sham or
simulacrum, or a mere agent or benamidar for another, lies on the Revenue.10.

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A 'legal proprietary entity' belonging to one man, which is not incorporated in any country outside India is not a 'company' under
this clause.11.

(b) Assessment on Companies.—

As regards liability to tax under this Act, a company differs, broadly speaking, from other assessees in two respects:

(a) Under the Finance Acts the minimum taxable limit prescribed for other assessees does not apply in the case of a company: a
company is liable to income-tax, however small its income may be.
(b) A company has to pay income-tax at a flat rate on the whole of its total income, whereas other assessees are taxed according
to the graduated scale or slab system.
From the assessment year 2001–02, a company has to pay tax under s 115JB on eighteen and one half per cent. of its 'book
profit', even if its total income is less or nil.12. Under s 104 (now deleted), in certain circumstances, an additional tax was levied on
the undistributed profits of companies in which the public were not substantially interested. Section 115-O provides that the
amounts declared, distributed or paid on or after 1st day of April, 2003 by a domestic company by way of dividends shall be
charged to additional income-tax at the flat rate of fifteen per cent, in addition to the normal income-tax chargeable on the
income of the company.
An assessment cannot be made on a company after it has ceased to exist and has been struck off the register of companies.13.
'Amalgamation' and 'demerger', in relation to companies, have been defined in cl (1B) and cl (19AA) respectively.

(c) Company does not pay its Tax on Behalf of its Shareholders.—
The company itself is chargeable to tax on its profits as a distinct taxable entity, and it pays the tax in discharge of its own liability
and not on behalf of or as agent for its shareholders.14. The result is that the shareholder is liable to tax in respect of the gross
dividend without any credit for the tax assessed in the hands of the company.
The company's tax is not to be confused with the shareholder's tax which, barring specified cases, the company deducts at source
under s 194 when paying the dividend and for which the shareholder gets credit in his own assessment.

(d) Industrial Company or Trading Company—Finance Acts.—

Several Finance Acts prescribed a concessional rate of tax for "an industrial company" and defined the activities that would be
industrial. These cases are outside the scope of a commentary on the 1961 Act. In the following cases, it was held that the
respective assessees came within the expression "industrial company"15. while the following are the cases where the court held to
the contrary.16. Similarly, a higher tax was prescribed for trading companies.17.

(e) Holding and Subsidiary Companies.—

The nature of corporate structures, the relationship between a holding and subsidiary company, their inter-se obligations have
been discussed in this landmark ruling.18.

(f) Other Definitions.—

This section also contains definitions for certain specified companies: cl (19) for 'company in which the public are substantially
interested'; cl (19AAA) for 'demerged company'; cl (22A) for 'domestic company'; cl (23A) for 'foreign company'; cl (26) for 'Indian
company'; cl (26A) for "infrastructure capital company"; cl (36A) for 'public sector company' and cl (41A) for 'resulting company'. Cl
(1B), which defines "amalgamation", also explains what is an "amalgamated company".
Other definitions specifically in relation to companies include cl (20) for 'director', 'manager' and 'managing agent'; cl (32) for
'person who has substantial interest in the company' and cl (35) for 'principal officer'.

(18) "company in which the public are substantially interested"—A company is said to be a company in which the public are
substantially interested—
19. [(a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per cent of the

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shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by
that bank; or]
20. [(aa) if it is a company which is registered under section 2521. of the Companies Act, 1956 (1 of 1956)*; or
(ab) if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership
and other relevant considerations, it is declared by order of the Board to be a company in which the public are substantially
interested:
Provided that such company shall be deemed to be a company in which the public are substantially interested only for such
assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be
specified in the declaration; or]
22. [(ac) if it
is a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business
of acceptance of deposits from its members and which is declared by the Central Government under section 620A23. of the
Companies Act, 1956 (1 of 1956)*, to be a Nidhi or Mutual Benefit Society; or]
24. [(ad) if it
is a company, wherein shares (not being shares entitled to a fixed rate of dividend whether with or without a further
right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or
acquired unconditionally by, and were throughout the relevant previous year beneficially held by, one or more co-operative
societies;]
25.[(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956)*, and the conditions
specified either in item (A) or in item (B) are fulfilled, namely:—

(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to
participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in
accordance with the Securities Contracts (Regulation) Act, 1956 (XLII of 1956), and any rules made thereunder;
26. [(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to
participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or
acquired unconditionally by, and were throughout the relevant previous year beneficially held by—
(a) the Government, or
(b) a corporation established by a Central, State or Provincial Act, or
(c) any company to which this clause applies or any subsidiary company of such company 27.[if the whole of the share
capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous
year].
Explanation.—In its application to an Indian company whose business consists mainly in the construction of ships or in
the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form
of power, item (B) shall have effect as if for the words "not less than fifty per cent", the words "not less than forty per
cent" had been substituted;]]

Clause (18) [Explanation l to Section 23A of 1922 Act]: 'Company in which the Public are Substantially Interested'.—This
definition is dealt with post under ss 104–108 (now deleted).
Sub-clause (c) in s 2(18)(b)(B) would apply to any company to which cl (b) applies, which will also include any company which may
be subsidiary of a holding company. In other words, requirements of sub-clause (c) could be fulfilled either by any company to
which this clause applies, or any subsidiary company of such company, where such subsidiary company fulfills the condition laid
down in clause (b) of s 108 (now deleted). The question whether a company was one in which the public was substantially
interested was relevant for the purpose of "deemed dividend" under s 2(22)(e) which would apply only to companies other than
those in which the public was substantially interested.28.
In the context of s 2(18), the undernoted case held that referable question of law did not arise29. under s 256.
(19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (II of 1912), or
under any other law for the time being in force in any State for the registration of co-operative societies;
Clause (19) [Section 2(5B) of 1922 Act]: Co-operative Society.—The definition of co-operative society in the 1922 Act was
just the same. A regional rural bank to which the provisions of the Regional Rural Banks Act, 1976 apply is deemed to be a co-
operative society for the purposes of this Act.30. 'Sahakari' means 'co-operation', therefore societies registered under Karnataka
Souharda Sahakari Act, 1997 are co-operative societies under s 2(19).31.
The profits of any business of insurance carried on by a co-operative society are to be computed in accordance with the rules set
out in the First Schedule32. and certain categories of income of co-operative societies are exempt from tax under s 80P. Some
other provisions dealing with co-operative societies are contained in ss 2(24)(vii), 2(47)(vi), 27(iii), 36(1)(i-a), 44, the proviso to s

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80-I(5), the provisos to s 80J(2) and (3)(now deleted), s 80L(l)(ii), (vi), (viii) and (ix), Expln (b)(i) to s 139(1)(now deleted), proviso (ii-
b) to s 193, ss 194C(1)(e), 269A(h)(ii), 269AB(l)(b), 269T and 269UA(f)(ii).
33. [(19A)"Deputy Commissioner" means a person appointed to be a Deputy Commissioner of Income-tax 34.[* * *] under sub-
section (1) of section 117;]
35. [(19AA) "demerger", in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to
39436. of the Companies Act, 1956 (1 of 1956)*, by a demerged company of its one or more undertakings to any resulting
company in such a manner that—

(i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes
the property of the resulting company by virtue of the demerger;
(ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger,
become the liabilities of the resulting company by virtue of the demerger;
(iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are
transferred at values appearing in its books of account immediately before the demerger;
37. [Provided that the provisions of this sub-clause shall not apply where the resulting company records the value of the
property and the liabilities of the undertaking or undertakings at a value different from the value appearing in the books of
account of the demerged company, immediately before the demerger, in compliance to the Indian Accounting Standards
specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015;]

(iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a
38. [pro-portionate basis except where the resulting company itself is a shareholder of the demerged company];

(v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares
already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become
shareholders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition
of the property or assets of the demerged company or any undertaking thereof by the resulting company;
(vi) the transfer of the undertaking is on a going concern basis;
(vii) the demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central
Government in this behalf.
Explanation 1.—For the purposes of this clause, "undertaking" shall include any part of an undertaking, or a unit or division of an
undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof
not constituting a business activity.
Explanation 2.—For the purposes of this clause, the liabilities referred to in sub-clause (ii), shall include—
(a) the liabilities which arise out of the activities or operations of the undertaking;
(b) the specific loans or borrowings (including debentures) raised, incurred and utilised solely for the activities or operations of the
undertaking; and
(c) in cases, other than those referred to in clause (a) or clause (b), so much of the amounts of general or multi-purpose
borrowings, if any, of the demerged company as stand in the same proportion which the value of the assets transferred in a
demerger bears to the total value of the assets of such demerged company immediately before the demerger.
Explanation 3.—For determining the value of the property referred to in sub-clause (iii), any change in the value of assets
consequent to their revaluation shall be ignored.
Explanation 4.—For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or
established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or
bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger, if such split up or reconstruction
fulfils 39. [such conditions as may be notified40. in the Official Gazette, by the Central Government].]
41. [Explanation 5.—For the purposes of this clause, the reconstruction or splitting up of a company, which ceased to be a public
sector company as a result of transfer of its shares by the Central Government, into separate companies, shall be deemed to be a
demerger, if such reconstruction or splitting up has been made to give effect to any condition attached to the said transfer of
shares and also fulfils such other conditions as may be notified by the Central Government in the Official Gazette.]
Clause (19AA): Demerger.—
The Finance Act, 1999 made a number of amendments to this Act with a view to give tax concessions in relation to different
forms of business reorganisation. These include new provisions for demerger, which is relatively a new phenomena in the Indian
corporate sector. While there are no specific provisions governing demergers, under the Companies Act, some transactions of this
nature do take place through schemes of compromise or arrangement under sections 391 to 394 of the Companies Act and

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these are sanctioned by the High Courts. Under this new definition, a 'demerger' involves the transfer of one or more
undertakings from a demerged company to a resulting company under a scheme of arrangement under ss 391 to 394 of the
Companies Act. The term demerged company is defined in cl (19AAA) and means company whose undertaking is transferred. The
term 'resulting company' is defined in cl (41A) and means company to which the undertaking is transferred.
In order to qualify as a demerger for availing several tax concessions which are now provided under the Act, the transfer has to
fulfil the following conditions:

(i) All the property of and the liabilities relatable to the undertaking immediately before the demerger, being transferred by the
demerged company, should become the property and liabilities of the resulting company.
(ii) The property and liabilities of the undertaking being transferred by the demerged company should be transferred at book
value. This condition will not apply to companies that have to comply with Indian Accounting Standards.
(iii) As a consideration for demerger, the resulting company should issue shares to the shareholders of the demerged company
on a proportionate basis.
(iv) The shareholders holding not less than three-fourths in value of shares in the demerged company should become the
shareholders of the resulting company.
(v) The transfer of the undertaking should be on a going concern basis.
(vi) The demerger will be subject to further conditions, if any, notified under sub-s (5) of s 72A.
(a) Undertaking.—
Explanation 1 to s 2(19AA) of the Act provides for an inclusive definition of undertaking. Thus, a wider and popular meaning is
permissible. The word 'undertaking' has been discussed in several cases. In the present context, a reference can be made to
Rustom Cavasjee Cooper v UOI,42. wherein the Supreme Court held that by an undertaking is meant a business unit or
enterprise in which a company may be engaged as gainful occupation. For example, each one of several factories or
manufacturing plants of a company will not be considered an undertaking from the business point of view. It does not consist of
mere assets or property. It is a productive organism, so to speak, and signifies a going concern engaged in the production,
distribution etc. of goods or services; sometimes, it can also mean the entire business or organization of a company.
The Delhi High Court in the case of In Re., Indo Rama Textile Ltd .,43. has held that to satisfy the definition of undertaking under
the Explanation 1, the undertaking that is being demerged should be a "going concern", which means that it constitutes a
business activity capable of being run independently for a foreseeable future.
In a few instances, even an investment business has been demerged as an undertaking.44. If the investment activity can be
independently run, then there is no reason as to why it cannot be treated as an undertaking.

(b) Liabilities.—
Explanation 2 to the clause enumerates the liabilities to be included. Such liabilities must arise out of the operations or activities of
the undertaking and should comprise specific loans or borrowings raised and utilised for the activities of the undertaking. In case
of general or multi-purpose borrowings, the includible liabilities should be determined in a proportionate manner in the ratio of
the value of assets transferred in a demerger to the total value of the assets of the demerged company.
Explanation 3 provides that the change in value of the assets upon their revaluation shall be ignored.
Lastly, Explanation 4 provides that the splitting up or reconstruction of any authority or a body constituted under a Central, State
or Provincial Act or a local authority or a public sector company into separate authorities or bodies or companies shall be deemed
to be a demerger, if such split up or reconstruction fulfils conditions notified by the Central Government.
If the abovementioned conditions are fulfilled, the following tax concessions are available in relation to the demerger:

(i) The provisions of s 32 relating to the aggregate depreciation allowable to and the apportionment of depreciation between
the predecessor and successor entities are extended to a demerger involving the demerged and resulting companies [s 32(1)
(iv).]
(ii) Under s 43, the actual cost of the transferred assets to the resulting company in the case of a demerger shall be taken to be
the same as it would have been if the demerged company had continued to hold the assets. In respect of assets transferred
from the demerged company, depreciation to the resulting company is allowed on written down value of such assets in the
hands of the demerged company [s 43(6), Explns 2A, 2B.]
(iii) Carried forward loss and unabsorbed depreciation of the demerged company is allowed to be carried forward by the resulting
company [s 72A(4)].

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(iv) The benefits to which the demerged company was entitled under ss 10A, 10B, 33AC, 35A, 35AB, 35ABB, 35D, 35DDA, 35E,
41, 42, 80-IA and 80-IB will be available to the resulting company as if the demerger had not taken place or as if the
conditions thereto continue to be fulfilled.
(v) Under s 35DD, expenses for demerger are to be allowed by way of amortisation of one-fifth thereof every year for a period of
five years.
(vi) As a result of the demerger, capital gains tax is not leviable on the demerged company [s 47(vib)] or on the shareholders of
the demerged company [s 47(vid)]. Capital gains for the subsequent sale of shares in the demerged company or the resulting
company is to be computed by prorating the cost of acquisition [ss 49(2C) and (2D)]. In respect of shares in an Indian
company which have become the property of the assessee in consideration of demerger, the period of holding of such shares
in the demerged company shall be included in computing the total period of holding of the shares by the assessee [s 2(42A)].
(vii) Under s 2(22)(v), any distribution of shares pursuant to the demerger by the resulting company to the shareholders of the
demerged company is not to be treated as dividend.
This definition is, inter alia, relevant to ss 2(22)(v), 2(42A), 10A(7A), 10B(7A), 32(1)(ii)(4th proviso), 33AC(3)(c), 35A(7), 35AB(3),
35ABB(7), 35(D)(5A), 35DD, 35DDA(5), 35E(7A), 41(1), [Expln 2(iv)], 42(2)(c) (proviso), 43(1) [Expln 7A], 43(6)(c) [Explns 2A and 2B],
47(vib), (vic) and (vid), 49(2C) and (2D), 72A, 79(a) (second proviso), 80 IA(12), 80 IB(12) and 115AC(5).
The provisions relating to taxation of the companies involved in the demerger and their shareholders are applicable only if the
demerger fulfils the conditions of s 2(19AA) of the Act. Mere sanction of the High Court for demerger under the Companies Act,
1956 is, by itself, not sufficient. 'Undertaking' referred to in these provisions is not restricted to undertaking involved in some
manufacturing activity but it also includes any non-manufacturing activity (including trading, agency, etc). The word 'property'
appearing in this clause has a very wide meaning and in the context in which it is used it includes all assets, rights and interests
which the demerged company owned or possessed immediately before the demerger, and which it could transfer to the resulting
company. This would include intangible rights or assets not reflected in the accounts of the demerged company e.g. goodwill, self-
developed patent, know-how, etc, or assets not appearing in the accounts owing to cash method of accounting. 'Shares' in this
clause includes all classes of shares, whether voting or non-voting. Hence 'three-fourths in value of shares' means three-fourths in
value of the aggregate share capital and not merely equity capital of the demerged company. The statutory changes do not
stipulate that the shareholders of a particular class should be allotted shares of the same class, and thus, equity shareholders can
be allotted preference shares and vice versa.

45. [(19AAA) "demerged company" means the company whose undertaking is transferred, pursuant to a demerger, to a resulting
company;]
46. [(19B) "Deputy Commissioner (Appeals)" means a person appointed to be a Deputy Commissioner of Income-tax (Appeals)
47. [or an Additional Commissioner of Income-tax (Appeals)] under sub-section (1) of section 117;]

48. [(19C)
"Deputy Director" means a person appointed to be a Deputy Director of Income-tax 49.[* * *] under sub-section (1) of
section 117;]
(20) "director", "manager" and "managing agent", in relation to a company, have the meanings respectively assigned to them in
the Companies Act, 1956* (1 of 1956)50.;
Clause (20) [Section 2(8A) of 1922 Act]: Director, Manager and Managing Agent.— 'Manager' 'Manager' and 'managing
agent', but not 'director', were defined in the 1922 Act as bearing the same meanings as in the Companies Act. Clauses (13), (24)
and (25) of s 2 of the Companies Act, 1956 contain the following definitions respectively:

(13) 'director includes any person occupying the position of director, by whatever name called';
(24) 'manager means' an individual (not being the managing agent) who, subject to the superintendence, control and direction of
the board of directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes
a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract
of service or not;
(25) 'managing agent' means any individual, firm or body corporate entitled, subject to the provisions of this Act, to the
management of the whole, or substantially the whole, of the affairs of a company by virtue of an agreement with the
company, or by virtue of its memorandum or articles of association, and includes any individual, firm or body corporate
occupying the position of a managing agent, by whatever name called.
51. [(21)"Director General or Director" means a person appointed to be a Director General of Income-tax or a Principal Director
General of Income-tax or, as the case may be, a Director of Income-tax or a Principal Director of Income-tax, under sub-section
(1) of section 117, and includes a person appointed under that sub-section to be an Additional Director of Income-tax or a Joint
Director of Income-tax or an Assistant Director or Deputy Director of Income-tax;]
Clause (21): Director General or Director.—An additional director is not covered by this definition clause.52.

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(22) "dividend" includes—

(a) 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;
(b) 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 share-holders of shares by way of bonus, to the extent to which
the company possesses accumulated profits, whether capitalised or not;
(c) 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;
(d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company
possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933,
whether such accumulated profits have been capitalised or not;
(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as
representing a part of the assets of the company or otherwise) 53.[made after the 31st day of May, 1987, by way of advance or
loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend
whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern
in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to
as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to
the extent to which the company in either case possesses accumulated profits;
but "dividend" does not include—

(i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash
consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets;
54. [(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the
capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of
March, 1964, 55.[and before the 1st day of April, 1965];]
(ii) any advance or loan made to a shareholder 56.[or the said concern] by a company in the ordinary course of its business,
where the lending of money is a substantial part of the business of the company;
(iii) any dividend paid by a company which is set-off by the company against the whole, or any part of any sum previously paid
by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set-off.
57. [(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of
section 77A58. of the Companies Act, 1956 (1 of 1956)*;
(v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company
(whether or not there is a reduction of capital in the demerged company).]
Explanation 1.—The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising
before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956.
Explanation 2.—The expression "accumulated profits" in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up
to the date of distribution, or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the
company up to the date of liquidation, 59.[but shall not, where the liquidation is consequent on the compulsory acquisition of its
undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in
force, include any profits of the company prior to three successive previous years immediately preceding the previous year in
which such acquisition took place].
60. [Explanation 2A.––In the case of an amalgamated company, the accumulated profits, whether capitalised or not, or loss, as the
case may be, shall be increased by the accumulated profits, whether capitalised or not, of the amalgamating company on the date
of amalgamation.]
61. [Explanation 3.—For the purposes of this clause,—

(a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company;
(b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the
previous year, beneficially entitled to not less than twenty per cent of the income of such concern;]
DIVIDEND
1. Clause (22): [Section 2(6A) of 1922 Act]: Changes in the Law.—
The definition of dividend is the same as in the 1922 Act except for the following changes:

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(i) Sub-clause (b) enacts that any distribution of shares by way of bonus to preference shareholders is taxable as dividend,
whereas there was no such provision in the 1922 Act.
(ii) Sub-clause (e) originally made an advance or loan to, or a payment for the benefit of, a shareholder, taxable as dividend only
if the shareholder was a person who had a sub-stantial interest in the company within the meaning of cl (32), i.e. the
shareholder beneficially owned at least 20 per cent. of the equity capital, whereas the corresponding sub-clause in the 1922
Act applied to all shareholders. The provision of sub-cl (e) is now extended to a shareholder who beneficially owns at least 10
per cent. of the equity capital, and to a concern in which such shareholder has a substantial interest as a member (Expln 3).
(iii) Explanation 2 did not occur in the 1922 Act.

2. Dividends.—
This definition of dividend would not apply to a distribution or other payment made by a foreign company62. unless that
company falls within the definition of 'company' in s (17).63. On the other hand, a dividend proper under the general law, received
from a foreign corporation which is not a 'company' within the meaning of this Act, would nevertheless be liable to tax apart from
this definition.64. This clause would apply to a holding company and a subsidiary company.65. The definition of 'dividend' is
applicable to all provisions which contain the term 'dividend" in the Act;66. it is inclusive and not exhaustive;67. and since it creates
an artificial liability to tax, it should be strictly construed.68. It merely extends the connotation of the word 'dividend' so as to
comprise items of distribution or payment by a company which normally may not be regarded as 'dividend'.69. The five instances
of dividend enumerated in this clause are all of them cases of distribution or payment out of, or to the extent of, accumulated
profits of the company. Any receipt by a shareholder which is 'dividend' under the general law would be taxable as such under
this Act, even if it is not attributable to the company's 'accumulated profits' within the meaning of this clause or for any other
reason falls outside this definition. [See further post under 'Dividend properly so called under general law, paid out of capital
profits'.]
Under the Companies Act, 1956, a company cannot pay dividend otherwise than out of the profits of the year or any other
undistributed profits.70. However, 'there is nothing in law to prevent a company using an income receipt as cash in its hands to
discharge a capital liability or to purchase a capital asset, and then, after the close of its financial year, paying a dividend out of
other cash, or borrowing for the purpose, to the extent of the credit balance standing on profit and loss account.71. In any event,
dividend does not lose its taxable character as dividend merely because it is paid out of capital in violation of the law. 72. Similarly,
non-observance by the company of the formalities required by the company law for declaration of dividend would not affect the
shareholder's liability to taxation in respect of the dividend. 73. Under cl (24) 'income' is defined as including 'dividend'. What is
taxable as dividend need not necessarily be paid in money; it may be paid in money's worth by the delivery, say, of goods or
securities or shares in another company;74. and the amount of the dividend should be taken to be the market value of the
money's worth on the date the dividend is declared.75. An amount assessed as dividend under this clause cannot be taxed again
as capital gains.76.
A shareholder is liable to pay tax on his dividend income without any credit for the tax paid by the company on its own profits;
and further, the company must deduct, under s 194 (except as otherwise provided in that section), the shareholder's tax at source
when paying the dividend, even if the payment is in the middle of the accounting year. 77. [See ante under cl (17), 'Company does
not pay its tax on behalf of its shareholders'.]
In considering whether a distribution by a company is dividend or not, the personal motive or purpose of the individual
shareholders is irrelevant; and if the distribution in law does not amount to a dividend, no tax can attach to it, whatever may have
been the object underlying the distribution in that form.78. 'In any case desires and intentions are things of which a company is
incapable. These are the mental operations of its shareholders and officers. The only intention that the company has is such as is
expressed in or necessarily follows from its proceedings. It is hardly a paradox to say that the form of a company's resolutions and
instruments is their substance.79.
A distribution of accumulated profits among shareholders, the amounts being not paid in cash but credited to the shareholders'
individual loan accounts with the company, would nonetheless be taxable as dividend in the shareholders hands, 80. unless the
dividend is set off by the company against a loan which itself had been assessed as dividend.81. Similarly, a dividend would be
taxable as such though it may be distributed on the understanding that it should be used by the shareholders in purchasing
further shares in the company.82.

3. "Distribution".—
The 'distribution' referred to in the various sub-clauses of this clause may be or constructive. Distribution takes place when the
amount due to each shareholder is credited to his account or is actually paid to him. However, the date of the appropriate
resolution of the company, and not the date of distribution among the shareholders, fixes the date for ascertaining the quantum
of accumulated profits. The Supreme Court laid this down in Punjab Distilling Industries Ltd v CIT,83. which was a case of
reduction of capital falling under sub-cl (d). There is a distinction between 'distribution' and 'payment'84. but that does not take

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away the effect of the deeming provision of this definition clause.85. Transfer of assets, under a scheme of amalgamation, by one
company to another which is its shareholder does not involve 'distribution' within this clause.86.
(a) Sub-clause (a): Distribution of Accumulated Profits Entailing Release of Company's Assets—Bonus Shares.—
Under this sub-clause, 'dividend' includes any distribution by a company (i) which is of accumulated profits, whether capitalised or
not, and (ii) which entails a release by the company to its shareholders of all or any part of its assets, the two conditions being
cumulative. The expression 'accumulated profits' has been artificially defined by Explns 1 and 2 (see under the Explanations, post).
A distribution of accumulated profits, whether capitalised or not, which does not entail a release by the company of its assets,
would not be
'dividend'. A distribution of dividend by a company, prior to the Companies Act, 1956, out of the premium received on the issue
of shares, is covered by this clause.87.
Where a company capitalises its accumulated profits and issues bonus shares to its share-holders, the allotment of bonus shares
does not entail a release of any of the company's assets—the company merely increases its capital by retaining the amounts
available for distribution as dividends.88. The bonus shares only give the shareholder an extra share in the capital of the company
—they simply confer a title to a certain proportion of the surplus assets if and when a general distribution takes place as in
winding up. The company does not part with any of its capital or assets: the profits remain with the company after being
transmuted into capital. The House of Lords held in IR v Blott,89. that bonus shares are not dividend. Under this Act, bonus shares
are not dividend or income at all when they are issued to holders of ordinary or equity shares.90. But if they are issued to
preference shareholders, they would be assessable as dividend under sub-cl (b).
Similarly, where a company bona fide decides to capitalise its accumulated profits but offers its ordinary shareholders the option
of accepting bonus shares or receiving in cash the nominal value of the bonus shares, the bonus shares accepted instead of cash
would not be dividend,91. but if a shareholder elects to receive cash wholly or partly in lieu of shares the cash would be dividend
in his hands.92. However, the position is entirely different where a company, instead of paying a dividend in cash or allotting its
own bonus shares, distributes to its shareholders shares of another company. If a company applies its accumulated profits to
buying the shares of another company and then distributes those shares among its own shareholders, there would be a
distribution of accumulated profits entailing a release of the company's assets, and the shareholders would receive dividend in
money's worth.93. Thus where the shares of a subsidiary company are acquired by the parent company and the parent company
declares bonuses on its own shares to be satisfied by the issue to its shareholders of the shares which it has acquired in the
subsidiary company, the shares so distributed would constitute 'dividend' in the hands of the shareholders of the parent
company.94.

(b) When Bonus Shares are Paid Off.—

It has been noted above that bonus shares are not taxable as dividend when they are allotted to ordinary shareholders. But the
further question that arises is whether, when bonus shares are paid off by the company, the payment constitutes a dividend
within the meaning of this clause. Where accumulated profits are capitalised and redeemable preference shares are issued by way
of bonus, the payment made by the company on redemption would constitute a distribution of capitalised profits entailing a
release of some of the company's assets and would consequently be taxable as dividend under sub-cl (a) of this definition.95. If
accumulated profits are capitalised in the form of ordinary or preference bonus shares and such bonus shares are paid off by way
of reduction of capital or on the liquidation of the company, tax may likewise be attracted under sub-cl (d) or (c) and the
distribution to the holders of bonus shares may be treated as dividend.96.

(c) Sub-clause (b): Debentures, Debenture Stock and Deposit Certificates—Bonus Shares to Preference Shareholders.—
On general principles, where a company capitalised its accumulated profits and distributed bonus debentures among its
shareholders, it was held that the debentures were not dividend or income at all in the hands of the shareholders.1. In IR v
Fisher's Executors,2. Viscount Cave LC said:
No do u b t, th e sh areh o lders go t deb en tu re sto ck w h ich , like th e sh ares in Blott's case, 3. w as a valu ab le th in g; b u t th ey h ad n o p o w er to
call in th e sto ck , w h ich gave th em n o p resen t righ t to receive an y p art o f th e co mp an y's assets eith er in mo n ey o r in mo n ey's w o rth , b u t
o n ly en titled th em to a su m to b e carved o u t o f th o se assets if an d w h en th e sto ck w as p aid o ff. It is tru e th at deb en tu re sto ck, u n like
sh ares, creates a deb t; b u t th e deb t in th is case w as n o t p resen tly p ayab le an d may n ever b eco me p ayab le w h ile th e co mp an y is in
existen ce. Th e w h o le tran sactio n w as 'b are mach in ery fo r cap italisin g p ro fits an d in vo lved n o release o f assets eith er as in co me o r as
cap ital.

However, the Indian legislature has superseded this rule in this sub-clause, under which distribution of bonus debentures,
debenture stock or deposit certificates in any form, by a company among its shareholders, would be distribution of dividend and
consequently income in the hands of the shareholders, but only to the extent to which the company possesses accumulated
profits,4. whether capitalised or not. The reference to deposit certificates was inserted to override the decision of the Madras High
Court,5. that where a company did not pay dividend in cash but issued to shareholders bearer deposit certificates payable on or
before a certain date, the deposit certificate was like a post-dated cheque or a promissory note, and in such a case there was no

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release by the company of any of its assets and no distribution of dividend within the meaning of this clause as it then stood.
Unlike the 1922 Act, this Act taxes as dividend bonus shares issued to preference share-holders. The issue of bonus shares to
ordinary shareholders is not taxable as dividend. [See ante 'Distribution of accumulated profits entailing release of company's
assets—Bonus shares'.]

(d) Sub-clause (c), Sub-clause (ia) and Explanation 2: Distribution on Liquidation of Company.—
I n IR v Burrell,6. the court of appeal held that accumulated and current profits distributed by the liquidator among the
shareholders on the liquidation of a company are not dividend or income at all in the hands of the shareholders. The ground of
the decision was that a liquidator cannot declare or distribute a dividend; on the liquidation of a company undistributed profits
can no longer be distinguished from capital; the accumulated and current profits become merely surplus assets in the hands of
the liquidator, and what he distributes among the shareholders is capital being their share in the property and assets of the
company.7. This principle was reaffirmed by the House of Lords and applied to the distribution on liquidation of a mutual
insurance company in Brogan v Stafford Coal & Iron Co Ltd.8. To supersede the rule in Burrell's case, sub-cl (c) expressly provides
that any distribution made to shareholders on the liquidation of a company to the extent of the company's accumulated profits
falls within the definition of 'dividend' and is consequently taxable as income in the shareholders' hands.9. But sub-cl (ia) provides
that such distribution is not taxable as dividend if it is attributable to capitalised profits representing bonus shares allotted to
equity shareholders after March 31, 1964 and before April 1, 1965. The reason is that bonus shares issued during that period
were chargeable upon allotment to capital gains tax in the hands of the shareholders. [For the meaning of 'accumulated profits'
see under Explns 1 and 2, post.]
The clause would apply even if the accumulated profits were capitalised. Thus, a distribution on liquidation out of capitalised
profits, e.g. a distribution made in respect of bonus shares or a distribution out of profits capitalised by converting partly paid into
fully paid shares, is dividend.10. [See ante under 'When bonus shares are paid off.]
Explanation 2 makes it clear that distribution on liquidation out of the accumulated profits of any past year and even out of the
current profits of the year of liquidation but up to the date of liquidation, is taxable us dividend.11. However, any distribution out
of the profits of the company after the date of liquidation would not be covered by this clause.12. In the case of liquidation
consequent on the compulsory acquisition of the company's undertaking, any distribution out of accumulated profits of a period
prior to three successive previous years immediately preceding the year of acquisition, is not taxable as dividend.
In the hands of the liquidator there is only one fund, but for the purpose of this clause each distribution made by him should be
deemed to be received by the shareholder partly as capital and partly from accumulated profits.13. That portion of the distribution
is assessable as dividend which bears the same ratio to the amount distributed as the accumulated profits at the date of
liquidation bear to the company's total net assets at the date of distribution.
An amount assessed as dividend under this sub-clause is to be reduced while computing capital gains under s 46(2).14.

(e) Sub-clause (d): Distribution on Reduction of Capital.—

A company may, instead of increasing its capital by capitalising its accumulated profits, devote its accumulated profits to reducing
its capital. In other words, the company may, out of its accumulated profits, pay off any share capital which is in excess of the
wants of the company. 15. Or, a company may first capitalise its accumulated profits and increase its capital by issuing bonus
shares and then reduce its capital by paying off such bonus shares. Under this sub-clause any such distribution by a company on
the reduction of its capital is 'dividend' to the extent to which the company possesses accumulated profits which arose after the
end of the previous year ending next before April 1, 1933, whether such accumulated profits have been capitalised or not.16. The
object clearly is to bring to charge a distribution of accumulated profits disguised as a reduction of capital. However, sub-cl (ia)
provides that such distribution is not taxable as dividend if it is attributable to capitalised profits representing bonus shares
allotted to equity shareholders after March 31, 1964 and before April 1, 1965. The reason is that bonus shares issued during that
period were chargeable upon allotment to capital gains tax in the hands of the shareholders. For the meaning of 'accumulated
profits' see under Explns 1 and 2, post.

(f) Sub-clause (e), Sub-clauses (ii) and (iii) and Explanation 3: Loans to Shareholders and other Monetary Benefits.—
Sub-clause (e) has the effect of bringing to tax as dividend in the hands of the shareholders three types of payments made by a
company:

(a) any payment of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or
loan to a shareholder;17.
(b) any payment on behalf of a shareholder, and

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(c) any payment for the individual benefit of a shareholder.18.

The Supreme Court clarified that for the provisions on deemed dividend to be attracted, there must be payment in the form of a
loan and, on the date of such payment, the company should have accumulated profits. But the Court's conclusion that there was
"deemed dividend" is not clear.19. It is submitted that although payment by way of advance or loan to a shareholder may amount
to a "deemed dividend" under s 2(22)(e), unless the other conditions mentioned therein are satisfied, a loan or advance made by
one company to another in the ordinary course of business or inter-corporate deposits will not be treated as deemed dividend.
The conditions to be fulfilled in order to attract tax under this sub-clause are:

(a) the company should not be one in which the public are substantially interested within the meaning of cl (18);
(b) (i) the advance or loan is made before June 1, 1987 to a shareholder who beneficially owns at least 20 per cent. of the equity
capital [cl (32)];
(ii) the advance or loan is made after May 31, 1987 to a shareholder who beneficially owns at least 10 per cent. of the equity
capital, or to a HUF, firm, association of persons or body of individuals, in which such shareholder is beneficially entitled to
at least 20 per cent. of the income, or to a company in which such shareholder beneficially owns at least 20 per cent. of
the equity capital (Expln 3); and
(c) the company should possess20. accumulated profits21. at the time it makes the payment,22. the payment being deemed to be
dividend only to the extent of such profits.23.
Mere book entries24. or misappropriation of the company's funds 25. do not constitute payment by the company. A loan to a
shareholder is deemed dividend, irrespective of the purpose of the loan.26. The fact of repayment of loan even during the same
accounting year is immaterial.27. Without considering these decisions, the Madras High Court erroneously held that repayment of
loan amount should be excluded while computing deemed dividend.28.
Accumulated Profit.—
Under this sub-clause the 'deemed' dividend is to the extent of the entire accumulated profits and not merely a portion of such
profits proportionate to the assessee's shareholding in the capital of the company. 29. If the accumulated profits are capitalised,
they cannot be taken into account for the purposes of this sub-clause.30.

Repayment of Loan.—
When a loan is deemed to be dividend, the same amount when repaid and relent cannot again attract the fiction and be once
again deemed to be dividend. Therefore, in considering the taxability of subsequent transactions, the accumulated profits should
be notionally reduced by the amount of all loans and other benefits which were once deemed to be dividend.31.
If a transaction between a shareholder and a company creates mutual benefits and obligations, then the provision of treating any
sum received by the shareholder out of accumulated profits as deemed dividend would not apply.32.

Shareholder or Beneficial Owner.—

Unlike cl (24)(iv) which applies to 'a person who has a substantial interest in the company', cl 22(e) applies to 'a shareholder, being
a person who has a substantial interest in the company'. Thus, in order to attract the application of this clause, the person should
be a shareholder33. and he should beneficially own at least twenty per cent. (now ten per cent.) of the equity capital.34. A
shareholder means a person in whose name the shares stand in the share register of the company;35. therefore, if a person is
merely the beneficial owner of shares, without being the registered shareholder, this clause would not apply to him. In fine, if the
assessee is not a shareholder of the company from whom he received a loan or an advance, the loan or advance cannot be
treated as deemed dividend.36. This decision was affirmed by the Supreme Court.37. In another case, in the context of HUF, the
Supreme Court held that even if the HUF was not the registered shareholder, once the payment was received by the HUF and the
shareholder (karta, in that case) was a member of the HUF and he had a substantial interest in the HUF, the payment made to
the HUF would constitute deemed dividend.38. Later, the Supreme Court has doubted its decision in Madhur Housing and
referred the issue to a larger bench.39. While making the reference, the Supreme Court observed that the decision of the Delhi
High Court in Ankitech has been wrongly decided and if that interpretation is to be accepted, the object of the amendment made
by the Finance Act, 1987 would be stultified.40. The Court also observed as under:
"It is clear therefore that the moment there is a shareholder, who need not necessarily be a member of the company on its register, who is the beneficial
owner of shares, the section gets attracted without more. To state, therefore, that two conditions have to be satisfied, namely, that the shareholder must
first be a registered shareholder and thereafter, also be a beneficial owner is not only mutually contradictory but is plainly incorrect."

It is submitted that the observations of the Supreme Court in the reference order and interpretation of its earlier decision in
Gopal and Sons is correct. This entire controversy has arisen only because sub-cl (e) is worded in the most complicated manner.

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The correct way of reading this tangled sub-cl will be:

"any payment, by way of advance or loan, (to the extent of accumulated profits) by a company (not being a company in which the public are
substantially interested) to:

(i) a shareholder, who has 10 per cent. or more of the equity capital in the company making the payment; or
(ii) a concern, where a member or a partner of the concern holds 10 per cent. of the voting power in the company making the
payment; and the member or partner of the concern is also beneficially entitled to 20 per cent. of the income of such
concern; or
(iii) a shareholder for his individual benefit."
The error committed by the legislature seems to be in not using punctuations and inserting the amended portion at a place that
has rendered the rest of the sub-clause, being 'or any payment by any such company on behalf, or for the individual benefit, of
any such shareholder,' meaningless. It would have been advisable to substitute the entire sub-clause instead of tinkering with the
existing provision only to overrule judicial precedents in favour of the assessee. Later, to put the controversy to rest, the
legislature has amended s 115-O to make 'deemed dividend' also subject to dividend distribution tax. Now, by Finance Act, 2020,
dividend distribution tax itself has been removed.
The other decisions of the High Courts on this issue are not discussed for the sake of brevity.41.
Under the erstwhile s 2(6A), it was held that a Hindu undivided family is the beneficial owner of shares which are registered in the
name of the karta or other coparcener, a loan given by the company to the joint family would not fall within this clause, 42. but it
would if the family itself is a shareholder, 43. unless in the case of a loan made after May 31, 1987 the karta or other coparcencer
is, at any time during the previous year, entitled to at least twenty per cent. of the income of the family (Expln 3). Similarly, before
March 31, 1987, s 2(22)(e) would not apply to advances by a company to an assessee firm when the firm was not the shareholder
but the partners of the firm were shareholders.44.
If an assessee is not the beneficial owner of any shares of the creditor company, the provisions of s 2(22)(e) will not apply.45.
An amount advanced as security to the firm in which two of the partners were shareholders of the company would not amount
to a deemed dividend. The security was not a loan or advance as contemplated by s 2(22)(e) and, in addition, the firm receiving
the advance was not a registered shareholder. 46. However, advance on commission paid to the managing director amounts to
deemed dividend.47. On facts, an advance given on interest to the managing director's wife was held not to be deemed
dividend.48.

Trade Advance.—
Sub-clause (ii) constitutes the only exception to the above rule, and it applies only where two cumulative conditions are fulfilled—
first, the loan should have been made by the company in the ordinary course of its business, and secondly, money lending should
be a substantial part of the company's business.49. The expression "substantial part" does not connote an idea of being the "major
part" of the business or the part that constitutes majority of the whole of business.50. If assessee fails to establish that the
substantial part of the business of the company is money lending, the provisions of s 2(22)(e) will be applicable.51. Sub-clause (iii)
gives relief by providing that any subsequent dividend paid by a company would not be taxable to the extent to which it is set off
by the company against any loan or other monetary benefit which has been treated as a dividend within the meaning of sub-cl
(e). If the dividend is not so set off but is paid to the shareholder while the loan remains outstanding, the benefit of sub-cl (iii)
cannot be obtained.52. Regular business transactions between concerns cannot be treated as loans and advances and made
taxable as "deemed dividend" under s 2(22)(e).53. Trade advances made in the ordinary course of business for commercial
purposes will also be an exception.54. Advances made to a sister concern that holds 50% of the equity of the assessee will not be
treated as deemed dividend as the advance was to be adjusted against dues for job work and was a business transaction.55.
Instances of trade advances/commercial transactions which not covered under s 2(22)(e) have been provided in the undernoted
circular.56.
In the context of s 2(22)(e), the undernoted case held that referable question of law did not arise57. under s 256.

(g) Constitutional Validity.—

The provision in the 1922 Act corresponding to sub-cl (d) was intra vires the central legislature.58. Sub-clause (e) is not ultra vires
the Parliament nor does it contravene art 14 or 19(1) of the Constitution.59.

(h) Sub-clause (i): Shares Issued for Full Cash Consideration.—

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This sub-clause enacts that a distribution on liquidation of a company or on reduction of its capital is not dividend if it is made in
respect of any share (i) which has been issued for full cash consideration, and (ii) which is not entitled in the event of liquidation to
participate in the surplus assets. Generally speaking, preference shares are not entitled to participate in the surplus assets on
liquidation.

(i) Sub-clauses (iv) and (v): Buy Back of Shares and Demerger.—
Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of s 77A
of the Companies Act [now s 68 of the Companies Act, 2013] is not dividend under this sub-clause. Similarly, any distribution of
shares pursuant to a demerger by the resulting company to the shareholders of the demerged company is not dividend under
this sub-clause.
The Madras High Court erroneously held that the shares purchased pursuant to a scheme of arrangement approved by the court
will be not liable to capital gains and but be treated as dividend.60. [This decision has been criticized in detail in commentary to s
115-QA, at p 2263.]

(j) Explanation 1: 'Deemed' Dividend Paid Out of Capital Profits.—

Explanation 1 to this clause enacts that the words 'accumulated profits', wherever they occur in this clause, do not include capital
gains arising before April 1, 1946, or after March 31, 1948 and before April 1, 1956. For the purposes of the artificial categories of
dividend which are created by this definition, 'accumulated profits' do not include any capital gains except those which are taxable
as such. Thus 'accumulated profits' would not include capital gains which arose during a period when they were not taxable under
the 1922 Act;61. nor capital gains which are not chargeable even during the period the capital gains tax is in force, e.g. capital
gains made on sale of some agricultural lands.62. Consequently, any distribution made to the shareholders of a company on
liquidation out of the non-taxable accumulated capital gains of the company would not be dividend.

(k) Dividend Properly so called under General Law, Paid Out of Capital Profits.—
If a company pays a dividend, properly so called under the general law, out of its capital profits, e.g. profits realised upon sale or
acquisition of some of its capital assets, the payment would nonetheless be dividend Income-taxable under s 56 in the
shareholder's hands, whether the payment is called dividend or bonus. 63. It would be so taxable even if the company's capital
profits are not chargeable to capital gains tax and are not 'accumulated profits' within the meaning of Expln 1. A profit derived
from the sale of a capital asset would not be taxable in the hands of the company, if the sale took place at a time when the capital
gains tax was not in force. However, the capital profit which, while it remained in the hands of the company, was not income of
the company, becomes income of the shareholders when it is paid to them. 64. This is now established by the decision of the
House of Lords in IR v Reid's Trustees ,65. where Lord Normand summarised the position thus: A distribution of money to
shareholders out of profits realised by the sale of the company's assets without any alteration of the share capital is normally a
payment of the nature of income. It is fallacious to contend that when a company pays a dividend out of its non-taxable capital
profits or sale proceeds of a capital asset, it is not dividend or income at all in the shareholder's hands but is a capital receipt. A
limited company not in liquidation can make no payment by way of return of capital to its shareholders except as a step in an
authorised reduction of capital. Any other payment made by it by means of which it parts with moneys to its shareholders must
and can only be made by way of dividing profits. Whether the payment is called 'dividend' or 'bonus', or any other name, it still
must remain a payment on division of profits.66.
[Cf ante under s 2(1), 'Dividend paid by company out of agricultural income' at p 92.]
However, the Supreme Court has taken the contrary view. In CIT v Nalin Behari Lall Singha,67. the Supreme Court held that a
dividend proper which is paid by a company out of capital gains arising to it between April 1, 1948 and March 31, 1948 is not
taxable as dividend since a distribution out of such gains is expressly exempted from tax for the purpose of s 2(22). In CIT v Saila
Behari Lal Singha,68. the Supreme Court remanded the case to the High Court to consider whether such distribution could still be
taxed as income other than dividend. In CIT v Kamal Behari Lal Singha,69. the Supreme Court held that such distribution was not
taxable even as income other than dividend, because it was made from a fund which was a capital receipt in the hands of the
company and the shareholders merely took a share of the capital asset to which they were beneficially entitled. The above
decisions, it is submitted with respect, are incorrect. First, as noted above, the definition in this clause is inclusive and not
exhaustive and what would be dividend proper under the general law (apart from this definition) is not touched in any manner by
Explanation 1. An interpretation clause which extends the meaning of a word does not take away its ordinary meaning.70. To
accept that the definition of dividend in s 2(22) is inclusive and not exhaustive71. and yet to say that dividend, properly so called
under the general law, should not be regarded as dividend because of the definition in s 2(22) which artificially deems certain
distributions or payments to be dividend, is to contradict oneself. It is submitted that Expln 1 can be invoked only in cases where
a payment or distribution is not dividend under the general law but is sought to be taxed as 'deemed' dividend under s 2(22).
Secondly, a company and its shareholders are different legal entities and, for the purpose of considering the taxability of dividend,

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neither can the shareholders be regarded as beneficially entitled to the fund out of which the dividend is distributed nor can the
capital character of the fund be taken into consideration. Thirdly, these decisions were rendered without considering, and run
counter to, the prior rulings of the Supreme Court itself in Bacha Guzdar v CIT,72. in which a dividend paid by a company out of
its agricultural income was held not exempt from tax as being agricultural income in the hands of the shareholders, and
Kishinchand Chellaram v CIT,73. in which it was held that dividend proper does not lose its taxable character as dividend merely
because it is paid out of capital in violation of the law.

(l) Explanation 2: 'Accumulated Profits'.—

Explanation 2 defines 'accumulated profits' as including all profits of the company up to the date of distribution or payment, for
the purposes of all sub-clauses except sub-cl (c). This provision, which was absent in the 1922 Act,74. virtually renders the
expression 'accumulated profits' wide enough to cover current profits, i.e. current profits of the year in which the distribution or
payment is made, up to the date of such distribution or payment.75. For the purposes of sub-cl (c) which deals with distribution
on liquidation, 'accumulated profits' includes the profits of the year of liquidation up to the date of liquidation, but not the profits
made between the date of liquidation and the date of distribution to the shareholders.76. Explanation 2 further provides that
where the liquidation is consequent on the compulsory acquisition of the company's undertaking by the government or a
corporation owned or controlled by the government, accumulated profits do not include any profits of the company prior to
three successive previous years immediately preceding the year of acquisition. In the case of an amalgamated company, the
accumulated profits of the amalgamating company are to be included on the date of amalgamation [Explanation 2A].
'Accumulated profits' means profits in the commercial sense.77. The expression includes tax-free profits e.g. agricultural income,78.
general reserve,79. development rebate reserve,80. credit balance81. and initial depreciation,82. but not normal depreciation83. nor
provision for taxation and dividends.84. 'Accumulated profits' does not necessarily mean reserves and other profits as disclosed by
the company's balance sheet. 85. In every case, depreciation calculated at the income-tax rates should be deducted in computing
'accumulated profits', even if lower depreciation has been provided for in the accounts.86. [See further post under deleted s 109,
'Reserves'.]
The Bombay High Court held that the expression 'accumulated profits' referred to the profits out of which the distribution was
actually made. Any notional income of the company on which the company had been assessed but which never reached the
company's hands and which consequently was not available for distribution among the shareholders—e.g. notional dividend
income under s 23A of the 1922 Act before the amendment of that section in 1955— could not be taken into account for the
purposes of this clause.87. This decision was rendered when the clause in the 1922 Act referred to 'distribution…out of
accumulated profits'. Now the clause refers to 'distribution…attributable to the accumulated profits'. However, this decision would
hold good even in cases arising under the present clause. All assessed profits are not necessarily accumulated profits.88. For
instance, 'accumulated profits' do not include amounts actually disbursed but disallowed in assessment,89. nor do they include
what is a capital receipt under the general law but is deemed, e.g. by s 41(2) omitted* which imposed a balancing charge, to be
revenue profit for the purpose of assessment of the company.90.
In determining the accumulated profits, the deemed dividend assessed under this clause in the past years should be deducted.91.

(m) 'Excess Dividends'.—

The provisions of the Finance Acts levying higher or additional tax on the company in cases where 'excess dividends' are
distributed have been considered in the undermentioned cases.92.

(n) Burden of Proof.—

The initial burden to prove that a case is covered by this clause and therefore the amount is taxable as dividend is on the income-
tax authorities93. but the burden to prove that the case is covered by an exception is on the assessee.

(o) Exemptions and Deductions.—

[See under s 56(2).]

94. [(22A) "domestic company" means an Indian company, or any other company which, in respect of its income liable to tax under
this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including
dividends on preference shares) payable out of such income;]

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1. [(22AA)
"document" includes an electronic record as defined in clause2. (t) of sub-section3. (1) of section 24. of the Information
Technology Act, 2000 (21 of 2000);]
Clause (22AA) "Document".—Clause (22AA) has been added in the year 2001 to reflect the changes brought about by the
Information Technology Act, 2000. The word "document" that earlier referred only to physical documents has now been
expanded to include electronic documents as defined in s 2(1)(t) of the Information Technology Act, 2000.
5. [(22AAA) "electoral trust" means a trust so approved by the Board in accordance with the scheme6. made in this regard by the
Central Government;]
Clause (22AAA)—Electoral Trust.—This clause has been inserted as part of a process to reform the system of funding of
political parties and its scope explained in the undernoted circular. Sections 80GGB and 80GGC were inserted by Election and
Other Related Laws (Amendment) Act, 2003 which also amended ss 13A and 80A of the Income-tax Act, 1961. Needless to add
that these amendments have not achieved any major reform.7.
8. [9. [(22B)] "fair market value", in relation to a capital asset, means—

(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date; and
(ii) where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules
made under this Act;]
10. [(23)(i) "firm" shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932)11. , and shall include a
limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009)12.;
(ii) "partner" shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include,—

(a) any person who, being a minor, has been admitted to the benefits of partnership; and
(b) a partner of a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);
(iii) "partnership" shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited
liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);]
PARTNER AND PARTNERSHIP
Clause (23) [Section 2(6B) of 1922 Act]: Firm, Partner, Partnership.—
This definition clause is the same as in the 1922 Act.
In this Act, 'firm', 'partner' and 'partnership' have the same meanings respectively as in the Indian Partnership Act, 1932, with one
difference, viz that for the purposes of this Act 'partner' includes a minor admitted to the benefits of partnership.13. The Limited
Liability Partnership Act, 2008 has introduced a new entity for the carrying out of business, i.e. a limited liability partnership, which
is a hybrid entity having the features of both a company and a partnership. Under the Act, a limited liability partnership will be
taxed in the same manner as a partnership firm. This is established by the change in the definition of "firm", "partner" and
"partnership" in sub-clause (23), where suitable changes have been made to include a limited liability partnership and a partner in
such a partnership.
The Finance (No. 2) Act, 2009 has substituted a new definition to include a limited liability partnership firm formed under the
Limited Liability Partnership Act, 2008. This Act enables a partnership to have more than 20 partners and a limited liability
partnership is a body corporate more akin to a company. (Till date, s 11 of the Companies Act, 1956 limits the number of
partners to 20).* A limited liability partnership is defined in s 2(n) to mean a partnership formed and registered under that Act.
(a) Validity of Partnership.—
'Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them
acting for all. Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm
and the name under which the their business is carried on is called the 'firm name'. 14. The mere fact that two persons take a
commission agency business jointly would not necessarily constitute a partnership between them.15. A person, e.g. a deceased
partner's widow, may be entitled to a share in the firm's profits, without being a partner. 16. It is open to the partners to agree not
to take the whole of the firm's profits for their personal use and to reserve a part of the firm's profits for charity, though charity
cannot be made a partner. 17. A representative, benamidar or trustee may be a partner without having any beneficial interest in
the partnership.18. A partnership between a company incorporated under the Company Act and its employees is a valid
partnership.19. A wakf cannot be a partner, but the mutawalli of a wakf can be.20. A Hindu deity cannot enter into a partnership
the provisions of which render its assets liable for the firm's losses. 21. A husband and wife governed by the Portuguese law can
enter into a partnership in respect of the property of their communion.22. A sub-partner cannot be regarded as a partner in the
main firm because the sub-partnership and the main firm are two different entities for the purposes of the Act.23.

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In order to constitute a partnership there must be at least two majors.24. If a partnership has been entered between two persons
of whom one is a benamidar of the other, there is no relation of partnership between the two persons and one person cannot
constitute a firm.25. The total number of partners should not exceed twenty.26. For computing this total number of twenty, minors
admitted to the benefits of partnership are not to be taken into account.27.
A guardian may contract and contribute capital on behalf of the minor, for the purpose of admitting the minor to the benefits of
partnership,28. even if he himself is one of the partners;29. or the guardian may himself become a full-fledged partner.30. A minor
who is admitted to the benefits of partnership may be liable to share the firm's losses to the extent of his share in the partnership,
i.e. his capital and his share in the profits and property of the firm; all that the law of partnership requires is that he should not be
made personally liable for such losses.31. The deed of partnership should be reasonably construed to determine whether the
minor is merely admitted to the benefits of partnership and the partnership is therefore valid.32. If a minor is merely admitted to
the benefits of partnership, the question whether his guardian has or has not signed the deed or whether the minor has also
signed the deed is irrelevant.33. Where a partnership deed purports to be an agreement between a minor and majors, making the
minor a partner, such a partnership is not valid and cannot be registered under this Act.34. But after a minor attains majority, he is
entitled to undertake the liability for losses that may be suffered for the entire accounting year in the course of which he attained
majority.35. Under s 30 of the Indian Partnership Act, 1932, a minor alone can be admitted to the benefits of partnership and
admitting a major, whether of unsound mind or whether deaf and dumb, to the benefits of partnership is impliedly prohibited.36.
An association of persons would not constitute a partnership unless they carry on a business,37. though a firm may not carry on
business in a particular year. 38. But the business need not be one the income of which is taxable under s 28 only.39. The partners
may do business in a line not mentioned in the deed of partnership40. and may carry it on, not personally, but entirely through
servants or agents.41. It is essential that the principle of agency should regulate the relationship between the parties.42. An
agreement to share profits is equally essential to a valid partnership,43. but the agreement may provide that some of the partners
will not share in losses.44. The profits need not be actually distributed every year. They may be allowed to accumulate in the
business.45. Partners are assessable on their firm's profits irrespective of whether the profits are distributed and paid over to them
or not.46. The amount which the partners are actually entitled to receive by way of share in profits may be made to depend upon
the time which they devote to the business of the firm,47. or the share of a partner may be a fixed periodic amount.48. A trade
association or 'pool' formed by different traders with a view to promoting business and avoiding competition may constitute a
firm49. or may be assessable as an 'association of persons'50. or may be a mutual association not liable to tax.51. A French societe
en nom collectif, which is a legal person distinct from the individuals composing it, is not a partnership. 52.
The question whether the relationship between two persons is that of partners, or of employer and employee or principal and
agent, is a question to be determined upon a proper construction of the relevant documents and all the other circumstances of
the case.53. In the absence of other evidence, the mere fact that a person is remunerated by a share in the business profits would
not be sufficient to establish a partnership.54. It is not essential that in a partnership all the partners should be owners of the
assets or the goodwill of the firm, or that the right of borrowing money on behalf of the partnership business should be
exercisable by every partner.55. A firm may be the owner of a property although on dissolution the property is to go to some
partners only, or all partners except one are merely working partners and they have no right or claim to the property.56. All the
partners need not participate in carrying on of the business; likewise, every partner need not contribute capital.57. Thus, it would
be a valid partnership if a partner does not bring in any capital contribution to the partnership but contributes only his skill and
labour.58. The partnership would be valid though there may be various restrictions on some of the partners and one of the
partners may be empowered to conduct the business at his sole discretion and to expel other partners from the firm or may be
given other exclusive powers of dominating control.59.
Partnership must be distinguished from co-ownership of property60. and from the relationship of licensor and licensee61. or
vendor and purchaser. 62. On a true construction of a document, it may be held that the agreement between the parties
constitutes a partnership, even if the document expressly declares that the arrangement set out therein shall not constitute
partnership between the parties.63. Conversely, an agreement which is merely to share expenses (and not profits) and which lacks
the element of agency, would be held not to constitute a partnership, although the parties may describe themselves as partners,
procure registration under the Indian Partnership Act and apply for registration under this Act.64.
Where a firm's business was actually carried on by another firm, it was held not to be a genuine partnership and hence not
entitled to registration.65.
Partnership must be deemed to commence from the date when in fact it has commenced, even though a partnership deed may
be executed later. 66. Where partnership has in fact commenced from the date of execution of the partnership deed, it cannot be
deemed to have commenced earlier even if the deed provides for retrospective operation; no deed can alter the past.67. Likewise,
if a partnership was in fact dissolved on a particular date, it cannot be held to have been dissolved earlier even though the deed
of dissolution might refer to an earlier date as the date of dissolution for the purposes of adjusting the rights of the partners inter
se.68. A partnership may be assessed as such even after its dissolution, for instance, if it carries out after its dissolution contracts
entered into before.69.

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(b) Illegal Partnerships.—

Based on the different statutory provisions of different states and different conditions of respective licences, Whether a
partnership is illegal as being in violation of the abkari, opium, tobacco or other licensing laws, would depend on the facts of each
case.70. In Dayabhai & Co v CIT,71. Dixit CJ observed, 'The question of illegality of a partnership must be distinguished from
illegality of any acts done in the course of its business by the firm or some or all of its members'.72. As a result of the decisions of
the Supreme Court in Jer & Co v CIT,73. and Bihari Lal Jaiswal v CIT,74. the law is well-settled and has been well summarised by a
Full Bench of the Kerala High Court in Narayanan & Co v CIT,75. thus:
W h en th e statu to ry p ro visio n s o r th e co n ditio n s o f licen ce do n o t p ro h ib it th e fo rmatio n o f a p artn ersh ip fo r exp lo itin g th e licen ce, su ch a
p artn ersh ip can n o t b e h eld to b e illegal; b u t w h ere th ere is a sp ecific p ro h ib itio n , an y p artn ersh ip en tered in to in co n traven tio n o f th ese
p ro visio n w o u ld b e u n law fu l an d vo id.

On application of these principles, a case similar to Jer & Co falling in the first category would be regarded as a genuine firm76.
but not a case similar to Bihari Lal falling in the second category.77. However a sub-partnership formed merely to finance the
business of a partner of the main firm doing abkari business is not in violation of the Abkari Act as the members of the sub-
partnership do not become partners of the main firm, the two being different and distinct entities for the purpose of the Act and
therefore not illegal.78. Earlier, in some of the cases it was held that a partnership selling foreign liquor or country liquor79. or
other excisable goods,80. or dealing in mica81. or rice,82. or doing mining83. or fishing84. or construction85. business, may be legal,
although the licence or lease or contract under the appropriate law may not be held in the name of the firm and in some of the
other earlier cases the courts held the partnership to be illegal and therefore disentitled to assessment as a firm,86. but in view of
the above discussion following Bhari Lal ruling, some of these cases may no longer be good law.
An illegal partnership may be assessed as an association of persons.87. Needless to say, the legality of a firm would not be affected
by its failure to comply with the rules of the trade association of which it is a member, 88. or by the failure of a partner to comply
with the rules of the profession to which he belongs.89.
[See further post under s 2(31), 'Illegal association', and under s 4, 'Income tainted with illegality' and 'Sub-partnership'.]

(c) Genuine and Sham Partnerships.—

The question whether a partnership is valid in law is distinct from the question whether a genuine partnership exists in fact. The
distinction between the two does not seem to have been observed in some cases. The cases where the question really was of the
genuineness of a partnership in fact as distinct from its validity in law have been dealt with post under ss 184–85, 'Genuine and
sham partnerships'.

(d) Two Firms consisting of Same Partners.—

Two firms consisting of exactly the same partners may nonetheless constitute separate and distinct partnerships and carry on
different businesses; and the question whether two such firms are separate and distinct or whether they constitute only one firm,
is a question of fact to be determined upon the circumstances of each case.90.

(e) Joint Family, Company or Firm, or Same Individual in Different Capacities, as Partner.—
It is not only individuals who can be partners in a firm. An incorporated company may form a partnership with an individual.91. A
joint Hindu family as such cannot be a partner in a firm;92. but through its karta, it may enter into a valid partnership.93. However,
in such a case it is the karta alone who becomes the partner and not the individual members of the family,1. and in determining
whether the number of partners exceeds twenty in contravention of s 11(2) of the Companies Act, 1956, the karta alone should
be counted as a partner and the members of the family represented by him should not be included.2. SR Das J, delivering the
judgment of the Supreme Court in Kshetra Mohan-Sannyasi Charan v CEPT,3. said:
W h en tw o kartas o f tw o Hin du u n divided families en ter in to a p artn ersh ip agreemen t th e p artn ersh ip is p o p u larly describ ed as o n e
b etw een th e tw o Hin du u n divided families b u t in th e eye o f th e law it is a p artn ersh ip b etw een th e tw o kartas an d th e o th er memb ers o f
th e families do n o t ipso facto b eco me p artn ers. Th ere is, h o w ever, n o th in g to p reven t th e in dividu al memb ers o f o n e Hin du u n divided
family fro m en terin g in to a p artn ersh ip w ith th e in dividu al memb ers o f an o th er Hin du u n divided family an d in su ch a case it is a
p artn ersh ip b etw een th e in dividu al memb ers an d it is w h o lly in ap p ro p riate to describ e su ch a p artn ersh ip as o n e b etw een tw o Hin du
u n divided families.

A partnership between two members of a Hindu undivided family and strangers would be valid, although the two members may
represent, and receive their shares of profits on behalf of, one and the same family. 4. If after the formation of a partnership
between the karta and a stranger, the joint family is disrupted, 5. or there is a partial partition by way of division of the interest in
the partnerships,6. the validity, constitution or existence of the partnership is not affected thereby. A widow is not competent to
become the manager of a joint family and to enter into an agreement of partnership in her representative capacity as the
manager;7. but a female, as a member of a joint family, can become a partner in a firm as the representative of her family, 8. and in

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the absence of an adult male coparcener she can act as the guardian of her minor sons and represent the joint family for the
purposes of assessment.9.
A karta as representing his joint family may enter into a valid partnership with a separated member of the family.10. As the Privy
Council held in Lachhmandas v CIT,11. and the Supreme Court in Chandrakant Manilal Shah v CIT,12. held, there can be a valid
partnership even between the karta representing the family and an undivided member of that family in his individual capacity
who brings in his personal property13. or acts as a working partner. 14. In Ratanchand Darbarilal v CIT,15. the Supreme Court
affirmed the position that coparceners or other members of a joint family can enter into a partnership, without a total or partial
partition. A single individual by himself cannot form a partnership by acting in two different capacities: there can be no
partnership in law between the same individual acting, on the one hand, as the karta of a joint Hindu family and, on the other, as
a partner in his individual capacity,16. even as there can be no partnership in law between the mutawalli of a wakf or a trustee in
his representative capacity and the same individual in his personal capacity, 17. or between the guardian of minors in his
representative capacity and himself in his individual capacity.18. But the same individual can enter into a partnership with others in
two capacities—in his individual capacity and in his representative capacity as the karta of a Hindu undivided family.19.
The Supreme Court laid down in Dulichand Laxminarayan v CIT,20. that since a firm is not a legal entity, a firm as such cannot
enter into a partnership. But, as the Supreme Court pointed out in a subsequent case, Kylasa Sarabhaiah v CIT,21. if the deed
shows that the constituent members of a smaller firm, and not the firm as such, had entered into a larger partnership with others,
the partnership would be valid. The Allahabad High Court held in Chandrika Prasad Ram Swarup v CIT,22. that where two firms
purport to enter into a larger partnership, and the deed shows that the larger partnership is really a partnership between the
individual members of the two firms, it would be valid. If the larger partnership is invalid, it would be assessable as an 'association
of persons'.23.

(f) Joint Family Business converted into Partnership Business.—

[See post under this heading under ss 184–85, and also under s 171, 'Property divided among members by way of partial
partition'.]

(g) Firm is an Assessable Entity.—

It is well settled that under the general law a firm is not a legal person or a juridical entity.24. But as the Supreme Court pointed
out in CIT v Figgies & Co.,25. and the House of Lords in City of London IT Comrs v Gibbs,26. and Latilla v IR,27. the technical view
of the nature of partnership under the general law cannot always be taken in applying the law of income-tax. For some of the
purposes of the Act a firm 'is treated as an entity distinct from the persons who constitute the firm'.28. But as further stated by
the Supreme Court in ITO v Arunagiri,29. the firm is treated as an entity only for certain purpose of the Act and it is not separate
juristic entity distinct from its partners. The meaning of the term 'firm' even in the context of the Act remains the same as, and the
rights and duties of the partners inter se continue to be governed by, the provisions of the Indian Partnership Act.30. Under s 4(1)
read with s 2(31)(iv) a firm is a unit of assessment.31.
An application could be made under s 184 (now substituted) for registering a firm for the purposes of this Act. [See post under s
2(39) and ss 182 to 185.] Both registered and unregistered firms are assessees within the meaning of that word as defined in s
2(7).

(h) Reference to Court.—

[See post under ss 184–85.]

32. [(23A) "foreign company" means a company which is not a domestic company;]

33. [(23B) "fringe benefits" means any fringe benefits referred to in section 115WB;]

34. [(23C) "hearing" includes communication of data and documents through electronic mode;]

(24) "income" includes—

(i) profits and gains;

(ii) dividend;

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35. [(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution
established wholly or partly for such purposes 36. [or by an association or institution referred to in clause (21), or clause
(23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) 37. [or by any university or other
educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to
in sub-clause (iiiae) or sub-clause (via)] of clause (23C), of section 10] 38. [or by an electoral trust].
Explanation.—For the purposes of this sub-clause, 'trust' includes any other legal obligation;]

(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17;
39. [(iiia) any special allowance or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee
to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of
profit;
(iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or
employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the
increased cost of living;]
(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director
or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum
paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director
or other person aforesaid;
40. [(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee
mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose
benefit any income is receivable by the representative assessee (such person being here-after in this sub-clause referred to
as the "beneficiary") and any sum paid by the representative assessee in respect of any obligation which, but for such
payment, would have been payable by the beneficiary;]
(v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59;
41. [(va) any sum chargeable to income-tax under clause (iiia) of section 28;]
42. [(vb) any sum chargeable to income-tax under clause (iiib) of section 28;]
43. [(vc) any sum chargeable to income-tax under clause (iiic) of section 28;]
44. [45. [(vd)] the value of any benefit or perquisite taxable under clause (iv) of section 28;]
46. [(ve) any sum chargeable to income-tax under clause (v) of section 28;] (vi) any capital gains chargeable under section 45;
(vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society,
computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in
the First Schedule;
47. [(viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society
with its members;]
48. [(viii) * * * *;]
49. [(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or
from gambling or betting of any form or nature whatsoever;]
50. [Explanation.—For the purposes of this sub-clause,—

(i) "lottery" includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner
whatsoever, under any scheme or arrangement by whatever name called;
(ii) "card game and other game of any sort" includes any game show, an entertainment programme on television or
electronic mode, in which people compete to win prizes or any other similar game;]
51. [(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund, or
any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the
welfare of such employees;]
52. [(xi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
Explanation.—For the purposes of this clause53., the expression "Keyman insurance policy" shall have the meaning assigned
to it in the Explanation to clause (10D) of section 10;]

54. [(xii) any sum referred to in 55.[clause (va)] of section 28;]

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56. [(xiia) the fair market value of inventory referred to in clause (via) of section 28;]
57. [(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;]
58. [(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;]
59. [(xv) any sum of money or value of property referred to in clause (vii) 60. [or clause (viia)] of sub-section (2) of section 56;]
61. [(xvi) any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of
sub-section (2) of section 56;]
62. [(xvii) any sum of money referred to in clause (ix) of sub-section (2) of section 56;]
63. [(xviia) any sum of money or value of property referred to in clause (x) of sub-section (2) of section 56;]
64. [(xviib) any compensation or other payment referred to in clause (xi) of sub-section (2) of section 56;]
65. [(xviii) 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 Central Government or a State Government or any authority or body
or agency in cash or kind to the asseesse 66.[other than,—
(a) the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset
in accordance with the provisions of Explanation 10 to clause (1) of section 43; or
(b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by
the Central Government or a State Government, as the case may be;]]
INCOME
Clause (24) [Section 2(6C) of 1922 Act]: Income.—
This clause is more systematically drafted and is far wider in scope than the corresponding clause in the 1922 Act.
Income is artificially defined to include various items. These items except the one in sub-cl (iv) are dealt with in their appropriate
places under the relevant sections. The subject of business of insurance carried on by a mutual insurance association or by a co-
operative society [sub-cl (vii)] is also covered under s 4.
The definition of income in this clause is inclusive and not exhaustive. 'Income' includes not only those things which this clause
declares that it shall include, but such things as the word signifies according to its natural import.67. Section 2(24) starts with
words 'income includes…' and would, therefore, include agricultural income even though it has not been specified as one of the
items.68. Any kind of income earned by the assessee attracts income-tax at the point of earning and tax law is not concerned with
how the income is expended. The Act makes an obligation to pay tax on all income received. The Act considers income earned
legally as well as tainted income alike.69. This clause adds artificial categories to the natural connotation of 'income': its purpose is
not to limit the meaning of 'income' but to widen its net 70. and it is not a mere catalogue of receipts which otherwise would not
be income.71. It is the true nature and quality of the receipt and not the head under which it is entered in the books of account
that would prove decisive.72. Anything which can be properly described as income is taxable under the Act unless exempt under
one or the other provisions of the Act. Income will not in its normal meaning include capital receipts unless it is so specified under
this clause.73. In the case of mutual insurance transactions, the resultant surplus would not be income, profits or gains, according
to the natural meaning of those words, whether the transactions are with members or with non-members;74. but such surplus is
deemed to be income under sub-cl (vii).75. However, income under this clause does not include loss.76. The concept of 'income' is
discussed post under s 4, et seq. Unless a particular category has been specifically mentioned in the numerous clauses of s 2(24),
the inclusive definition of "income" will only include "real income" - that is, income which has really accrued or arisen to the
assessee. The concept of real income has been discussed in s 4post, under the heading "Real and not hypothetical income
chargeable".
(a) Sub-clause (ii-a): Voluntary Contributions received by Charity.—
The old sub-clause excluded from the definition of 'income', voluntary contributions made to a charitable trust 'with a specific
direction that they shall form part of the corpus of the trust'. The Direct Tax Laws (Amendment) Act, 1987 deleted the above-
quoted words; and at the same time it also deleted ss 11, 12, 12A and 13. Following a public uproar the Direct Tax Laws
(Amendment) Act, 1989 reintroduced ss 11, 12, 12A and 13, but it did not reamend s 2(24)(ii-a) to restore the original words
expressly excluding contributions specifically made to the trust corpus. This, however, does not mean that such capital
contributions are now taxable as income. Sometimes express exclusion is by way of abundant caution, due to the over-anxiety of
the draftsman to make the position clear beyond doubt. But in such a case the later omission of such express exclusion does not
necessarily involve a change in the legal position.77. Section 12 still provides that voluntary contributions specifically made to the
corpus of a charitable trust are not deemed to be income, and the same exclusion must be read as implicit in s 2(24)(ii-a). It would
be truly absurd to expect a charitable trust to disburse as income any amount in breach of the donor's specific direction to hold it
as corpus; such breach in many cases would involve depriving charity of the benefit of acquiring a lasting asset intended by the
donor. Under this sub-clause, only voluntary contributions received by such institutions as are specified therein are taxable as
income. A voluntary contribution received by an institution not covered in this sub-clause is not taxable as income.78.

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[See further post under s 12, 'Voluntary contributions towards corpus of recipient trust'.]

(b) Sub-clauses (iii-a) and (iii-b): Special Allowance for Expenses.—

Any perquisite, benefit or amenity granted to an employee was always taxable as income under sub-cl (iii) of s 2(24) read with s
17. However, sub-cll 1(iii-a) and (iii-b) inserted by the Direct Tax Laws (Amendment) Act, 1989—with retrospective effect from
1962—create additional artificial categories of income. Any allowance or benefit specially granted to a salaried person to meet the
expenses, wholly, necessarily and exclusively for the performance of his duties of an office or employment of profit has been held
to be income.79. Allowance given for meeting the refreshment expenses during office hours also has been held to be taxable as
income.80. The allowances treated as income by sub-cll (iii-a) and (iii-b) are exempted from tax to the extent and subject to the
conditions provided in s 10(14).

(c) Sub-clause (iv): Benefit or Perquisite Obtained from a Company.—

This sub-clause deems to be income:

(a) the value of any benefit81. or perquisite, whether convertible into money or not,82. obtained from a company either by (i) a
director, or (ii) any person who has a substantial interest in the company, or (iii) by a relative of the director or such person;83.
and
(b) any sum paid by a company in respect of any obligation which but for such payment would have been payable by any of the
above-mentioned three classes of individuals. The sum assessable under this clause need not be the same as that disallowed
to the company under s 40(C)84. (now deleted).
A benefit to be taxed should, in fact, arise;85. notional benefits cannot be treated as income. The Madras High Court86. has held
that this sub-clause applies irrespective of the fact whether the director is an employee director or whether the benefit received
was in the nature of capital or whether there is any direct receipt in the transaction or whether there is any detriment to the
company or not in the transaction. But this sub-clause does not make the value of any benefit received by the director's relative
or friend taxable as the income of the director in every case.87. Expenditure on foreign tour of a director's wife is not an income in
her hands under this sub-clause if the foreign tour was undertaken at the instance of the company for its business purposes.88.
The Madras High Court has, however, held that the foreign travel expenses of the wife of a director met by the company was
assessable in her hands as a benefit under s 2(24)(iv) even though such expenditure had been allowed as a deduction in the
assessment of the company. 89. The bonus or rights shares received by a director in his capacity as a shareholder in the company
are not covered by this sub-clause.90. Cash paid for medical reimbursement will not form part of the benefit within the meaning
of this clause.91. Personal expenditure of directors that was settled through credit cards by a partnership firm would be taxable in
their hands under s 2(24)(iv).1.
In order to be taxable as income under this sub-clause, the benefit should have been authorised by the company; the sub-clause
does not cover the value of any unauthorised benefit in respect of which the director would be liable to make restitution to the
company.2. The words 'who has a substantial interest in the company' do not qualify 'director'. Therefore, this sub-clause would
apply to a director even if he is not substantially interested in the company. 3. Under cl (32), a person is deemed to have a
substantial interest in the company if he is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend
whether with or without a right to participate in profits) carrying not less than twenty per cent. of the voting power, and it is
immaterial that he is not the registered shareholder or that he is not concerned in the management of the company's business.
The corresponding sub-clause in the definition of income in the 1922 Act differed from the present sub-clause in two respects:
first, it deemed a person to have a substantial interest in the company only if he was concerned in the management of the
company's business 4. and was also the beneficial owner of the prescribed percentage of share capital, and secondly, it did not
apply at all to relatives of a director or of a person who had a substantial interest in the company. The present sub-clause applies
to such relatives as fall within the definition of 'relative' in cl (41).
The items covered by this sub-clause are taxable as income irrespective of the question whether the recipient of the benefit from
the company is taxable under s 15, 28 or 56. Where a director obtains assets of the company at a price lower than its market
value, the difference between the market value and the price paid is taxable as a benefit under sub-cl (iv).5. Amount received as an
award from a third party for excellence in profession is capital in nature and not income.6.
Money embezzled is a gain to the embezzler and falls within the wider definition of income, despite a subsequent
acknowledgement to pay it back.7.
This sub-clause applies to all companies—even to companies in which the public are substantially interested.8. It is in addition to,
and not in derogation of or identical with, the definition of 'perquisite' in s 17(2) which is separately dealt with by sub-cl (iii) of this
clause. Section 295(2)(c) empowers the Board to make rules for determining the value of any perquisite taxable under this Act.

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Interest Free Loan or Loan at Concessional Rate.—

There has been a difference of judicial opinion as to whether non-charging of interest on the debit balance of a director or of an
assessee holding substantial interest in a company or giving of interest free loan to such assessees is income under this sub-
clause. The Calcutta High Court9. took the view that non-charging of interest or granting loan at a concessional rate of interest
does not amount to a benefit under this sub-clause; whereas the Delhi High Court10. took the view that non-charging of interest
by a company from its directors on debit balance amounts to a benefit under this sub-clause and hence liable to tax. The above
controversy has now been settled by the Supreme Court11. which held that interest free loan obtained by a director from a
company or non-charging of interest by a company on the overdrawn account of its director does not amount to any benefit or
perquisite.
[See further post under s 17(l), 'Fees, commissions, perquisites or profits', and under s 17(2), 'Perquisite'.]

(d) Sub-clause (vb): Cash Assistance receivable from Government.—

This sub-clause deems cash assistance by whatever name called received or receivable from Government as income with
retrospective effect from April 1, 1967. It has set at rest the conflict of judicial opinion as to whether such receipt is a capital or
revenue receipt and whether it is taxable as income under the Act. Treating cash compensatory support given to exporters as
export incentive as 'income' and taxing it as business income with retrospective effect has been held to be within the legislative
powers of the Parliament.12.
[See also under s 28, 'Export incentives…'.]

(e) Sub-clause (vi): Capital Gains Chargeable under Section 45.—

This sub-clause deems as income any capital gains chargeable under s 45. Though the definition of income is inclusive, capital
receipts do not come within the ambit of the charging section except to the extent of any capital receipt expressly covered by this
sub-clause. A capital receipt is not income under s 2(24) unless it is chargeable to tax as capital gains under s 45. Under this sub-
clause, the legislature has not included all capital gains as income, but only those capital gains which are chargeable under s 45.
Capital gains not chargeable to tax under s 45 fall outside the definition of income in s 2(24) and are not taxable as a casual and
non-recurring receipt under s 10(3)(now deleted).13.

(f) Sub-clause (ix): Winnings from Lotteries, Crossword Puzzles, Races, Card Games and other Games of any Sort.—
This sub-clause deems as income any winnings from lotteries, crossword puzzles, races including horse races, card games and
other games of any sort or from gambling or betting of any form or nature whatsoever. This sub-clause is not confined to mere
gambling or betting activities but would also include monies received from non-gambling or non-betting activities.14.
The definition of 'lottery' was amended by the Finance Act, 2001 to include winnings from prizes awarded by draw of lots. As this
amendment took effect from April 1, 2002, prizes given away prior to this date would not be taxable as lotteries and there was no
obligation to deduct tax at source.15.
The newly inserted Explanation to s 2(24)(ix), which widens the definition of the word "lottery", took effect from April 1, 2002.
Therefore, consumer goods given as prizes under a savings scheme promoted by the State Government could not be treated as a
lottery and there was no liability to deduct tax at source.16.

(g) Sub-clause (xii): Non-compete Fees and Exclusive Rights.—

With a view to tax non-compete fees and fees for exclusivity rights, the Finance Act, 2002, has included within the scope of 'profit
and gains of business or profession', any sum received or receivable in cash or in kind under an agreement for not carrying out
activity in relation to any business, or not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other
business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of
goods or provision for services. However, this clause clarifies that receipts for transfer of right to manufacture, produce or process
any article or thing or right to carry on any business, which are chargeable to tax under the head 'Capital gains', would not be
taxable as profits and gains of business or profession. [See under 'Compensation for restraint on trading…'.]

(h) Capital Employed is not Income.—

Although the definition of income includes various items mentioned therein, an amount representing a certain percentage of the
capital employed of an industrial undertaking under s 80J (now deleted) cannot be considered as income of the assessee. Thus,

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the relief allowed to the assessee under s 80J (now deleted) was not income.17.
Similarly, if a loan was taken for acquiring a capital asset, waiver thereof would not amount to any income exigible to tax. On the
other hand, if the loan was for trading purpose and was treated as such from the very beginning in the books of account the
waiver thereof may result in income more so when it was transferred to the profit and loss account.18.

(i) Sub-clause (xiia): Inventory.—

This sub-clause treats the fair market value of inventory determined under r 11UAB as on the date of conversion of capital asset
as business income [s 28(via)].

(j) Sub-clauses (xvi), (xvii), (xviia), and (xviib): Income From Other Sources.—
These sub-clauses have been inserted pursuant to corresponding amendments made to s 56(2) by which artificial income is now
liable to tax under the Act. Other sub-cll (xiii), (xiv) and (xv) have become redundant in view of consequential amendments made
in s 56(2) making those provisions no longer applicable. [Refer to commentary under the respective clauses of s 56(2) for further
discussion from p 1518 onwards.]

(k) Sub-clause (xviii) Subsidy or Grant or Cash Incentive etc.—

The term "subsidy" was included in the definition of "income" under section 2(24) of the Act for the first time by insertion of this
sub-clause (xviii) by the Finance Act, 2015 with effect from April 1, 2016, i.e., assessment year 2016-17 and is prospective in
nature. However, the sub-clause excludes subsidies, grants or reimbursement which are taken into account to determine the
actual cost of an asset in terms of Explanation 10 to cl (1) to s 43. This reduces the actual cost and thereby reduces the quantum
of depreciation. But waiver or concession are not excluded under s 43, that are granted either by the Central Government or by
the State Governments.
The Circular19. explaining the intent for inserting this sub-clause shows that this sub-clause is based on the Income Computation
and Disclosure Standards (ICDS). ICDS-VII stipulates that all Government grants except those relating to the depreciable assets
should be recognized as income. Fortunately, ICDS-VII was struck down partially.20.
Subsidies including other incentives by the Government have now been included in the definition of income from AY 2016-17. In
one stroke, several decisions of the Supreme Court21. and the High Courts22. which had held that the subsidy or incentive
received from the Government is capital in nature have been now overruled. It is submitted that this amendment is unfortunate,
coming at a time when the manufacturing sector requires all the encouragement and incentives for its revival. This clause is also
unfortunate since it seeks to impose a tax on a subsidy given by the Government itself – it amounts to giving with one hand and
taking back with another. Further, treating a capital receipt as income is alien to income-tax law, and further rocks the conceptual
foundations on which our income-tax regime is based by destroying the clean distinction made by the Supreme Court between
revenue and capital subsidies.
It is submitted that the amendment which removes the said distinction is contrary to principles of 'real income' theory which is
one of the foundations for levy of income-tax and, consequently, contrary to the provisions of ss 4 and 5. The constitutional
validity of this sub-clause is also doubted in view of undernoted decisions.23. This sub-clause deserves to be withdrawn as it
seriously impacts the "Make in India" policy. Thankfully, it was held that the amendment is prospective.24.

(l) Reference to Court.—

In the context of s 2(24), the undernoted case held that referable questions of law arose25. and did not arise26. under s 256.

27. [(25) "Income-tax Officer" means a person appointed to be an Income-tax Officer under 28. [* *] section 117;]

29. [(25A) "India" means the territory of India as referred to in Article 1 of the Constitution, its territorial waters, seabed and subsoil
underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial
Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (80 of 1976), and the air space above its
territory and territorial waters;]
INDIA
Clause (25A): India.—The 1922 Act used the expression 'the taxable territories' and gave an elaborate, and in some respects
baffling, definition of that expression by reference to different periods in India's recent history. The present Act uses the simpler

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and more evocative word 'India' in place of 'the taxable territories'. [See also under s 1(2).]
The definition of the term "India" was added to the Act by the Taxation Laws (Extension to Union Territories) Regulation, 1963. It
was a limited definition which stated that "India" includes the territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and
Pondicherry. This was replaced in the Finance Act, 2007 with retrospective effect from 1976 with a more comprehensive
definition.
Under the current definition, the term "India" has the same meaning given to it under Article 1 of the Constitution of India. It is
deemed to include its territorial waters, the seabed and subsoil underlying these waters, the continental shelf, the exclusive
economic zone or any other economic zone that is referred to in the Territorial Waterways, Continental Shelf, Exclusive Economic
Zone and other Maritime Zones Act, 1976. The air space above India's territory and territorial waters are included within the
definition of India.
(26) "Indian company" means a company formed and registered under the Companies Act, 1956 (1 of 1956)*, and includes—

(i) a company formed and registered under any law relating to companies formerly in force in any part of India 30.[(other than
the State of Jammu and Kashmir and the Union territories specified in sub-clause (iii) of this clause)];
31. [(ia) a corporation established by or under a Central, State or Provincial Act;
(ib) any institution, association or body which is declared by the Board to be a company under clause (17);]
(ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in
that State;
32. [(iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa33., Daman and Diu, and Pondicherry34., a
company formed and registered under any law for the time being in force in that Union territory:]
Provided that the 35.[registered or, as the case may be, principal office of the company, corporation, institution, association or
body] in all cases is in India;
Clause (26) [Section 2(7A) of 1922 Act]: Indian Company.—The corresponding definition of Indian company in the 1922 Act
was differently worded. Broadly speaking, a company is regarded as an Indian company if two conditions are fulfilled: first, if the
company was formed and registered under any law relating to companies which was or is in force in any part of India, and
secondly, if the registered office of the company is in India. After the amendment of this clause in 1971, a statutory corporation
and any institution, association or body (whether incorporated or not) which is declared by the Board to be a company under cl
(17) would be an Indian company, provided in each case its registered or principal office is in India.
36. [(26A)"infrastructure capital company" means such company which makes investments by way of acquiring shares, or
providing long-term finance to any enterprise, or undertaking wholly engaged in the business referred to in sub-section (4) of
section 80-IA or sub-section (1) of section 80-IAB, or an undertaking developing and building a housing project referred to in
sub-section (10) of section 80-IB, or a project for constructing a hotel of not less than three-star category as classified by the
Central Government or a project for constructing a hospital with at least one hundred beds for patients;
(26B) "infrastructure capital fund" means such fund operating under a trust deed registered under the provisions of the
Registration Act, 1908 (16 of 1908), established to raise moneys by the trustees for investment by way of acquiring shares, or
providing long-term finance to any enterprise, or undertaking wholly engaged in the business referred to in sub-section (4) of
section 80-IA, or sub-section (1) of section 80-IAB, or an undertaking developing and building a housing project referred to in
sub-section (10) of section 80-IB, or a project for constructing a hotel of not less than three-star category as classified by the
Central Government, or a project for constructing a hospital with at least one-hundred beds for patients;]
37. [(27) * * * * ]

(28) "Inspector of Income-tax" means a person appointed to be an Inspector of Income-tax under 38. [sub-section (1)] of section
117;
39. [(28A)"interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a
deposit, claim or other similar right or obligation) and includes any service fee, or other charge in respect of the moneys
borrowed, or debt incurred, or in respect of any credit facility which has not been utilised;]
Clause (28A): Interest.—To call an amount received as interest within the definition of this clause, at least one of the conditions
should be satisfied that the amount should have been received as a due on account of any money either borrowed or debt
incurred.40. Front end fee paid to obtain loan from a bank or financial institution is part of interest.41. Interest on delayed
payment of compensation is 'interest' under this clause and consequently taxable under s 4 of the Act.42. A monthly amount paid
to investors by a finance company under a minimum guarantee scheme is also interest under this clause.43. Interest paid by an
assessee till the date of conversion of bonds into equity shares is interest within the meaning of this clause.44. The amounts
disbursed to subscribers/members of a chit fund is not interest.45.
The first part of this definition uses the term "means", which implies that it is exhaustive, and the second half uses the term

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"includes", which is the inclusive portion dealing with service fees and other charges levied on moneys borrowed which has not
been utilised. A penal interest for default was held to be covered within the term "other charge in respect of moneys borrowed" in
the inclusive part of the definition.46. But when a person withdraws from an agreement to purchase a flat, and this right is sold to
a third party who pays a higher price, a part of which is shared with the original purchaser, such share will not be 'interest'.47.
The question of whether interest awarded for motor accident compensation is income or not has generated some controversy.
Some High Courts have held that the interest from such claims, not being 'income' at all, will not come under this section48.
whereas others have held that it would.49. The former view is preferable as interest paid on motor accident claims is not an
interest for delayed payment but for delayed computation of compensation, and similar to interest under s 28 of the Land
Acquisition Act, 1894,50. it is only an accretion to the compensation.51. However, interest awarded from the date of judgment till
the date of payment of compensation would amount to an interest for delayed payment and would fall under this provision.
The word used in the agreement or contract is not determinative of whether the payment is 'interest' or not. For instance, a
payment made for delay in handing over of plots by the Government in a housing board project is in the nature of damages and
not interest.52. But a payment by customers of an NBFC of a certain percentage of the defaulted amount, even though termed as
'liquidated damages', is actually interest.53. [See further, s 56(2) at pp 1520-1521 and s 194A at pp 2917-2920.]
54. [(28B) "interest on securities" means—

(i) interest on any security of the Central Government or a State Government;

(ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation
established by a Central, State or Provincial Act;]
Clause (28B): Interest on Securities.—[See under deleted ss 18 to 21, and under ss 56 and 145(1).]
55. [(28BB)
"insurer" means an insurer, being an Indian insurance company, as defined under clause (7A) of section 256. of the
Insurance Act, 1938 (4 of 1938), which has been granted a certificate of registration under section 356 of that Act;]
57. [(28C)
"Joint Commissioner" means a person appointed to be a Joint Commissioner of Income-tax or an Additional
Commissioner of Income-tax under sub-section (1) of section 117;
Clause (28C): Joint Commissioner.—The definition of Joint Commissioner as provided under s 2(28C) includes Additional
Commissioner. Consequently, a notice issued under s 148 by the Additional Commissioner instead of Joint Commissioner is
valid.58.
(28D) "Joint Director" means a person appointed to be a Joint Director of Income-tax or an Additional Director of Income-tax
under sub-section (1) of section 117;]
(29) "legal representative" has the meaning assigned to it in clause (11) of section 259. of the Code of Civil Procedure, 1908 (V of
1908);
Clause (29): Legal Representative.—There was no definition of 'legal representative' in the 1922 Act. Under this Act 'legal
representative' has the meaning assigned to it in the Code of Civil Procedure.60. Section 2(11) of the Code runs as follows:
Legal representative means a person who in law represents the estate of a deceased person, and includes any person who
intermeddles with the estate of the deceased and where a party sues or is sued in a representative character the person on whom
the estate devolves on the death of the party so suing or sued.
The main provisions dealing with legal representatives are contained in ss 159 and 168.
61. [(29A) "long-term capital asset" means a capital asset which is not a short-term capital asset;

(29B) "long-term capital gain" means capital gain arising from the transfer of a long-term capital asset;]
62. [(29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,—

(a) resulting in transformation of the object or article of thing into a new and distinct object or article or thing having a different
name, character and use; or
(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral
structure;]
Clause (29BA): Manufacture.—The word "manufacture" is used in ss 10A, 10AA, 10B, 10BA, 32A, 32AB, 80HH, 80HHA, 80HHB,
80HHHBA, 80HHC, 80HHF, 80I, 80IA, 80IAB, 80IB and 80JJAA of the Act. However, this word had not been defined leading to
frequent litigation. The term is well understood in the context of central excise law, where manufacture is the taxable event. This
clause, introduced by the Finance (No. 2) Act, 2009 seeks to crystallise the principles well known in Central Excise Law and apply
them to this Act.
In many sections under the Act, the term "manufacture" is used along with the term "production". It has been held that the term

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"production" has a wider connotation than the term "manufacture".63. Under this definition, manufacture only involves changes to
non-living physical objects. This would imply that poultry or agro-based industries might be excluded from the purview of this
definition. The first limb of the definition in sub-cl (i) states that there must be a transformation of the object or article or thing
into a new and distinct object or article with a different "name, character and use". This test was laid down in the classic judgment
of Dasgupta J. in UOI v Delhi Cloth Mills Ltd.64. Sub-clause (ii) covers the bringing into existence a new and distinct object with a
different chemical composition or integral structure. It has been held that the process of converting partially-oriented yarn into
texturised yarn amounts to manufacture under s 80IA since there is a structural change in the yarn through this process.65.
Reading the definition strictly, the development of computer software might not amount to manufacture, since no new "article or
object or thing" is brought into existence. It is significant that the Income-tax Act, 1961 has treated "articles or things" as being
distinct from "software"—see, for example, s 10A(1) or s 10B(1). However, in a case concerned with the period before this
amendment came into force, the Supreme Court held that the duplication of developed software on physical storage media
amounts to manufacture under s 80-IA.66. Upgradation of software, it is submitted, would not result in a product having a
different name, character and use, and will not be covered under this definition. The Delhi High Court held that the term "thing" in
this definition would even cover intangible things, and hence, broadcast of radio programmes would be covered within the ambit
of this section.67. This decision is erroneous, because the term manufacture is from the law of excise that has nothing to do with
intangible property. If this Delhi High Court decision were taken to its logical conclusion, then even writers would be engaged in
"manufacture".68.
When a new product emerges from the process, it amounts to manufacture. For instance, conversion of 24 karat gold into gold
ornaments,69. a dipping plant used to stabilise and heatset the products of the assessee,70. printing on glazed tiles,71. assembling
computers and servers out of various components by carrying out quality control and testing,72. drying and export of flowers,73.
amounts to manufacture.
The Supreme Court, interpreting this newly added definition, has held that the process by which excavated marble blocks are
sorted, squared, polished and shined amounts to manufacture under this definition.74.
In other sections of the Act, a different meaning has been given to the term "manufacture". For instance, Explanation 1(iii) to s
10AA states that the term "manufacture" shall have the same meaning as assigned to it in s 2(r) of the Special Economic Zones
Act, 2005. In Explanation 4 to s 10B, the term "manufacture" has been deemed to include cutting and polishing of precious or
semi-precious stones.
(For a detailed discussion on 'manufacture', see commentary under ss 10A, 10AA, 10B, 32A and 80J).
75. [(29C) "maximum marginal rate" means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation
to the highest slab of income in the case of an individual 76.[, association of persons or, as the case may be, body of individuals] as
specified in the Finance Act of the relevant year;]
Clause (29C): Maximum Marginal Rate.—This definition is relevant mainly for the purposes of ss 86 (first proviso), 161(1A),
164, 164A and 167B.
77. [(29D) "National Tax Tribunal" means the National Tax Tribunal established under section 3 78. of the National Tax Tribunal Act,
2005 (49 of 2005);]
Clause (29D): National Tax Tribunal.— The National Tax Tribunal Act, 2005 was held to be unconstitutional and being the
ultimate encroachment on the exclusive domain of the judiciary. The separate decision of Nariman J. deserves to be read in full.79.
(30) "non-resident" means a person who is not a "resident" 80.[and for the purposes of sections 92, 93 and 168, includes a person
who is not ordinarily resident within the meaning of clause (6) of section 6] 81. [* * * *];
Clause (30): Non-resident.—There was no corresponding clause in the 1922 Act.
The tests of residence and ordinary residence are set out in s 6. An assessee may be (i) resident and ordinarily resident, (ii)
resident but not ordinarily resident, or (iii) non-resident; and the liability to tax varies with the residential status. [See post under s
5] This clause enacts that a person who is resident but not ordinarily resident will be treated as non-resident for the purposes of
(a) applying the special provisions relating to avoidance of tax contained in ss 92 and 93, and (b) determining the residential
status of a legal representative (s 168).
For the provisions dealing with non-residents, see post under s 6, 'Statutory provisions dealing with non-residents'.
(31) "person" includes—

(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,

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(v) an association of persons or a body of individuals, whether incorporated or not,

(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
82. [Explanation.—For the purposes of this clause, an association of persons or a body of individuals or a local authority or an
artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was
formed or established or incorporated with the object of deriving income, profits or gains;]
PERSON
Clause (31) [Section 2(9) of 1922 Act]: Person.—
The definition of 'person' in s 2(9) of the 1922 Act did not exhaust the various assessable units which were separately enumerated
in the charging section in that Act. In the present Act, ss 4 and 5 which are the charging sections levy tax on every person and
'person' is defined by this clause as including:

(i) an individual,
(ii) a Hindu undivided family
(iii) a company
(iv) a firm
(v) an association of persons or a body of individuals, whether incorporated or not
(vi) a local authority
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
Thus this clause lists the seven categories of assessees or units of assessment under this Act. The Explanation provides that an
association of persons, a body of individuals, a local authority or an artificial juridical person shall be deemed to be a person,
whether or not any of them has the object of deriving income, profits or gains.
The definition is inclusive and not exhaustive. The word 'person' has been held to include the Crown,83. the Government of an
Indian state,84. the Secretary of State for India when engaged in commercial enterprises,85. and a society registered under the
Societies Registration Act.86. However, the 'estate' of a deceased person is not a person or an assessable entity; the assessment
must be made on the legal representative.87. An amalgamated company which ceases to exist is no longer a "person" under this
definition.88. A committee of a political party or a branch of an organisation which does not have an independent existence is not
a 'person' and consequently not a taxable entity.89.
(a) Sub-clause (i): Individual.—
The expression 'individual' is narrower than the terms 'person' and 'assessee'; an individual is a person but every person need not
be an individual; an individual may be an assessee but every assessee need not be an individual.1.
Under the 1922 Act the correct view was that the word 'individual' did not mean only a human being but was wide enough to
include a group of persons forming a unit,2. and included an idol or deity3. or a corporation created by a statute, e.g. a University,
or a Bar Council,4. or a State Road Transport Corporation,5. or the trustees of a baronetcy trust incorporated by a Baronetcy Act.6.
The other view, accepted by the Federal Court of Pakistan, was that after the amendment of the Act in 1939, the word 'individual'
could only mean a natural person, i.e. a human being.7. Under the present Act it seems that since artificial juridical persons are
placed in a separate category by themselves, the word 'individual' would mean only a natural person, i.e. a human being, and
deities and statutory corporations should be assessed as juridical persons. [See post under 'Artificial juridical person'.]
'Individual' would include a group of individuals,8. and a minor or a person of unsound mind.9. The assessment may be made
under s 161(l) on the guardian or trustee of the minor or lunatic. But 'individual' would not include a karta of a Hindu undivided
family who acts in a representative capacity.10.

(b) Sub-clause (ii): Hindu Undivided Family.—

The relation of partnership arises from contract, while the relation of a Hindu joint family arises from status. To remove any
doubts, s 5 of the Indian Partnership Act expressly excludes a Hindu undivided family carrying on a family business as such from
the ambit of partnership. Thus business profits made by a trading joint family are chargeable as the income of the undivided
family and not as that of a firm.
The Hindu undivided family, which includes a Jain family,11. is assessed to income-tax as a distinct entity or a unit of
assessment.12. Once a family is assessed as a Hindu undivided family, it would continue, even after partition, to be assessed as an

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undivided family till a finding of partition is given under s 171 by the AO,13. notwithstanding the fact that under the Hindu
Succession Act, 1965 an individual has acquired an absolute right to a part of the family property.14.
A Hindu is never born as an individual; in law with reference to manifold aspects, he is in the family; a Hindu who is born joins the
other members of the family and this jointness is understood in terns of faith and food.15. A joint Hindu family consists of all
persons lineally descended from a common ancestor and includes their wives and unmarried daughters; while a Hindu
coparcenary is a much narrower body including only those persons who acquire by birth an interest in the joint or coparcenary
property.16. A joint Hindu family may be composed of smaller or branch joint families which may hold properties in their own
right and may themselves be assessable units as distinct from the apex joint family. 17. The Privy Council observed in Kalyanji
Vithaldas v CIT,18. that the expression Hindu undivided family is used in this Act with reference not to one school only of Hindu
law but to all schools and it would be a mistake to read it as equivalent to the narrower expression 'Hindu coparcenary'.19.
The Supreme Court held in Gowli Buddanna v CIT,20. that there need not be more than one male member to form a Hindu
undivided family along with female members;21. that even if the family is reduced to a sole surviving coparcener with other female
members, the property and income belong to the joint family, and in respect of such income the tax is leviable on the joint family
and not on the male member as an individual.22. (The earlier decision of the Privy Council to the contrary in ClT v Swamy
Gomedalli,23. is no longer law.) This principle applies also where joint family property is partitioned and property is allotted to a
coparcener who has a wife but no male issue; in such a case the income from the property is assessable as the income of the
Hindu undivided family composed of the member and his wife (and daughters, if any), and cannot be included in the assessment
of the member as an individual.24. The same position prevails where a coparcener marries after the partition; on his marriage the
income from the property allotted to him should be assessed as that of the Hindu undivided family consisting of him and his
wife.25. The Supreme Court held in CIT v Veerappa Chettiar,26. that after the death of the last male member, the Hindu undivided
family may consist of female members only. But the concept of females forming a joint family by agreement amongst themselves
is contrary to the basic tenet of the Hindu law; a female Hindu cannot create by agreement with other females a Hindu undivided
family and blend the property of her absolute ownership therewith.27. A single person, male or female, cannot constitute a Hindu
undivided family.28.
In view of the Hindu Succession Act, 1956, the separate property of the father inherited upon intestacy by the son is to be
treated as the son's separate property and not as the property of his joint family.29.
If on partition of the family, separate shares are allotted to the karta, his wife and children, the existence of the Hindu undivided
family comes to an end, and the share of the erstwhile karta becomes his separate property and the income therefrom is liable to
be taxed in the status of individual.30. The assets obtained by the assessee on partition had all the characteristics of joint family
property and would continue as such even if there was a short interval when the assessee was the sole surviving member and the
time when he got married. When the assessee married, a joint Hindu family came into existence and the income from assets
received on partition would become liable to be assessed only as HUF property.31.
When a contract of the HUF was sublet by the karta to himself, the income from the contract was assessable as his income.32.
Under the Hindu Women's Rights to Property Act, 1937, upon the death of a Hindu, his widow inherited, along with the son, the
husband's separate property and she also acquired in the joint family property the same interest which the husband had,33. but
she took only a widow's estate in the property so inherited. The Hindu Women's Rights to Property Act, 1937 is now repealed by
the Hindu Succession Act, 1956. Under the latter Act the share which the widow inherits in the coparcenary property as well as in
the separate property of her deceased husband is taken by her as a full owner. 34. Further, under the Hindu Succession Act, 1956,
if a coparcener dies leaving him surviving a relative of one of the specified categories, his share in the joint property devolves by
succession on his heirs and the income therefrom is assessable in the hands of the heirs and not the joint family. 35. In a Hindu
undivided family consisting of the mother and her minor sons, the mother can act as manager representing the family, and
assessment and recovery proceedings may be taken against her in that capacity,36. or the eldest adult (though minor) son who
manages the family affairs may file the return and be served with notices.37.

(c) Joint Family Income and Individual Income of a Member.—

A member of a Hindu undivided family is not taxable at all in respect of any sum which he receives as such member out of the
income of the family, even though the family may not have paid the tax on its income. 38. But income from separate and self-
acquired property of a Hindu which has not been thrown into the common stock is assessable as the income of the individual and
not as the income of a Hindu undivided family, even though the Hindu has sons from whom he is not divided, for the sons have
no interest in such income.39. A father has a right to impress his self-acquired property40. with the character of joint family
property,41. even if the joint family does not already possess property of its own.42. Such conversion of separate property into
joint family property does not involve any transfer,43. and can be effected merely by clear expression of intention, e.g. by conduct,
and does not require any formalities, like a registered document, to be complied with.44. But such intention cannot be inferred
from the mere facts that the personal income and the family income are entered in the same books and the personal income is
utilised for the members of the family. 45. However, where the assessee made repeated declarations over a period of more than
twelve years in his income-tax and wealth-tax returns, the assessee was deemed to have thrown his individual property into the

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common stock belonging to the Hindu undivided family.46. Where a joint family is composed of smaller or branch joint families, a
member is entitled to throw his self-acquired property into the hotchpot of either the main family or his own branch family.47.
Only a coparcener has the right to throw self-acquired property into the joint family hotchpot; a female member of the family has
no such right.48. But a female member can gift or bequeath her property to a joint Hindu family;49. and there is no legal bar on a
joint family to receive a gift.50.
In Surjitial Chhabda v CIT,51. the Supreme Court accepted the principle that self-acquired property can be effectively converted
into joint family property even if the joint family consists of females and only one male member who throws his separate property
into the family hotchpot; but the court still held that the income from such property should be assessed as the individual income
of the male member on the ground that the property in its inception was not joint family property. It is submitted with respect
that this decision is erroneous and that the earlier decisions of the Punjab and Haryana High Court in CIT v Inder Singh Uppal,52.
and the Karnataka High Court in Ramdas Pai v CIT,53. holding such income to be joint family income are correct.54. First, in the
eye of Hindu law and for the purpose of taxation [apart from express statutory provisions like s 64(2)], personal property thrown
into the family hotchpot stands on the same footing as property which is joint family property in its inception. Secondly, there is a
contradiction between that part of the judgment which accepts the position that 'it became an item of joint family property for
the first time when the appellant threw what was his separate property into the family hotchpot' and the conclusion that the sole
male member continued to be the owner of the property and the income therefrom.55. Thirdly, the Supreme Court observed56.
that the income from such property thrown into the family hotchpot would be joint family income after a son is born to the sole
male member. But once the principle is accepted that property and its income may belong to and be assessed in the hands of a
joint family consisting of females and only one male member, it would be illogical to hold that the income from the same joint
family property should be treated as individual income when there is only one male member and joint family income when there
are two male members. The old unsatisfactory rule which treated joint family property and its income as belonging to the sole
male member and assessed them as his individual property and income was given its quietus in the cases cited ante,57. which
establish that if property is joint family property at the relevant time, on general principles the sole male member cannot be
assessed as an individual in respect of such property or its income and the assessment can only be on the joint family consisting
of the sole male member and females.
The above-noted general principle of tax law that income from an individual member's property thrown into the family hotchpot
is taxable as the income of the joint family, is superseded by s 64(2). [See post under that section.]
The commission earned under a managing or selling agency58. or insurance agency, 59. agreement by a karta or other coparcener
would prima facie be his individual income, unless it is shown that the rights had been acquired with the aid of joint family
property.60. Offerings received by the holder of the hereditary office of the head of a religious sect are his personal income, where
the functions and obligations attached to that office are personal.61. The salary received by the treasurer of a bank, whose office
requires personal responsibility, integrity and ability, would be his individual income, although joint family properties may have
been furnished as security to the bank.62. Where the wordings of the grant or a settlement deed clearly show that the amount
was intended to be given only to the assessee and not to all the family members of the assessee, the income from the estate is to
be taken as his individual income.63.
A member of a trading joint family may carry on business on his personal account, in which event the profits would be his
individual income and not the income of the joint family, 64. although the member might have borrowed the requisite capital out
of the joint family funds65. or the member might, after earning the income as his own, throw it into the family hotchpot.66. Such
members carrying on business on their personal account in partnership may be assessed as a firm.67. But the mere execution of a
partnership deed by the members of the family will not preclude an assessment on the undivided family as such in respect of the
profits of the business.68. If a karta enters into a partnership, on behalf of and as representing the joint family, with a stranger or
with another member of the family, the karta's share of partnership profits would be assessed in the hands of the joint family as
its income.69. The joint family which has actually received the income can be so assessed irrespective of the question whether the
coparcener who entered into the partnership on behalf of the joint family had a right to represent the joint family and to enter
into the partnership on its behalf.70. If a coparcener utilises joint family funds for contributing his share of capital in the firm, he
must be regarded as having entered into partnership on behalf of and as representing the family.71.
There is no presumption that a business carried on by a member of a joint family, either by himself or in partnership with
strangers, is joint family business,72. or that such a business carried on even by the karta is joint family business,73. or that the
capital contributed by the individual members of a joint family came out of the joint family funds.74. But if there is an adequate
nucleus of joint family property, the presumption arises that new acquisitions belong to the joint family. 75. Once there is a
separation of one of the members of a Hindu undivided family, the presumption of Hindu law that the family is joint ceases to
apply.76. The mere fact that the profits of a business carried on by a member of a joint family are entered in the joint family
accounts would not be sufficient to justify the finding that the profits constitute the income of the joint family.77.
A reunion of a partitioned family is valid in Hindu law and as held by the Madras High Court,78. its conditions precedent are as
follows:

(i) there must have been a previous state of union. Reunion is possible only among the persons who were on an earlier date
members of a Hindu undivided family;

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(ii) there must have been a partition in fact;

(iii) the reunion must be effected by the parties or some of them who had made the partition; and
(iv) there must be a junction of the estate and a reunion of the property.
A bona fide gift of joint family property by the karta is only voidable and not void ab initio, when the gift is to a member of the
family. Such a gift can be attacked only by the members of the family and not by strangers; and if it is not avoided by the
members, the income from the property gifted cannot be assessed as the income of the joint family.79. If the department has
already treated the gifts as valid gift for the purpose of gift-tax, it is not open to it to assail the said gift for the purpose of
income-tax and wealth-tax assessments.80. The Supreme Court laid down in Arunachala Mudaliar v Muruganatha Mudaliar,81.
that where a father gifts property to his son, the language of the document and the surrounding circumstances should be looked
at to determine whether he intended the son to take it exclusively for himself or whether he intended the son to hold it as
ancestral property for the benefit of the son's branch of the family: there is no presumption that the father intended either the
one or the other. Income from a portion of the joint family property which has been validly gifted by the karta to his wife would
not be taxable in the hands of the joint family, even if the motive for making the gift was to reduce the tax liability of the family. 82.
But a gift of ancestral immovable property by the karta to his wife is void83. unless the joint family has no other male member. 84.
Where a gift by the karta to his relation who is not a member of the joint family was held to be invalid, the income from the
gifted property was held to be taxable in the hands of the joint family.85. The father can make a valid gift by way of reasonable
provision for the maintenance to the daughter.86.
A Hindu who declared for the purposes of the Special Marriage Act 1872 or 1954 that he did not profess the Hindu religion did
not thereby cease to be a Hindu; the Hindu law still applied to him, with the result that he would be entitled to file a return as
karta of a joint family in respect of the income from the ancestral properties.87.
[See further post under ss 10(2) and 171.]

(d) Fee or Salary earned by Karta as Director or Partner.—

Where the funds of a Hindu undivided family are invested in a company or a partnership, the dividends or share of profits are
undoubtedly the income of the joint family. But in such cases even the fee, salary or other remuneration received by a member of
the family as a director or partner, though it may be partially traceable to the personal exertions of the member, has been held
taxable as the income of the family if (i) it is earned by detriment to the family funds, or (it) it is earned with the aid or assistance
of those funds, or (iii) there is a real connection between the income and the investment of the family funds; otherwise it is taxable
as the member's personal income.88. There is considerable difficulty and room for difference of opinion in applying these principles
to the facts of cases which arise in practice. Application of ancient texts to totally changed business conditions may result in
attributing to the joint family that income which it disclaims and which in fairness belongs to the member who has earned it.89.
Reviewing the case law, the Supreme Court has, in Rajkumarsingh Hukamchandji v CIT,90. enunciated the following principles.
The question to be considered is whether the remuneration received by the coparcener is in substance merely a mode of return
made to the family because of the investment of the family funds in the business or whether it is a compensation for services
rendered by the coparcener. If the income is earned essentially as a result of the funds invested, it would be the income of the
family, and the fact that the coparcener has rendered some service would not change the character of the receipt.91. On the other
hand, if it is essentially a remuneration for services rendered by the coparcener, as director or otherwise, it would be the income of
the coparcener, and the fact that his services were availed of by reason of his being a member of the family which had invested
funds in the business or that he had obtained the qualification shares from out of the family funds would not make the receipt
the income of the family.1.

(e) Income of Impartible Estate.—

An impartible estate is owned by the joint family, but the income therefrom belongs solely and absolutely to the holder of the
estate for the time being.2. Therefore the holder of an impartible estate is liable to be taxed on the income of the estate as an
individual and not as the representative of a Hindu undivided family, not-withstanding that he has sons from whom he is not
divided. This is established by the decision of the Privy Council in CIT v Krishna Kishore,3. setting at rest the conflict of judicial
opinion on the point. Hence, if the holder was assessed on the cash basis, any income accruing during his lifetime and realised
after his death would not be taxable in the hands of the Hindu undivided family;4. nor would it be taxable as income in the hands
of his personal heirs because they would receive it as capital inheritance.5. [See further post under s 10(2), 'Impartible estate'.]

(f) Reference to Court.—

Whether a particular item of income belongs to an individual or to a joint family is a mixed question of fact and law.6.

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In the context of s 2(31), the undernoted cases held that referable questions of law arose7. or did not arise8. under s 256.

(g) Sub-clause (iii): Company.—

[See ante under s 2(17).]

(h) Sub-clause (iv): Firm.—

See ante under s 2(23) and post under s 2(39) and ss 182 and 183 (now deleted) and ss 184 and 185. For the purposes of the
Act a firm is treated as an entity separate and distinct from its partners. [See ante under s 2(23), 'Firm is an assessable entity'.]

(i) Sub-clause (v): Association of Persons.—

Under s 3 of the 1922 Act, in the case of an association of persons, the department had the option to assess the tax either on the
association itself as a unit of assessment, or on the members of the association as individuals in respect of their respective shares
of the profits made by the association.9. The conferment of this option which had to be judicially exercised, was valid and
constitutional.10. But once the department had made assessments on the members individually, it could not thereafter assess the
same income in the hands of the association. However, the Supreme Court held in the case of ITO v Ch Atchaiah,11. that there
are no words in this Act which give the assessing officer an option to tax either the association of persons or its members
individually; if the income is of the association of persons in law, the association along has to be taxed, and the members of the
association cannot be taxed individually in respect of such income. Where individuals received property on inheritance, they are
liable to tax individually and not as association of persons.12.
Prior to 1939 the phrase used in the 1922 Act was 'association of individuals', but it was changed to 'association of persons' by
the Amending Act of that year. The word 'persons' has a wider connotation than 'individuals', and the amendment was made to
remove any doubt as to the assessability, as a unit, of an association of which the members might not, strictly speaking, be called
'individuals'.13. The phrase 'association of persons' is of the most comprehensive import. Under s 3(42) of the General Clauses Act,
'person' includes any company or association or body of individuals, whether incorporated or not. Therefore an 'association of
persons' may have as its members, companies, firms, joint families and associations.14. A society registered under the Societies
Registration Act may be treated as an association of persons.15.
The fact that some of the members of an association are minors does not affect the question of the assessability of the
association as such.16. Only juristic legal entities can form an 'association of persons' or a 'body of individuals' as these expression
are used in this clause; and since a partnership firm is not a juristic legal entity, it was held that two firms carrying on a joint
venture cannot be collectively treated as an association of persons or a body of individuals.17. Similarly, two companies forming a
consortium for purpose of executing a joint contract is not an association of persons.18.
In the case of an association of persons, s 67A prescribes the method of computing the shares of the members in the income of
the association where the shares are determinate and known;19.s 86 [old s 86(v)] provides for cases in which such shares would
be exempt in their hands; and s 167B provides for taxing the income of the association in its own hands where the shares of the
members in such income are indeterminate or unknown.
(i) Connotation and meaning.—
The words 'association of persons' are not used in any technical sense but must be construed in their plain ordinary meaning.20.
When there is a combination of persons formed for the promotion of a joint enterprise, in other words, when co-adventurers are
banded together in common action, they are assessable as an 'association of persons', when they do not in law constitute a
partnership,21. or even if there is no written agreement as between them.22. Income from movable and immovable properties,
settled by a will on two sons, will not be assessed as an AOP.23.
Generally speaking, there can be no 'association of persons' in business unless the members of the group have joined together on
their volition or free will;24. but if the test governing an association of persons is satisfied, the circumstance that the association
emerges as a result of an order of the court appointing a receiver,25. or does business under a scheme evolved and controlled by
a government authority, 26. or is necessitated by quota regulations,27. is immaterial. After the dissolution of a firm, the income
arising from the business carried on by the receiver should be assessed as belonging to an association of persons.28.
The Explanation inserted in this clause with effect from April 1, 2002 provides that an association of persons will be deemed to be
a person whether or not it is formed with the object of deriving income. However, prior thereto the law was that where the
income does not result from any joint venture or joint act, assessment in the status of an association of persons would not be
justified.29. Reviewing the case law on the point, the Supreme Court held in CIT v Indira Balkrishna,30. and Mohammed
Noorullah v CIT,31. that in order to constitute an association, persons must join in a common purpose or common action and the

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object of the association must be to produce income,—it is not enough that the persons receive the income jointly. Subba Rao J,
speaking for the Supreme Court in C Ag IT v Ratan Gopal,32. observed, 'The collection of the entire income from the estate by
one of the sharers or even by a common employee will not make that income an income from a joint venture'. Likewise, the mere
appointment of a common agent, manager or lessee will not make the owners assessable as an association of persons.33.
A joint venture by four companies, executing a joint development agreement, is to be assessed as an association of persons.34.
Co-heirs, co-legatees or co-donees joining together in a common purpose or action would be chargeable as an association of
persons,35. but not if they merely receive income jointly. 36. Trustees of a fixed (specific) trust cannot be considered as an
association of persons or body of individuals.37. In the case of a trust, the assessment may be either on the trustees or on the
beneficiaries. Co-trustees or co-receivers cannot be assessed as an association of persons merely because they are more than one
in number. The status in which they should be assessed depends upon the status of the beneficiaries they represent. [See post
under s 161, 'Assessment on representative assessee where several persons are beneficially entitled to income: Joint
representative assessees'.] A non-resident sports association is an association of person within the meaning of this clause.38.

(ii) Co-owners.—
In the case of co-owners of property, if their shares are not definite and ascertainable they may be assessable as an association of
persons.39. Where the shares are definite and ascertainable, mere co-ownership is not sufficient to justify an assessment as on an
association of persons.40. The members of a formerly undivided Mitakshara family, after a partition recognised under s 171,
cannot be assessed as an association of persons but must be individually assessed in respect of their shares,41. even if, in the case
of a share in a firm, the erstwhile karta continues as a partner and receives income from the firm on behalf of the divided
members.42. Similarly, if a receiver appointed in a partition suit of joint family properties does not carry on any income-producing
activities, the members of the family would not constitute an association of persons as contemplated by the Act; the department
may assess each individual co-owner separately on his share of the income or may levy the tax upon the receiver under s 161(1)
in the same amount as would be leviable upon each co-owner individually.43. But co-ownership coupled with other indicia of joint
enterprise would make the co-owners assessable as an association of persons.44. Thus where persons join together to purchase
and sell land as a trading transaction45. or to acquire, hold and manage property jointly for the purpose of producing income, fall
to be charged as an association of persons.46. But this general rule must be read subject to the provisions of s 26 which provides
that where house property is owned by two or more persons and their respective shares are definite and ascertainable, such
persons should not in respect of such property be assessed as an association of persons but each of them should be individually
assessed in respect of his share in the income from the property.47.
Therefore in the case of house property (which alone is covered by s 26) if the shares of the co-owners are definite and
ascertainable, the co-owners should be assessed not as an association of persons but individually, even though the property may
be jointly owned, jointly managed and jointly developed by them.48. [See post under s 26, 'Assessment of co-owners'.]

(iii) Illegal Association.—

In order to constitute an association it is not necessary that there should be any mutual rights or obligations among the
members enforceable in a court of law.49. Illegality or invalidity in the constitution of an association does not affect its liability to
tax or its chargeability as a unit of assessment.50. A partnership which is illegal or otherwise void may be assessed as an
association of persons.51. An association of 133 persons carrying on business without being incorporated as required by the
Indian company law would nevertheless be chargeable as an association of persons.52. [See further post under s 4, 'Income
tainted with illegality'.]

(iv) Existence of 'Association' Depends on the Facts of each Case.—

The question whether there is an association of persons must be decided upon the facts and circumstances of each case.53.

(v) Joint Ventures or Consortium.—

The position of law in the context of joint ventures has been examined in the undernoted ruling.54. In the facts of that case, it was
found that the unincorporated joint venture (whose members were all incorporated companies) was not an "association of
persons" (AOP). Three factors were found to be particularly helpful in coming to this conclusion. First, the nature of the work
assigned to each member of the venture under the agreement was substantially different. Secondly, the agreement between the
members specifically provided that no new legal entity or partnership was being created by the members. Thirdly, members
carried out their functions separately and independently of each other. The ruling illustrates the importance of due weight being
accorded to the agreement between the parties in determining whether or not a venture carried out by several persons ought to

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be treated as an 'association of persons' or not.55.

Large projects are often executed through a consortium of foreign and Indian companies. In most cases, a joint venture
agreement is signed and whether the joint venture partners are an AOP will depend upon the terms of the contract and the role
of each of the partners. If the contract requires each party to perform its obligation and receive payments independently of each
other, the identity of each of them is preserved. The parties cannot be treated as an AOP merely because one of them is
entrusted with supervisory responsibility.56. But where three contracting parties were jointly and severally responsible and the
income was that of the joint venture to be distributed in a specified ratio later, the parties constituted an AOP.57. The latter
decision has been distinguished by the AAR in another case58. involving a consortium of four parties. The following features
showed that there was no AOP:-

(i) the scope of the work was specifically defined and mutually exclusive;
(ii) there was no interchangeability or overlapping of work;
(iii) the contract expressly stipulated that there was no intention to create a partnership, a legal entity or an AOP;
(iv) profits and losses were borne by the individual parties with no common expenditure being incurred by them.
The imposition of joint and several responsibility was, in the above case, held to be only a safeguard. It is thus important to
carefully draft joint venture contracts keeping in mind the rulings of the AAR on this point.

(j) Body of Individuals.—

The words 'body of individuals', placed in the same sub-clause in juxtaposition with 'association of persons', were not in the 1922
Act. They take their colour from the words which precede them. The essence of the concept of an association of persons' is
persons joining in common action with the object of producing income,59. and the same essential element must be present to
constitute 'a body of individuals'. This view was earlier also taken by the Bombay High Court in CIT v Desale,60. the Allahabad
High Court in CIT v Vimla Lal,61. and the Kerala High Court in CIT v Parukutty Mooppitamma.62. However, the Explanation
inserted in this clause with effect from April 1, 2002 provides that a body of individuals will be deemed to be a person whether or
not it is formed with the object of derived income.
Having regard to the context in which the words 'body of individuals' occur, they cannot be construed as entitling the department
to club together the income of individuals with definite shares and assess them as a unit of assessment, in cases where such an
assessment was not permissible under the 1922 Act. For instance, where co-heirs inherit shares or securities and hold them
equally as tenants-in-common, they should be assessed separately and cannot be assessed as a unit of assessment merely
because they receive the income jointly. 63. This ruling of the Supreme Court in CIT v Indira Balkrishna,64. and Mohammed
Noorullah v CIT,65. is not superseded by the expansion of 'an association of persons' into 'an association of persons or a body of
individuals'.
The Madras High Court held in CIT v Deghamwala Estates,66. that co-owners with specific shares selling their property cannot be
assessed to tax on capital gains as a body of individuals. A similar view has been taken by the Kerala High Court which held in CIT
v Suresh Chandran,67. that sales of lands made under a single instrument of transfer to four individuals who got absolute title to
separate properties cannot be treated as a single sale to a body of individuals.
The debatable question is whether minors who find themselves—with or without an adult—to be co-owners of a business, e.g.,
on inheritance, without any common action or volition of their own, should be assessed as a 'body of individuals', despite the fact
that their shares are specific and determinate. The Andhra Pradesh High Court68. has taken the view that 'a combination of
individuals who have a unity of interest but who are not actuated by a common design, and one or more of whose members
produce…income for the benefit of all' can be assessed as a 'body of individuals'. In that case, on the death of an individual his
widow and two minor children who succeeded to his business were held assessable as a 'body of individuals'. The Supreme
Court69. has on similar facts held that the income from business was assessable as belonging to a body of individuals. Similarly, it
has also held that after the dissolution of a firm, its erstwhile partners are assessable as a body of individual.70. In a case where on
the death of an individual, his widow and children became entitled to his share in a firm, the Madras High Court held that such
income was assessable in the status of 'body of individuals'.71.
Under s 5A of the Act, introduced with retrospective effect from April 1, 1963, Husband and wife governed by the Portuguese law
are assessable, not as an association of persons or body of individuals, but separately in respect of their shares in income from the
property of their communion. [See under s 5A.]
Since Christians are governed by the Indian Succession Act, 1925, the entire holding of land inherited is to be equally divided
among the legal heirs, and the income from the land is not asessable in their hands as an association of persons.72.
Co-trustees or co-receivers cannot be assessed as a body of individuals merely because they are more than one in number. The
status in which they should be assessed depends upon the status of the beneficiaries they represent. [See post under s 161,
'Assessment on representative assessee where several persons are beneficially entitled to income: Joint representative assessees'.]

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[See also ss 67A, 86(v) and 167B.]

(k) Sub-clause (vi): Local Authority.—

Local authority is a unit of assessment. It means a municipal committee, district board, body of port commissioners or other
authority legally entitled to, or entrusted by the government with the control or management of a municipal or local fund.73. A
'local authority' within this sub-clause includes a municipality74. and an agricultural market committee appointed under a state
law,75. but not a state road transport corporation.76. [For the exemption enjoyed by a local authority in respect of its income, see
post under s 10(20).] The Explanation inserted in this clause with effect from April 1, 2002 provides that a local authority will be
deemed to be a person whether or not it is established with the object of deriving income.

(l) Sub-clause (vii): Artificial Juridical Person.—

There was no such separate category of assessees under the 1922 Act, with the result that statutory corporations were held
assessable as 'individuals'. [See ante under 'Individual'.] Under the present Act, a statutory corporation,77. like a Bar Council,78. or
an idol or deity would be assessable in the status of artificial juridical person and not as an individual. A society registered under
the Co-operative Societies Act is a juridical person.79. The Explanation inserted in this clause with effect from April 1, 2002
provides that an artificial juridical person will be deemed to be a person whether or not it is formed with the object of deriving
income. The Karnataka High Court has held that a society formed under the Societies Registration Act, 1860 would be an artificial
juridical person and uses the expression in contradistinction to natural persons. In this case, the society had itself filed a return as
an artificial juridical person and it was held that the assessing authorities could not then treat the society as an association of
persons.80.
The Official Assignee of a High Court appointed under the Presidency-Towns Insolvency Act, 1909 is declared to be an "artificial
juridical person" by a circular.81. It is submitted that this circular is contrary to settled law. A judicial officer appointed as an Official
Assignee or Official Trustee or Administrator-General cannot be termed an "artificial juridical person". There is nothing artificial
about these persons as they are judicial officers who are persona designata. Further, it would be a wrong interpretation to place a
person under sub-cl (vii) merely because he does not fall under the first six sub-clauses. Section 160(1)(iii) expressly makes an
Official Trustee as the representative assessee but does not include the Official Assignee in this category. Even if he files a return
of the beneficiary whom he represents will not make him an artificial juridical person. The circular has been challenged before the
Madras High Court.82. It will be an administrative nightmare if the Official Trustee is required to file an income-tax return for each
insolvent. Every return requires the PAN and Aadhaar number and also details of the income of every insolvent. The Official
Trustee has no means of knowing whether the insolvent has any other income. In the Madras High Court, the Official Trustee is in
charge of more than 3000 insolvents and one can imagine the work involved for filing returns for each and every insolvent.
Further, it also exposes the Official Trustee to penalty and prosecution if any return is found to be false. Moreover, the circular
was totally unnecessary, as the Official Trustee represents insolvent persons, most of whom have no taxable income at all. It is
found that only where any property belonging to the insolvent is sold, it may result in taxable capital gain for which return is filed
anyway.

(32) "person who has a substantial interest in the company", in relation to a company, means a person who is the beneficial
owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits,
carrying not less than twenty per cent of the voting power;
Clause (32) [Part of Section 2(6C)(iii) of 1922 Act]: 'Person who has a Substantial In-terest in the Company'.—The
corresponding provision in the 1922 Act was materially different. It required that (in addition to beneficial ownership of shares)
the person must be concerned in the management of the business of the company, whereas there is no such condition in the
present definition.
In order to bring an individual within the definition of 'person who has a substantial interest in the company' the only condition is
that he should be the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a
right to participate in profits) carrying not less than twenty per cent. of the voting power.83. The term 'voting power' in this clause
denotes the total voting strength exercisable by all the equity shareholders in a company. 84. Beneficial ownership, and not legal
ownership, of shares is the criterion. Thus the registered holder of even the majority of equity shares would not fall within this
definition if he has no beneficial interest in the shares; and conversely, a person who is beneficially entitled to twenty per cent. or
more of the equity capital would be covered by this definition even if he is not the registered holder of any shares.85. The term
'person' includes all categories of persons specified in s 2(31), including a company.86.
(33) "prescribed" means prescribed by rules made under this Act;
Clause (33): Prescribed.—This clause which defines the word 'prescribed' as meaning 'prescribed by rules made under this Act'
may be taken as legislative acceptance of the general principles of construction that 'prescribed' means prescribed by rules.87.

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(34) "previous year" means the previous year as defined in section 3;

88. [(34A)
"Principal Chief Commissioner of Income-tax" means a person appointed to be a Principal Chief Commissioner of
Income-tax under sub-section (1) of section 117;]
88[(34B) "Principal Commissioner of Income-tax" means a person appointed to be a Principal Commissioner of Income-tax under
sub-section (1) of section 117;]
88[(34C) "Principal Director of Income-tax" means a person appointed to be a Principal Director of Income-tax under sub-section
(1) of section 117;]
88[(34D)"Principal Director General of Income-tax" means a person appointed to be a Principal Director General of Income-tax
under sub-section (1) of section 117;]
(35) "principal officer", used with reference to a local authority or a company or any other public body or any association of
persons or any body of individuals, means—
(a) the secretary, treasurer, manager or agent of the authority, company, association or body, or
(b) any person connected with the management or administration of the local authority, company, association or body upon
whom the 89. [Assessing Officer] has served a notice of his intention of treating him as the principal officer thereof;
Clause (35) [Section 2(12) of 1922 Act]: Principal Officer.—The definition in the 1922 Act was the same except that the
present sub-cl (b) is more restricted in its scope than the corresponding provision in the earlier Act. The present sub-cl (b)
requires a person to be connected with the management or administration of the assessable entity in order that he may be
treated as its principal officer, whereas under the 1922 Act it was sufficient if he was merely connected with the assessable
entity.90.
Principal officer, in reference to a local authority or other public body, a company, or a body or association of persons, means its
secretary, treasurer, manager 91. or agent. Further, the AO may serve upon any person connected with the management or
administration of such assessable entity a notice of his intention of treating him as the principal officer, and such person would
thereupon become the principal officer for the purposes of this Act.92. The AO can serve notice only to persons who are
connected with the management or administration of the company to treat them as principal officers.93. However, notice served
on the Chartered Accountant of the Company, who was given PoA, was held to be valid in relation to an appeal filed by the
Revenue before the Supreme Court.94. One must also note the peculiar facts of this case. In the case of a company which is being
wound up, the AO would be entitled, without leave of the winding up court,1. to serve upon the liquidator a notice of his
intention of treating him as the principal officer and to call upon him to make a return of income.2.
Before issuing a show-cause notice under s 276B read with s 278B, there is no need to issue a separate notice or communication
to the director of a company to treat them as "Principal officers".3. But it is necessary to serve notice on the director treating him
as a "principal officer" of the company, before launching the prosecution under s 276B.4.
(36) "profession" includes vocation;
Clause (36): Profession.—The 1922 Act used the expression 'profession or vocation' in different sections; whereas the present
statute achieves the same result by using the word 'profession' throughout the Act and indicating in this definition clause that
profession includes vocation. But the word 'profession' has to be understood as distinct and separate from the word 'business'.5.
[See further under s 28, 'Business, profession or vocation'.]
6. [(36A)
"public sector company" means any corporation established by or under any Central, State or Provincial Act or a
Government company as defined in section 6177. of the Companies Act, 1956 (1 of 1956)*;]
(37) "public servant" has the same meaning as in section 218. of the Indian Penal Code (XLV of 1860);
Clause (37) [Section 2(13) of 1922 Act]: Public Servant.—In this Act, as in the 1922 Act, public servant has the same meaning
as in s 21 of the Indian Penal Code 1860. The definition in that Code runs as follows:
The words 'public servant' denote a person falling under any of the descriptions hereinafter following, namely:
First—(Repealed by the Adaptation of Laws Order 1950.)
Second—Every Commissioned Officer in the Military, Naval or Air Forces of India;
Third—Every Judge including any person empowered by law to discharge, whether by himself or as a member of any body of
persons, any adjudicatory functions;
Fourth—Every officer of a Court of Justice (including a liquidator, receiver or commissioner) whose duty it is, as such officer, to
investigate or report on any matter of law or fact, or to make, authenticate, or keep any document, or to take charge or dispose
of any property, or to execute any judicial process, or to administer any oath, or to interpret, or to preserve order in the Court,

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and every person specially authorised by a Court of Justice to perform any of such duties;
Fifth—Every juryman, assessor or member of a panchayat assisting a Court of Justice or public servant;
Sixth—Every arbitrator or other person to whom any cause or matter has been referred for decision or report by any Court of
Justice, or by any other competent public authority;
Seventh—Every person who holds any office by virtue of which he is empowered to place or keep any person in confinement;
Eighth—Every officer of the Government whose duty it is, as such officer, to prevent offences, to give information of offences, to
bring offenders to justice, or to protect the public health, safety or convenience;
Ninth—Every officer whose duty it is, as such officer, to take, receive, keep or expend any property on behalf of the Government,
or to make any survey, assessment or contract on behalf of the Government, or to execute any revenue-process, or to
investigate, or to report, on any matter affecting the pecuniary interests of the Government, or to make, authenticate or keep any
document relating to the pecuniary interests of the Government, or to prevent the infraction of any law for the protection of the
pecuniary interests of the Government;
Tenth—Every officer whose duty it is, as such officer, to take, receive, keep or expend any property, to make any survey or
assessment or to levy any rate or tax for any secular common purpose of any village, town or district, or to make, authenticate or
keep any document for the ascertaining of the rights of the people of any village, town or district;
Eleventh—Every person who holds any office in virtue of which he is empowered to prepare, publish, maintain or revise an
electoral roll or to conduct an election or part of an election;
Twelfth—Every person—

(a) in the service or pay of the Government or remunerated by fees or commission for the performance of any public duty by the
Government;
(b) in the service or pay of a local authority, a corporation established by or under a Central, Provincial or State Act or a
Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956).
Illustration
A Municipal Commissioner is a public servant.
Explanation 1—Persons falling under any of the above descriptions are public servants, whether appointed by the Government
or not.
Explanation 2—Wherever the words 'public servant' occur, they shall be understood of every person who is in actual possession
of the situation of a public servant, whatever legal defect there may be in his right to hold that situation.
Explanation 3—The word 'election' denotes an election for the purpose of selecting members of any legislative, municipal or
other public authority, of whatever character, the method of selection to which is by, or under, any law prescribed as by election.
9. [(37A) "rate or rates in force" or "rates in force", in relation to an assessment year or financial year, mean—

(i) for the purposes of calculating income-tax under the first proviso to sub-section (5) of section 132, or computing the income-
tax chargeable under sub-section (4) of section 172 or sub-section (2) of section 174 or section 175 or sub-section (2) of
section 176 or deducting income-tax under section 192 from income chargeable under the head "Salaries" 10.[* * * *] or
11. [computation of the "advance tax" payable under Chapter XVII-C 12. [in a case not falling under section 115A or 13. [section
115B14. [or section 115BB or section 115BBB or section 115E] or section 164 or section 164A15. [* *]]] 16. [or section 167B], the
rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, and for the purposes of
computation of the "advance tax" payable under Chapter XVII-C 17.[in a case falling under section 115A or 18. [section
115B14[or section 115BB or section 115BBB or section 115E] or section 164 or section 164A15[* *]] 16[or section 167B], the
rate or rates specified in section 115A or 18[section 115B14[or section 115BB or section 115BBB or section 115E] or section
164 or section 164A15[* *] 16[or section 167B], as the case may be,]] or the rate or rates of income-tax specified in this behalf
in the Finance Act of the relevant year, whichever is applicable];
(ii) for the purposes of deduction of tax under sections 193, 194, 19. [194A, 20.[194B, 194BB,]] 21. [and 194D], the rate or rates of
income-tax specified in this behalf in the Finance Act of the relevant year;]
22. [(iii) for the purposes of deduction of tax under 23. [section 194LBA or] 24.[section 194LBB or section 194LBC or] section 195,
the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-
tax specified in 25.[an agreement entered into by the Central Government under section 90, or an agreement notified by
the Central Government under section 90A, whichever is applicable by virtue of the provisions of section 90, or section
90A, as the case may be;]]
(38) "recognised provident fund" means a provident fund which has been and continues to be recognised by the 26.[Principal

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Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner] in accordance with the rules contained in
Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees' Provident
Funds Act, 195227. (XIX of 1952);
28. [(39) * * * *]

Clause (39)(now deleted) [Section 2(14) of 1922 Act]: Registered Firm.—The concept of a registered firm under this Act was
the same as under the 1922 Act. This concept is now omitted with the introduction of the new procedure for taxation of firms.
If a firm is constituted under an instrument of partnership specifying the individual shares of the partners, an application could be
made under s 184 (now substituted) of this Act to the AO on behalf of such firm for registration for the purposes of this Act. [For
the difference between registered and unregistered firms, see post under ss 182–83, 'Assessment of registered and unregistered
firms'.]
(40) "regular assessment" means the assessment made under 29. [sub-section (3) of section 143] or section 144;
Clause (40): Regular Assessment.—There was no corresponding definition in the 1922 Act. 'Regular assessment' means an
assessment made under s 143 or 144, in contradistinction to a self assessment under s 140A, a provisional assessment under s
141 before its deletion in 1971, and an assessment or reassessment under s 147.30. [See further post under s 139(8), 'In-terest';
under s 214, 'Interest payable by Government'; under ss 215–7, 'Interest payable by assessee'; and under s 273, 'Penalty for false
estimate of or failure to pay advance tax'.]
(41) "relative", in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that
individual;
Clause (41) [Part of Explanation (1)(b)(iii) to Section 23A of 1922 Act]: Relative.— There was no general definition of the
word 'relative' in the 1922 Act, but s 23A defined it, for the limited purpose of that section, in the same terms as are used in this
clause. For the purpose of ss 11 to 13, Explanation 1 to s 13 defines 'relative' more extensively than this clause does. The
definition of 'relative' in this clause would be relevant for provisions such as ss 2(24)(iv), 4OA(2), 269Q, 269UO and 288(2)(vi-a). A
separate definition for "relative" is provided for the purpose of s 56(2) in that section.
31. [(41A)"resulting company" means one or more companies (including a wholly owned subsidiary thereof) to which the
undertaking of the demerged company is transferred in a demerger and the resulting company in consideration of such transfer
of undertaking, issues shares to the share-holders of the demerged company and includes any authority or body or local
authority or public sector company or a company established, constituted or formed as a result of demerger;]
(42) "resident" means a person who is resident in India within the meaning of section 6;
32. [(42A) 33. ["short-term
capital asset" means a capital asset held by an assessee for not more than 34.[thirty-six months]
immediately preceding the date of its transfer:]]
35. [Provided that in the case of 36.[a security (other than a unit) listed in a recognised stock exchange in India] or a unit of the
Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) 37., or a unit of an equity oriented fund],
38. [or a zero coupon bond] the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve
months" had been substituted:]
39. [Provided further
that in case of a share of a company (not being a share listed in a recognised stock exchange) or a unit of a
Mutual Fund specified under clause (23D) of section 10, which is transferred during the period beginning on the 1st day of April,
2014, and ending on the 10th day of July, 2014, the provisions of this clause shall have effect as it for the words "thirty-six
months", the words "twelve months" had been substituted.]
40. [Provided also
that in the case of a share of a company (not being a share listed in a recognized stock exchange in India) 41.[or
an immovable property, being land or building or both,] the provisions of this clause shall have effect as if for the words "thirty-six
months", the words "twenty-four months" has been substituted.].
42. [Explanation 1].—(i) In determining the period for which any capital asset is held by the assessee—

(a) in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the
company goes into liquidation;
(b) in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in 43.[sub-section
(1)] of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said
section;
44. [(ba)
in the case of a capital asset referred to in clause (via) of section 28, the period shall be reckoned from the date of its
conversion or treatment;]
45. [(c) in the case of a capital asset
being a share or shares in an Indian company, which becomes the property of the assessee in
consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares

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in the amalgamating company were held by the assessee;]

46. [(d) in
the case of a capital asset, being a share or any other security (hereafter in this clause referred to as the financial asset)
sub-scribed to by the assessee on the basis of his right to subscribe to such financial asset, or subscribed to by the person in
whose favour the assessee has renounced his right to subscribe to such financial asset, the period shall be reckoned from the date
of allotment of such financial asset;
(e) in the case of a capital asset, being the right to subscribe to any financial asset, which is renounced in favour of any other
person, the period shall be reckoned from the date of the offer of such right by the company or institution, as the case may be,
making such offer;]
47. [(f) in the case of a capital asset, being a financial asset, allotted without
any payment and on the basis of holding of any other
financial asset, the period shall be reckoned from the date of the allotment of such financial asset;]
48. [(g) in the case of a capital asset, being a share or shares in an
Indian company, which becomes the property of the assessee in
consideration of a demerger, there shall be included the period for which the share or shares held in the demerged company were
held by the assessee;]
49. [(h) in the case of a capital asset, being trading or
clearing rights of a recognised stock exchange in India, acquired by a person
pursuant to demutualisation, or corporatisation of the recognised stock exchange in India as referred to in clause (xiii) of section
47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately
prior to such demutualisation or corporatisation;
(ha) in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualisation or
corporatisation of a recognised stock exchange in India, as referred to in clause (xiii) of section 47, there shall be included the
period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation
or corporatisation;]
50. [(hb)in the case of a capital asset, being any specified security or sweat equity shares allotted or transferred, directly or
indirectly, by the employer free of cost, or at concessional rate to his employees (including former employee or employees), the
period shall be reckoned from the date of allotment, or transfer of such specified security or sweat equity shares;]
51. [(hc) in the case of a capital asset, being a unit of a business trust, allotted pursuant to transfer of share or shares as referred to
in clause (xvii) of section 47, there shall be included the period for which the share or shares were held by the assessee;]
52. [(hd)
in the case of a capital asset, being a unit or units, which becomes the property of the assessee in consideration of a
transfer referred to in clause (xviii) of section 47, there shall be included the period for which the unit or units in the consolidating
scheme of the mutual fund were held by the assessee;
(he) in the case of a capital asset, being share or shares of a company, which is acquired by the non-resident assessee on
redemption of Global Depository Receipts referred to in clause (b) of sub-section (1) of section 115AC held by such assessee, the
period shall be reckoned from the date on which a request for such re-demption was made;]
53. [(hf)
in the case of a capital asset, being equity shares in a company, which becomes the property of the assessee in
consideration of a transfer referred to in clause (xb) of section 47, there shall be included the period for which the preference
shares were held by the assessee;]
54. [(hg)
in the case of a capital asset, being a unit or units, which becomes the property of the assessee in consideration of a
transfer referred to in clause (xix) of section 47, there shall be included the period for which the unit or units in the consolidating
plan of a mutual fund scheme were held by the assessee;]
55. [(hh) in the case of a capital asset, being a unit or units in a segregated portfolio referred to in sub-section (2AG) of section 49,
there shall be included the period for which the original unit or units in the main portfolio were held by the assessee;]
(ii) In respect of capital assets other than those mentioned in clause (i), the period for which any capital asset is held by the
assessee shall be determined subject to any rules which the Board may make in this behalf.]
56. [Explanation 2.—For the purposes of this clause, the expression "security" shall have the meaning assigned to it in clause (h) of
section 257. of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).]
58. [Explanation
3.—For the purposes of this clause, the expressions "specified security" and "sweat equity shares" shall have the
meanings respectively assigned to them in the Explanation to clause (d) of sub-section (1) of section 115WB.]
59. [Explanation 4.—For the purposes of this clause, the expression "equity oriented fund" shall have the meaning assigned to it in
60. [clause (a) of the Explanation to section 112A];]

Clause (42A): Short-term Capital Asset.—The 1922 Act did not make any distinction between short-term capital assets and
other capital assets. A short-term capital asset means a capital asset held61. by an assessee for not more than thirty-six months62.
(in the case of shares, twelve months from the assessment year 1988–89) immediately preceding the date of its transfer.

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The word "held" in s 2(42A) is capable of divergent and different connotations and understanding. In this clause, it is used with
reference to a capital asset and the term, "capital asset" is not confined or restricted to the ownership of a property or an asset.63.
Where the assessee enters into an agreement to purchase property and more than three years thereafter, transfers all his rights
under that agreement, the transfer is of a long-term capital asset, viz his contractual right, even if in the meantime he has
obtained possession of the property but without any conveyance being executed in his favour. 64. Where the assessee purchases
two capital assets at one consolidated price he is entitled to bifurcate the same, and when one of them is sold, the benefit in
respect of a gain that could be considered as a long-term capital gain, cannot be denied to him.65. It appears that the correct test
in this regard is whether the capital assets are distinct and independently identifiable. Thus, where certain lands and buildings
thereon are sold together, the land should be treated as an independent and identifiable capital asset and it continues to remain
so even after construction of the building thereon. The capital gains on the land and building must be computed separately.66. In
case of a building (flats), the right to acquire the property arises from the date of the agreement for construction with the builder,
and not from the date of the registration of the sale deed for an undivided share in the property.67.
The assessee who is allotted bonus shares should be taken to hold them from the date they are issued and not from the date he
acquired the original shares in respect of which the bonus shares are issued.68. Similarly, the debenture holder who is allotted
shares in lieu of debentures should be taken to hold the shares from the date the shares, and not the debentures, were
acquired.69. Clause (i)(a) of the Explanation provides that in calculating the period for which a share in a company in liquidation
was held by the assessee, the period after the date of liquidation must be excluded. In other words, the assessee must hold the
share for more than twelve months prior to the commencement of the liquidation of the company in order that the share may
not be treated as a short-term capital asset. (Section 46 provides that a distribution of money or other assets by a company in
liquidation is assessable as capital gains in the hands of the shareholder.) Gold and Gold Bonds are different assets; therefore,
where the assessee receives gold on the redemption of Gold Bonds and later sells it, he should be taken to hold the gold from the
date the bonds are redeemed.70.
Clause (i)(b) of the Explanation enacts that where the capital asset became the property of the assessee in any of the cases
covered by s 49(1) (partition of joint family, gift, inheritance, etc), the period for which the asset was held by the previous owner
must be added to the period for which the asset was held by the assessee in determining whether the asset had been held for
more than the prescribed period.
Explanation (i) dealing with determination of the period for which any capital asset is held by the assessee also includes provisions
for additional specific cases for certain shares, other securities, financial asset or right to subscribe to any financial asset, shares
received upon demerger, trading or clearing rights or shares received upon demutualisation or corporatisation of a recognised
stock exchange. The mode of computation of capital gains is contained in s 48.
71. [(42B) "short-term capital gain" means capital gain arising from the transfer of a short-term capital asset;]

72. [(42C)
"slump sale" means the transfer of one or more undertakings as a result of the sale for a lump sum consideration
without values being assigned to the individual assets and liabilities in such sales.
Explanation 1.—For the purposes of this clause, "undertaking" shall have the meaning assigned to it in Explanation 1 to clause
(19AA).
Explanation 2.—For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the
sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of
values to individual assets or liabilities;]
Clause (42C): Slump Sale.—This definition was inserted by the Finance Act, 1999 along with the new s 50B which contains
special provision for computation of capital gains in the case of a slump sale. A slump sale means the transfer of one or more
undertakings as a result of the sale for a lumpsum consideration without values being assigned to the individual assets and
liabilities in such sales.73. 'Slump exchange' is not a slump sale.74. Section 50B provides that the profits and gains arising from a
slump sale shall be chargeable to income-tax as capital gains arising from transfer of long-term capital assets in the previous year
in which the transfer takes place. However, the profits and gains arising from such transfer of one or more undertakings held for
less than thirty-six months shall be deemed to be short-term capital gains.
75. [(43) "tax" in
relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year
means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and
super-tax chargeable under the provisions of this Act prior to the aforesaid date 76.[and in relation to the assessment year
commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under
section 115WA];
Clause (43): Tax.—Tax means income-tax chargeable under the provisions of this Act and does not include tax levied under any
other Act or a foreign tax.77.
Tax does not include interest. Thus, when deposit of tax is made a condition precedent in some situations (say, under s 249), this
does not include the deposit of interest levied under the ss 234B and 234C.78. In the context of recovery, 'tax due' does not
include penalty.79. A distinction between tax chargeable under this Act and that levied in a foreign country is clearly brought out

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in s 90.
(43A) "tax credit certificate" means a tax credit certificate granted to any person in accordance with the provisions of Chapter XXII-
B and any scheme made thereunder;]
80. [(43B) * * * *]

81. [(44)
"Tax Recovery Officer" means any Income-tax Officer who may be authorised by the 82. [Principal Chief Commissioner or
Chief Commissioner] or 83.[Principal Commissioner or Commissioner], by general or special order in writing, to exercise the powers
of a Tax Recovery Officer 84. [and also to exercise or perform such powers and functions which are conferred on, or assigned to, an
Assessing Officer under this Act and which may be prescribed];]
Clause (44): Tax Recovery Officer.—There was no corresponding definition in the 1922 Act. Unlike the 1922 Act, the present
Act contains a self-contained Code for recovery of tax. The material provisions for recovery are contained in ss 220 to 232, the
Second and Third Schedules, and the Income-tax (Certificate Proceedings) Rules 1962.
Clause (44) defines 'Tax Recovery Officer' as meaning any ITO who may be authorised by the CIT to exercise the powers of a
TRO.85. Rule 19A of the Second Schedule enables the TRO to delegate any of his functions as TRO to subordinate officers in
certain circumstances.
(45) "total income" means the total amount of income referred to in section 5, computed in the manner laid down in this Act;
Clause (45) [Section 2(15) of 1922 Act]: Total Income.—
This definition is the same as in the 1922 Act.
The definition of total income in this sub-section involves two ingredients—(a) the income must comprise the total amount of
income, profits and gains referred to in s 5, and (b) it must be computed in the manner laid down in the Act.86. The manner of
computation laid down by the Act forms an integral part of the definition of 'total income'. The correct method of approach is to
treat nothing as being charged to tax until by the process of computation laid down by the Act the status of income, profits and
gains emerges.87.
Subject to the provisions of the Act, s 4 charges the total income of an assessee to income-tax. Section 5 defines total income in
terms of residence. A non-resident's total income comprises only the income which accrues or is received or is deemed to accrue
or to be received in India, while a resident's total income comprises income accruing in any part of the world. After determining
the question of the assessee's residence, the items of income includible in his total income must be ascertained with reference to s
5 and then the income must be computed in the manner laid down in the Act. There are included in an assessee's total income,
items which may not be his income at all in fact or under the general law. 88. Total income is distinct from the estimated income,
upon the basis of which, advance tax is paid. Advance tax is based on estimated income, and, hence, it cannot result in the
disclosure of the total income assessable and chargeable to tax.89. Tax deducted at source is regarded as income received and has
to be included in the total income under s 198, while credit for the tax deducted is given to the assessee under s 199. Rule 12
prescribes the form of return of total income which must be filled in by the assessee.
Income Exempt from Tax.—
Exemption granted under this Act is of two kinds. Certain incomes are exempt from charge and are also excluded from the
assessee's total income, e.g. the income exempted under ss 10, 10A, 10B, 11, 12, 13A, and some items in notification dated
March 21, 1922 issued under s 60 of the 1922 Act90. or under s 293A of this Act. Certain other incomes are exempted from
income-tax but they are to be included in the assessee's total income, e.g. the sums exempted under s 86 which are expressly
declared by s 66 to be includible in the assessee's total income. Thus income which may itself be exempt from tax may yet form
part of the assessee's 'total income'. Therefore it follows that the total income of an assessee is not necessarily wholly subject to
tax.91. Section 110 provides the mode of computing the tax in cases where exempted income is included in the total income.
Under s 14A, for the purposes of computing the total income under chapter IV dealing with computation of income, it is provided
that no deduction shall be allowed in respect of ex-penditure incurred by the assessee in relation to income which does not form
part of the total income under this Act.
The effect of including exempted income in the assessee's total income is mainly twofold. First, the rate of tax payable by the
assessee is determined with reference to the total income and therefore exempted income which is included in the total income
would affect the rate of tax applicable to the chargeable portion of the total income. Secondly, in several cases calculations have to
be made with reference to the total income; and income which is exempted from tax but included in the total income is to be
taken into consideration for this purpose.
Although agricultural income is exempt from tax under s 10(1) and is therefore not includible in the total income under the
scheme of this Act, since 1973 the annual Finance Acts have superseded this scheme by providing for inclusion of agricultural
income in the total income for the limited purpose of determining the rate applicable to the taxable income.
Where the Act grants exemption from tax in respect of a certain sum, that sum does not form part of the total income unless
there is some other provision in the Act making it includible in the total income. In CIT v Raiji,92. Chagla CJ said, with reference to

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the 1922 Act:

Th e sch eme is th at w h erever o n e fin ds an exemp tio n o r exclu sio n fro m p aymen t o f tax, th e exemp tio n o r exclu sio n also o p erates fo r th e
p u rp o se o f co mp u tin g th e to tal in co me. No t o n ly is th e su m n o t liab le to tax, b u t it is also n o t to fo rm p art o f th e to tal in co me fo r th e
p u rp o se o f determin in g th e rate. W h en th e legislatu re in ten ds th at certain su ms, alth o u gh n o t liab le to tax, sh o u ld b e in clu ded in th e
to tal in co me, it exp ressly so p ro vides, as it is do n e in sectio n 16.

Section 16 of the 1922 Act corresponds to s 66 of this Act, and the scheme of this Act is the same.

1. [(46) * * * *]

Deleted Clause (46): [Section 2(15) of 1922 Act]: Total World Income.—The definition of 'total world income' in this clause
(which was deleted in 1965) was the same as in the 1922 Act.
Prior to the deletion of ss 2(46) and 113(3), the position under this Act was as follows:
Total world income comprised all income, profits and gains wherever accruing or arising, except (i) income which was excluded
from the total income under ss 10 to 13 and (ii) any capital gains which were not includible in the assessee's total income.
Generally speaking, a resident's total income would coincide with his total world income, for a resident would be taxable on his
world income. A non-resident's total income comprised only income received in or accruing in India or deemed to be received in
or to accrue in India, but the non-resident (other than a company) was charged on his total income at the average rate applicable
to his total world income if he exercised the option granted to him by s 113(3).
Since 1965, the concept of total world income has been altogether scrapped. Non-residents are assessable only at the rate
applicable to their total income and in no case is their total world income relevant. [See further post under s 5, 'Scope' and
'Chargeability varies with factor of residence'.]
2. [(47) "transfer", in relation to a capital asset, includes—

(i) the sale, exchange or relinquishment of the asset; or

(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried
on by him, such conversion or treatment;] 3.[or]
4. [(iva) the maturity or redemption of a zero coupon bond; or]
3[(v)any transaction involving the allowing of the possession of any immovable property to be taken or retained in part
performance of a contract of the nature referred to in section 53A5. of the Transfer of Property Act, 1882 (4 of 1882); or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other
association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the
effect of transferring, or enabling the enjoyment of, any immovable property.
Explanation6. [1].—For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause
(d) of section 269UA.]
7. [Explanation2.—For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always
included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner
whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether
entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being
effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside
India;]
Clause (47) [Part of Section 12B(1) of 1922 Act]: 'Transfer' in Relation to a Capital Asset.—
Section 12B(1) of the 1922 Act levied tax on capital gains arising from the sale, ex-change, relinquishment or transfer of a capital
asset. Section 45 of this Act levies tax on gains arising from the 'transfer' of a capital asset, and this clause originally defined
'transfer' as including 'the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the
compulsory acquisition thereof under any law'. The cases of extinguishment and acquisition were not mentioned in the provisions
dealing with capital gains in the 1922 Act. The definition in this clause was further expanded with effect from April 1, 1985 and
from April 1, 1988.
(i) Scope of the Definition.—
This clause defines the word 'transfer' only in relation to a capital asset and has no bearing on the meaning of that word in any
section where it is not used in relation to a capital asset. The expression 'capital asset' is used in the provisions dealing with the
head of capital gains and, therefore, this definition is relevant for the purposes of that head only. This definition will not apply to

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the word 'alienation' used in DTAAs,8. which must be interpreted on the basis of international law on the subject.
The definition of the word "transfer" as provided is an inclusive definition and does not ex-haust other kinds of transfer9. and does
not exclude the contextual or the ordinary meaning of the word transfer. 10. The word "transfer" as defined in the old Act under s
12B(1) is similar to the one present in the new Act, it is comprehensive and is regarded generally as comprehending within its
scope transfers both voluntary and involuntary. In the absence of a distinct genus or category, no presumption can arise that the
word transfer must be construed in the sense of a voluntary transfer, because the words "sale", "exchange" and "relinquishment"
are, in the normal acceptation of those terms, voluntary acts. The words "sale", "exchange", "re-linquishment" and "transfer" must
be given their plain and actual meanings and there is no justification for restricting the wide comprehension of the word "transfer"
to voluntary transfers by the application of the ejusdem generis rule.11. In order to constitute transfer, existence of the asset
before and after the transfer is absolutely essential.12. The implications of this definition are dealt with under ss 45 and 47 which
deal with capital gains.

(ii) Sale.—
The term sale has not been defined under this Act but the essential elements of a sale as per the Sale of Goods Act, 1930 are: (i)
goods, (ii) seller and purchaser, (iii) agreement between them for sale and purchase (iv) transfer of property in the goods from
seller to buyer as a result of the agreement between them and (v) the price being the consideration for the transfer of property.13.
The ordinary meaning of the word "sale" is a transaction entered into voluntarily between two persons known as the buyer and
the seller by which the buyer acquires property of the seller for an agreed consideration known as the price.14. Sale is a transfer of
property in goods or of the ownership in immovable property for a money consideration.15. Money consideration is an essential
element of a sale.16. The meaning of the word "sale" has changed significantly with the Constitution (Forty-sixth Amendment) Act,
1986 that inserted Article 366(29A) and made other changes in the Constitution. It is submitted that the concept of deemed
sales will not apply to s 2(47). The word "sale" will only mean sales as defined in the Sale of Goods Act, 1930 for movable property
and as defined and understood under the Transfer of Property Act, 1882 for immovable property.

(iii) Exchange.—
This word generally referred to the system of barter in the ancient days when money consideration was not prevalent. The
Transfer of Property Act, 1882 provides that when two persons mutually transfer the ownership of one thing for the ownership of
another, neither thing or both things being money only, such transaction is called an "exchange". The transaction of an exchange
involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first
person. There must be a mutual transfer of ownership of one thing for the ownership of another.17. In other words, a transaction
of exchange presupposes existence of different properties owned by different people; that as a result of such a transaction both
the properties continued to exist; that as a result of such a transaction both the properties continued to be owned by two
different parties but the ownership of one property is transferred to the owner of the other and vice versa.18. But mere
conversion of one currency into another currency cannot be considered as "exchange". The exchange in the context must mean
transfer of one capital asset for another capital asset.19. If the consideration is not money but some other valuable consideration,
it may be an exchange or barter but not a sale.20. It is to be noted that the word exchange is not limited to immovable property.

(iv) Relinquishment.—
The meaning of the word "relinquish" as given in Webster's Comprehensive Dictionary, International edition, 1984, is "(1) to give
up; abandon; surrender; (2) to cease to demand; renounce; to relinquish a claim; (3) to let go (a hold or something held).21.
Relinquishment implies that the person ceases to own the asset concerned by some act on his part. The property continues to
exist, but the interest therein of the owner is either given up or abandoned.22. In Rasiklal,23. the Supreme Court held that
relinquishment takes place when the owner withdraws himself from the property and abandons his rights thereto. The important
element of relinquishment is that the property continues to exist after the relinquishment.
The assessee had paid an advance under an agreement for purchasing a property, reserving the right for specific performance,
and later received consideration under another agreement in which the earlier agreement was cancelled and the vendor was
permitted to sell the property to any person at any price. This resulted in relinquishment of the right by the assessee amounting
to transfer.24. Similar instances where relinquishment amounted to transfer have been discussed later under s 45.

(v) Extinguishment of Any Rights Therein.—

The word "extinguishment" means extinction or annihilation of a right, estate, etc., by means of it being merged in, or
consolidated with another, generally a greater or more extensive, right or estate. In other words, extinguishment will cover cases
where a right, title or interest is destroyed, or taken away by an Act of God, operation of law, or an act of party.

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The expression 'extinguishment of any rights therein' will have to be confined to the extinguishment of rights on account of
transfer and cannot be extended to mean any extinguishment of rights independent of or otherwise than on account of transfer.
The extinguishment of rights in the asset on account of extinguishment of the asset itself is not a transfer of the right but its
destruction. By no stretch of imagination can the destruction of the right on account of the destruction of the asset be equated
with the extinguishment of the right on account of its transfer. 25. The expression does include the extinguishment of rights in a
capital asset independent of and otherwise than on account of transfer. 26. However, the Supreme Court observed that, if a right
in the property is extinguished by the execution of an agreement to sell, the capital asset can be deemed to have been
transferred.27. Even the surrender of floor area rights proportionate to land in a joint development agreement amounts to an
extinguishment of rights.28.
Amount received on the termination of a joint venture and the resulting revival of the right of the recipient to manufacture on its
own, is not towards extinguishment of any right. Though the amount received was a capital receipt, it was held to be not towards
any transfer of capital asset.29.
The rights of the assessee in the capital asset, being their shares in the amalgamating company, stood extinguished upon the
amalgamation of the amalgamating company with the amalgamated company. There was, therefore, a transfer of shares in the
amalgamating company within the meaning of s 2(47).30. However, in the case of amalgamation of a 100 per cent. subsidiary with
its parent company, the entire capital and assets of the subsidiary company vest in the parent company as a result of the
amalgamation and the parent company becomes the sole owner of the capital of the subsidiary company. There is, therefore, no
extinguishment of the right of the parent company in the capital on the liquidation of the subsidiary company.31. Reducing the
face value of the share amounts to extinguishment of rights in shares, the share capital is reduced, the right of the shareholder to
the dividend on his share capital and the right to share in the distribution of the net assets upon liquidation is extinguished
proportionately to the extent of reduction in the capital.32. Giving up a right to claim specific performance to get conveyance of
immovable property in lieu of receiving consideration results in extinguishment of right in property.33.
When a non-resident company transfers its shares to another non-resident company, there is no extinguishment of the rights of
control and management that the transferor company has in its subsidiary or "downstream" companies.34.
The primary argument on behalf of the Revenue was that the share purchase agreement (SPA) in the Vodafone case35. showed
that the transfer of shares outside India resulted in the extinguishment of the transferor's right of control and management.
Several clauses of the SPA were referred to but this plea was rejected. The court held that it was concerned with the sale of shares
and not the sale of assets. It was necessary to apply the "look at" test and not the "look through" test. The vacillating stand by
the department was on account of a dissected approach. After analyzing the entire shareholding structure, which included several
Mauritian companies and the ultimate holding company in Cayman Island, it was held that the Hong Kong parent company had
only a persuasive position over the downstream companies qua the manner of voting, nomination of directors and management
rights. The minority shareholders and investors had participative and protective rights. Consequently, there was no
extinguishment of right so as to attract capital gains.
It is also submitted that rights of management and control are incidental, and often proportional, to the number of shares owned
by the transferor. When he sells his shares, the transferee gets these rights as a consequence of buying the asset (which is a
share). It will be incorrect to state that the rights of management and control are "extinguished". Indeed, they never do; they only
go to the transferee in the same manner as the right to receive dividend goes to him/her. This principle has been accepted by the
Andhra Pradesh High Court, where it was held that the value of the controlling rights is incapable of determination whereby the
computation fails and consequently, the charge fails.36.

(vi) Sub-clauses (v) and (vi).—

The purpose of introducing sub-cl (v) in conjunction with sub-cl (vi) in s 2(47) defining the term 'transfer' was to widen the net of
taxation of capital gains and include transactions that closely resembled transfers but were not treated as such under the general
law. These two sub-clauses are based on the definitions contained in s 269UA(2)(d) and (f). The definition of "immovable property"
in s 269UA(D) refers to rights in or with respect to any land or any building. This shows that the intention of these clauses was
targeting tax evasion in property transactions. In practice, assessees avoided or postponed tax or capital gains by adopting
devices such as the enjoyment of property in pursuance of an irrevocable power of attorney or part performance of a contract of
sale.37.

Part Performance.—
Under sub-cl (v), a transaction that allows possession to be taken or retained in part performance of a contract of the nature
referred to in s 53A of the Transfer of Property Act, 1882 is included within the meaning of term 'transfer'. The doctrine of 'part
performance' is an equitable doctrine which creates bar of estoppel in favour of the transferee against the transferor. Section 53A
of the 1882 Act provides protection to a transferee to retain his possession where in part performance of the contract. The
conditions required for applicability of s 53A of the 1882 Act are as follows:

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(i) there must be a contract to transfer for consideration any immovable property;
(ii) the contract must be in writing, signed by the transferor, or by someone on his behalf;
(iii) the writing must be in such words from which the terms necessary to construe the transfer can be ascertained;
(iv) the transferee must in part performance of a contract to take possession of the property, or of any part thereof;
(v) the transferee must have done some act in furtherance of the contract; and
(vi) the transferee must have performed or be willing to perform his part of the contract.38.
Section 2(47) contemplates a transaction which enables direct and immediate possession to be taken and not one where the
possession is allowed to be taken at a later date or on the happening of an event. Therefore, to regard a transaction as transfer
under sub-cl (v), the legal requirements of s 53A of the 1882 Act are required to be fulfilled.39. After the 2001 amendment in s
53A of the 1882 Act, transfer of any immovable property in part performance will be completed only when the agreement under
s 53A of that Act is registered under the Indian Registration Act.40. However, while considering agreements entered into prior to
2001, the year in which possession is handed over should be regarded as the year of transfer. 41. In cases of joint development
agreements, it is equally important that the rights of the parties under the agreement are analysed to ascertain the true purport
of the agreement, as to whether the developer has been granted possession as transferee or mere license to develop or
construct.42. If it is the former, upon meeting the conditions of s 53A, it will be a transfer, and in the case of latter there is no
transfer as the ownership remains with the original owner. Applying this principle, the Supreme Court held that, if only a license
for development of the property was granted in a joint development agreement, the provisions of clause (v) will not apply.43. Such
license cannot be equated to 'possession' under s 53A.44. It was further observed that "possession", is a legal concept, and
denotes control over the land and not actual physical occupation of the land.45. It is submitted that such development
agreements only provide permissive license under s 52 of the Easements Act, 1882, which is distinct from right conferred under s
53A of Transfer of Property Act, 1882.
Possession need not be exclusive; it is sufficient if the transferee has the right to enter upon and exercise even limited possessory
rights.46. A transaction is covered by cl (iv) when the full consideration is received and possession handed over under a "power of
attorney". The subsequent action of a power of attorney and execution of sale deed by the power of attorney holder will not alter
the applicability of s 53A.47.
The conversion of a firm into a company under Part IX of the Companies Act, 1956 does not amount to a transfer. 48. The assets
of a firm belong to and are owned by the partners of the firm. So long as the partnership continues, each partner is interested in
all the assets of the firm as each partner is owner of the assets to the extent of his share in the partnership. On dissolution, assets
which heretofore belonged to the partners stand allotted to the partners individually and there is no transfer or assignment of
ownership in the assets. Consequently, s 17 of the Indian Registration Act, 1908 does not apply. Although s 2(47) has been not
specifically amended, s 45(4) would warrant a presumption that, on dissolution, there is a transfer within s 2(47).49.
Sub-clause (vi).—
Section 2(47)(vi) refers to enjoyment of immovable property. This sub-clause states that when the right to enjoy the immovable
property as an owner is transferred, the asset is deemed to be transferred. The intention is to bring within the tax net,
transactions, where, though title may not be transferred in law, there is, in substance, a transfer of title in fact. 50. The expression
"enabling the enjoyment of" must pre-suppose existence of a transfer. That is to say, a de facto transfer of immovable property
has, in fact, taken place in such a manner that the de facto owners' rights stand extinguished.51.
In Kanaiyalal Chandulal Monim v Indumati T. Podar ,52. the Supreme Court held that the expression "enjoy" will not include
"right to enjoy"; it must necessarily mean "actual enjoyment". Applying this decision, enjoyment in s 2(47)(vi) will mean enjoyment
by the assessee to whom the property is transferred or purported to be transferred. This sub-clause will not apply to transfer of
shares of a company that owns immovable property; there is no concept of looking at the underlying assets of a company that
the share represents.53. It will also not apply to a case of agreement to sell.54.

(vii) Transfer of Assets—Not of Underlying Assets.—

On the transfer of shares situated overseas, the entire rights stood transferred, not in India, but off-shore. On the transfer of such
shares, the transferee gets all those rights which include the right to receive dividends, right to transmit, right to vote and all
those shares including controlling interest is part of integral price for the share.55.
In the context of s 9(1)(i), it was held that the transfer of a share will not result in transfer of any "underlying asset". The latter
expression does not find a place in s 9. The same principle will apply to s 2(14). When a capital asset is transferred, it is not open
to the department to dissect the transaction and any tax on the underlying asset or underlying interest in the asset. It should be
noted that there is transfer of an asset and there are certain consequences that arise on the transfer of an asset. For example, the
transfer of a building which has several tenants will entitle the transferee to collect the rents after the transfer is complete but
there is only transfer of the building and there is no question of taxing the transfer of leasehold interest separately.56.

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(viii) Explanation 2.—

Explanation 2 has been inserted with retrospective effect from April 1, 1962. This is one more amendment to set at naught the
decision in the Vodafone case.57. The Supreme Court held that the transfer of shares did not result in the transfer of any
underlying assets. The latter part of s 9 did not cover any indirect transfer and that there was no "look through" provision. A
dissecting approach was not permissible.58. Explanation 2 now makes it clear that definition of "transfer" will include a dissecting
approach and if an asset is transferred, it automatically means that there is disposition or parting of interest therein. Rights, which
do not have separate existence, but flow along with the transfer of a share are also included within the word "transfer". Thus, what
cannot be transferred is also now included in the word "transfer". By using the words directly or indirectly; absolutely or
conditionally; voluntarily or involuntarily, the meaning of the word "transfer" has been given the widest possible scope. Further,
by adding the words "whether entered into in India or outside India", even overseas transfers of an asset can result in a transfer
of an interest in India. Thus, even extra territorial transactions are not spared. It is submitted that this amendment is draconian
and also unconstitutional. No other country has such a draconian provision which seeks to tax virtually every transaction which
has an Indian connection, howsoever remote it may be.
Alienation under DTAA is not a transfer under this clause.59.
Mercifully, the Board has issued letter No.F.No.500/111/12009-FTD-1(Pt.) dated May 29, 2012 clarifying that assessments which
have been completed under s 143(3) and before April 1, 2012 will not be reopened under s 147.

60. [(48) "zero coupon bond" means a bond—

(a) issued by any infrastructure capital company or infrastructure capital fund or public sector company 61. [or scheduled bank] on
or after the 1st day of June, 2005;
(b) in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital
company or infrastructure capital fund or public sector company 61[or scheduled bank]; and
(c) which the Central Government may, by notification62. in the Official Gazette, specify in this behalf.
63. [* * * * *]].

64. [Explanation.—For the purposes of this clause, the expression "scheduled bank" shall have the meaning assigned to it in clause
(ii) of the Explanation to sub-clause (c) of clause (viia) of sub-section (1) of section 36.]
"Previous year" defined
Clause (48)(now deleted) [Section 2(16) of 1922 Act]: Unregistered Firm.—This definition was the same as in the 1922 Act.
Two types of firms were regarded as unregistered firms:
(i) a firm which was assessed as an unregistered firm, and (ii) a firm which was not assessed at all, though its partners may have
been assessed individually on their respective shares in the firm's profits. This definition is deleted because of the introduction of
the new procedure for taxation of firms.
The omitted clause has been replaced with definition for 'zero coupon bond' by Finance Act, 2005.

1. Ins. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(a) (w.e.f. 1-4-1989).
2. Karamchari Union v UOI 243 ITR 143 (SC).
3. CIT v Srinivasa 128 ITR 294, 297 (SC); Leo Machodo v CIT 172 ITR 744, 751.
4. Clause (1) has been renumbered as clause (1A) by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(a) (w.e.f. 1-4-1989).
5. Subs. by the Taxation Laws (Amendment) Act, 1970 (42 of 1970), s 2(i) (w.r.e.f. 1-4-1962), Circular No. 56, March 19, 1971, for the following:—

"(a) any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in India or is subject to a
local rate assessed and collected by officers of the Government as such;".
6. Subs. by the Taxation Laws (Amendment) Act, 1970 (42 of 1970), s 2(ii) (w.r.e.f. 1-4-1962), for the following:—
"Provided that the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or
the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building;".
7. The words "according to the last preceding census of which the relevant figures have been published before the first day of the previous year" have
been omitted by the Finance Act, 2013 (17 of 2013), s 3(a)(1)(i) (w.e.f. 1-4-2014). See Circular No. 3 of 2014, January 24, 2014, 361 ITR (St.) 1.
8. Subs. by the Finance Act, 2013 (17 of 2013), s 3(a)(1)(ii) (w.e.f. 1-4-2014), for the following:—

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'(B) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to
in item (A), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant
considerations, specify in this behalf by notification1 in the Official Gazette.'.
————————————————
1. For Notification, see (1973) 89 ITR (St.) 145-60. The said Notification stands superseded by Notification No. SO 10(E), dated 6th January, 1994.
9. Ins. by the Finance Act, 1989 (13 of 1989), s 3 (w.r.e.f. 1-4-1970). See Circular No. 550, January 1, 1990, 182 ITR (St.) 114.
10. Explanation has been numbered as Explanation 1 by the Finance Act, 2000 (10 of 2000), s 3(a) (w.e.f. 1-4-2001).
11. Explanation 2 has been inserted by the Finance Act, 2000 (10 of 2000), s 3(a) (w.e.f. 1-4-2001). See Circular No. 794, August 9, 2000, 245 ITR (St.) 21.
12. Ins. by the Finance Act, 2008 (18 of 2008), s 3(a) (w.e.f. 1-4-2009). See Circular No. 1, March 27, 2009, 310 ITR (St.) 42.
13. Ins. by the Finance Act, 2013 (17 of 2013), s 3(a)(2) (w.e.f. 1-4-2013). See Circular No. 3 of 2014, January 24, 2014, 361 ITR (St.) 1.
14. Joseph v ITO 121 ITR 178; Abdulla v ITO 161 ITR 589.
15. See post under 'Rent or revenue derived from land'.
16. The Constitution, Seventh Schedule, State List, Entry 46.
17. Dooars v C Ag IT 44 ITR 6 (SC); Rajalinga v State of Madras 63 ITR 617 (SC); Nizam Sugar Factory v AAC 80 ITR 547; r 7, of Income-tax Rules 1962.
18. Ram Ran v Prov of Bihar 17 ITR 164; Prov of Bihar v Janki Kuer 17 ITR 170.
19. CIT v Kamakshya 16 ITR 325, 328 (PC); CAgIT v Jagannath 45 ITR 396. Cf C Ag IT v Molla 22 ITR 214, 219.
20. CIT v Kamakshya 16 ITR 325, 328 (PC); Pratap v Prov of Bihar 17 ITR 202, 203; Durga v CIT 15 ITR 235, 245; Lakshmi Daiji v CIT 12 ITR 309, 318; Re
Prov of Bihar 9 ITR 386, 396; Re Radhika 8 ITR 460, 464.
21. Ramchandra v CIT 10 ITR 141.
22. CIT v Kamakshya 16 ITR 325, 328 (PC).
23. Commrs of Taxation v Kirk [1900] AC 588, 592 (PC); Sarjubai v CIT 15 ITR 137, 145.
24. Manubhai v Nirgudkar 128 ITR 87, followed in Nadirshah v ITO 154 ITR 629; CIT v Dhable 202 ITR 98. Raghottama v ITO 169 ITR 174 reversed in UOI
v Muthyam 240 ITR 341 (SC) in view of new Expln 1. But see Jayachandra v ITO 161 ITR 190. Cf under s 64,'Transfer of assets to or for benefit of
spouse…'. Sevantilal v CIT 68 ITR 503 (SC). But not if there is no between and the gains: CIT v Pelleit 105 ITR 887 (house purchased out of case gifted,
and sold after 8 years.) See further under s 2(14)(iii) 'Agricultural land'.
25. DLF Housing v CIT 141 ITR 806; DLF United v CIT 158 ITR 342.
26. CIT v Saraladevi 167 ITR 136 followed in CIT v R Krishnarjunan 225 ITR 510.
27. Singhai v UOI 247 ITR 150.
28. CIT v Glory 186 ITR 496; CIT v Teresa 189 ITR 627; Guna v CIT 191 ITR 63; Tuhi Ram v LAC 199 ITR 490; CIT v Kaziamunnisa 213 ITR 172; CIT v
Manickam 215 ITR 591; Mangala v CIT 216 ITR 635; CIT v Pooranchand 77 Taxman 308; CIT v Daulat Ram 233 ITR 137; Ramchandra v CIT 1996 TLR 631;
CIT v Shubh Lata 234 ITR 153; CIT v Gurcharan 234 ITR 214; CIT v Jagdish 100 Tax-man 372; Krish Homes P. Ltd. v ITO 421 ITR 105.
29. CIT v Dhable 202 ITR 98; DLF United v CIT 217 ITR 333.
30. CIT v Kamakshya 16 ITR 325, 328 (PC); Bacha Guzdar v CIT 27 ITR 1, 4 (SC); CIT v Maddi 20 ITR 151; CIT v Iman Saheb 71 ITR 742.
31. Gopal v CIT 3 ITR 237 (PC).
32. Ibid at pp 241–42.
33. Mustafa v CIT 16 ITR 330, 337 (PC); CIT v Trivikram 57 ITR 29 (SC); Ratnesh v CIT 62 ITR 830; Kameshwar v CIT 41 ITR 169 (SC); Bikram v Prov of
Assam 17 ITR 220, 236; CIT v Dhaneshwardhar 8 ITR 416 (ex gratia payment); CAgIT v Narayanan 64 ITR 57.
34. Pratap v Prov of Bihar 17 ITR 202. For the question whether compensation on requisition of agricultural land is agricultural income, see Pydah v
CIT 42 ITR 83 and CIT v All India Tea 113 ITR 545.
35. CIT v All India Tea 219 ITR 544 (SC). Contrast Pydah v CIT 42 ITR 83 (use for military purpose).
36. CIT v Kamakshya Narain Singh 16 ITR 325, followed in Ram Ran v Prov of Bihar 17 ITR 164.
37. Inuganti v CIT 6 ITC 63.
38. See post under s 4, 'Premium (salami) paid for lease'.
39. Meharbano v CIT 2 ITC 99 (FB), overruling Birendra v Sec of State 1 ITC 67; Maharaja of Darbhanga v CIT 1 ITC 158; Re Jyotirindra 13 ITR 13, ITR
263; Prov of Bihar v Janki Kuer 17 ITR 170. In Bikram v Prov of Assam 17 ITR 220, 241, Cal HC purported to follow, by oversight, the overruled case of
Birendra.
40. CIT v Satinder 249 ITR 183.
41. Rajendra v CIT 4 ITC 15; CIT v Manavikraman 13 ITR 174.
42. Beohar Singh v CIT 16 ITR 433, 448; Bishwanath v CIT 10 ITR 322; Probhat v CIT 2 ITC 392, 423– 24, on appeal 5 ITC 1 (PC).
43. CIT v All India Tea 219 ITR 544 (SC); Mustafa v CIT 16 ITR 330 (PC); C Ag IT v Molla 22 ITR 214.
44. Re Bijaychand 8 ITR 378; CIT v Burdhan Kuti 17 ITR 191, 194; Pratap v Prov of Bihar 17 ITR 202, 208; Visheshwara v CIT 26 ITR 573, 587.
45. CIT v Benoykumar Sahas Roy 32 ITR 466.
46. Meghraj v Alla Rakhia 1942 FCR 53, AIR 1942 FC 27.
47. Mustafa Ali Khan v CIT 16 ITR 330, 335.
48. Mustofa v CIT 16 ITR 330 (PC); Yuvarajah of Pithapuram v CIT 17 ITR 445 (PC); Consolidate Coffee v C Ag IT 76 ITR 29; Mahendralal v CIT 17 ITR
454; Beohar Singh v CIT 16 ITR 433; Durga v CIT 15 ITR 235; Benoy v CIT 15 ITR 98; Prov of Bihar v Pratap 9 ITR 313, 328; Maharaja of Kapurthala v CIT
13 ITR 74, followed in Majgawan v CIT 13 ITR 94 and Nawazish v CIT 14 ITR 356.
49. CIT v Benoykumar Sahas Roy 32 ITR 466, affirming 24 ITR 70 (Cal); Jugal Kishore Arora v DCIT 269 ITR 133, (2004) 192 CTR (All) 174.
50. Overuling on this point Re Moolji 7 ITR 493 (pruning of tendu leaves). Applied in Ranganatha v CIT 232 ITR 568, 572. See also Latif v CIT 48 ITR 242;
Maharajprashad v CIT 61 ITR 297.
51. CIT v Sundara 18 ITR 259.
52. Meghraj v Alla Rakhia1942 FCR 53 , 62–63; Beohar Singh v CIT 16 ITR 433, 439.
53. CIT v Mathias 7 ITR 48 (PC); Karti P. Chidambaram v ACIT 402 ITR 488.
54. CIT v Katragadda 12 ITR 1.
55. Sheolal v CIT 4 ITC 375.
56. CIT v Ravalgaon Sugar 15 ITR 297; Brihan Sugar v CIT 14 ITR 611.
57. Yagappa v CIT 2 ITC 470. See Ranganatha v CIT 232 ITR 568 (but not toddy-tapping).
58. See Kalpaka Rubber v State of Kerala 202 ITR 450, 452–53; Ponnuswami v CIT 3 ITC 378, 384, followed in Valliappa v CIT 13 ITR 49.
59. State of Orissa v Ramchandra 46 ITR 246.
60. CIT v Jyotikona Chowdhurani 32 ITR 705.
61. Kameshwar Singh v CIT 32 ITR 587.
62. CIT v Ramakrishna Deo 35 ITR 312.
63. Overruling C Ag IT v Jagadish 17 ITR 426 (Cal), and approving Pratap v CIT 22 ITR 1 (All); Ranganatha v CIT 232 ITR 568; Jagdish v CIT 44 ITR 842;
Amarsingh v CIT 45 ITR 573; Nardeo v C Ag IT 46 ITR 125.
64. CIT v Benoykumar Sahas Roy 32 ITR 466 (SC) applied in CIT v Kanan Devan 200 ITR 453. Cf Travancore Tea v CIT 93 ITR 314; Beverley v CIT 117 ITR
302.
65. Tarakumari v CIT 14 ITR 787; Pratap v CIT 14 ITR 788; Pateshwari v CIT 15 ITR 181; Durga v CIT 15 ITR 235.
66. CIT v Shamsher 24 ITR 1; Mahendralal v CIT 17 ITR 454; Chellaiah v CIT 16 ITR 350; Beohar Singh v CIT 16 ITR 433, 440; Emperor v Probhat 1 ITC 284,
286; CIT v Tamil Nadu Forest 248 ITR 331 and 256 ITR 512.
67. CIT v Kokine Dairy 6 ITR 502 (SC) left the question open in CIT v Venkataswamy 29 ITR 529 where material facts had not been proved by the
assessee. See comment on Kokine Dairy in CIT v Benoykumar 32 ITR 466 (SC). See also Producers Society v Commr of Taxation 16 ITR Suppl 87, 91 (PC),

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and post under 'Clause (1A)(b): Income from agriculture produce…'.

68. CIT v Green Gold Tree Farmers 299 ITR 262; CIT v Soundarya Nursery 241 ITR 530, (2000) 160 CTR (Mad) 319; CIT v KN Pannirselvam 243 Taxman
219.
69. Conville v CIT 4 ITR 137.
70. Probhat v CIT 2 ITC 392, on appeal 5 ITC 1 (PC); Janki Kuer v CIT 5 ITC 42.
71. Shiblal v CIT 2 ITC 425.
72. Emperor v Probhat 1 ITC 284; Harprasaa v Emperor 1 ITC 417; Probhat v CIT 2 ITC 392, on appeal 5 ITC 1 (PC).
73. Probhat v CIT 2 ITC 392, on appeal 5 ITC 1 (PC); Beohar Singh v CIT 16 ITR 433, 448.
74. Nagi Reddy v CIT 258 ITR 719.
75. Pydah v CIT 42 ITR 83.
76. Malabar Industrial v CIT 198 ITR 611.
77. Emperor v Probhat 1 ITC 284; Maharaja of Darbhanga v CIT 1 ITC 303; Probhat v CIT 2 ITC 392, on appeal 5 ITC 1 (PC); CIT v Sevuga 1 ITR 78;
Durga v CIT 15 ITR 235.
78. Maharaja of Darbhanga v CIT 1 ITC 303.
79. Prov of Bihar v Pratap 9 ITR 313; Beohar Singh v CIT 16 ITR 433, 444.
80. Sri Ranganatha v CIT 232 ITR 568.
81. Linga v CIT 2 ITC 363.
82. CIT v Malayalam Plantation 204 ITR 735.
83. CIT v Ruby Rubber 178 ITR 181 followed in Velimalai Rubber v Ag ITO 188 ITR 262 and Vaikundam Rubber v State of Tamil Nadu 202 ITR 586.
84. Srish v CIT 41 ITR 340 (SC); CIT v Arjan Singh 87 ITR 494. Cf Gulabsing v CIT 100 ITR 509 (land revenue illegally assessed and later refunded).
85. Jagdish v CIT 28 ITR 732; Sudhindra v CIT 29 ITR 551; Re Mohanpura 5 ITR 118; Ponnuswami v CIT 3 ITC 378; Valliappa v CIT 13 ITR 49.
86. Hulas v Prov of Bihar 10 ITR 115, 120 (FC).
87. Hulas v Prov of Bihar 10 ITR 115, 123 (FC); CIT v Bakshi 42 ITR 657.
88. Ibid.
89. Mustafa v CIT 16 ITR 330, 335 (PC); Beohar Singh v CIT 16 ITR 433, 437; Chellappa v CIT 5 ITR 97, 106: cases under pre-1970 cl (1A)(a).
90. Mustafa v CIT 16 ITR 330, 335 (PC): pre-1970 cl (1A)(a).
91. CIT v Maddi 20 ITR 151; CIT v Mahasamund Kissan Co-op Rice Mill & Marketing Society Ltd. 103 ITR 499, 503.
92. Beohar Singh v CIT 16 ITR 433, 443.
1. Producers Society Ltd v Commr of Taxation 16 ITR Suppl 87 (PC).
2. Ibid at 90–91. Cf under s 80P(2)(a)(iii).
3. Brihan Maharashtra Sugar Syndicate Ltd v CIT 14 ITR 611, 613, 616; Casey v CIT 4 ITC 259.
4. CIT v Stanes Amalgamated 232 ITR 443 (extraction of oil from eucalyptus trees); Brihan Maharashtra Sugar Syndicate v CIT ITR 611, 616; CIT v
Woodland 58 ITR 612 (conversion of latex into sole crepe). 'Market' may include foreign market: Sakarlal v CIT 56 ITR 503. Cf South Arcot Society v CIT
97 ITR 500 (paddy is different from rice); K Lakshmanan v CIT 239 ITR 597 (SC) (mulberry leaves fed to silk worms).
5. Parthasarathiah v CIT 48 ITR 830; CIT v Veeran 54 ITR 393.
6. Parthasarathiah v CIT 48 ITR 830.
7. CIT v Rana Gurjit Singh 340 ITR 108.
8. CIT v Kartragadda 12 ITR 1. Cf Boggavarapu v CIT 54 ITR 578 (further processes to make tobacco fit for export).
9. Brihan Sugar v CIT 14 ITR 611; Re Bhikanpur Sugar 1 ITC 29; Banarsidas v CIT 106 ITR 804, affirmed on another point 166 ITR 783 (SC). Cf CIT v Date
82 ITR 71 (on the finding that there was no market for sugar-cane, the process of its conversion into gur was held covered by this clause), followed in
CIT v Kirloskar 181 ITR 523.
10. Killing Valley v Sec of State 1 ITC 54, 59; Ponnuswami v CIT 3 ITC 378, 381 (where the tea estate was situate in a foreign country).
11. CIT v Stanes Amalgamated 232 ITR 443.
12. Sheolal v CIT 4 ITC 375.
13. Casey v CIT 4 ITC 259.
14. CIT v Namdhari Seeds P. Ltd. 341 ITR 342.
15. CIT v Prabhat Agri Biotech Ltd. 5 ITR-OL 116.
16. Continental v CIT 195 ITR 81 (SC) (s 80-O).
17. See Thiru Arooran v CIT 227 ITR 432 (SC); CIT v Maharashtra Sugar Mill Ltd 82 ITR 452, 458–59 (SC); CIT v Hantapara 89 ITR 258 (SC); CIT v Bhopal
Sugar Industrial Ltd 47 ITR 859; Bhopal Sugar v CIT 70 ITR 403; Walchandnagar v CIT 76 ITR 478; Nizam Sugar Factory Ltd v AAC 80 ITR 547; CIT v
Nizam Sugar 116 ITR 188, CIT v Challapalli Sugars 116 ITR 255, affirmed in CIT v KCP 192 ITR 648 (SC) and CIT v Ganesh Sugar 161 ITR 540 (transport
charges and interest on borrowings incurred by a cultivator are also deductible). For the meaning of 'market value' see C Ag IT v Manmatha 34 ITR 567.
See further Rajasthan Corporation v CIT 242 ITR 450 (SC) and s 14A.
18. Maud v Ag ITO 77 ITR 361 (FB).
19. CIT v Waliur 14 ITR 287; Manarajprashad v CIT 61 ITR 297; Havakkal v CIT 109 ITR 59 (nature of tea growing operations discussed); CIT v
Chidambaram 106 ITR 292 (SC); CIT v Amsoi 112 ITR 234 (FB); CIT v Mahindra 112 ITR 323.
20. Anglo-American Tea v C Ag IT 69 ITR 667 (SC); Tata Tea v State of West Bengal 173 ITR 18 (SC); CIT v Haroocharai 111 ITR 495; Assam Co v State of
Assam 248 ITR 567 (SC); C Ag IT v Periakaramalai 84 ITR 643 (deductions under Chapter Vl-A). Cf CIT v Gupta 74 ITR 337 (insurance money received for
damage to green leaf is wholly agricultural income, and the question of applying r 8 does not arise); Sookerating v CIT 111 ITR 457, CIT v Bansidhar 233
ITR 651 (receipt unconnected with tea business, held wholly taxable); Tata Tea Ltd. v Inspecting ACIT 283 ITR 275, (2006) 203 CTR (Ker) 353 .
21. Camellia Tea v CIT 203 ITR 80; CIT v Gupta 74 ITR 337.
22. See ante 'Land situated in India'.
23. Nawazish v CIT 14 ITR 356.
24. Raju v CIT 66 ITR 122.
25. For cases dealing with this requirement which was formerly in sub-cl (a) see ante 'Old law: Land assessed to land revenue or local rate in India'.
26. CIT v Bhanja Deo 111 ITR 178; Notification No SO 77(E), dated 6-2-1973 (89 ITR (St.) 145).
27. Maharaja of Darbhanga v CIT 3 ITC 158, 164; Rajendra v CIT 4 ITC 15, 29; See also Prov of Bihar v Kamakshya 15 ITR 346; Sailendra v Coll Ag IT 30
ITR 801.
28. See Explanation 2.
29. See Circular No. 56, dated March 19, 1971.
30. CIT v KRN Prabhakaran 393 ITR 175.
31. CIT v Kameshwar 3 ITR 305, 308–09 (PC); Mustafa v CIT 16 ITR 330, 340 (PC).
32. Ibid.
33. CIT v Mathias 7 ITR 48, 53 (PC); Syed Mohammed v CIT 10 ITR 267, 282; Re Habibulla 9 ITR 292, 305, affirmed 11 ITR 295 (PC); CIT v Maddi 20 ITR
151, 156; Choudhary v State of Bihar 31 ITR 385.
34. CIT v Kameshwar 3 ITR 305 (PC); CIT v Mathais 7 ITR 48, 53 (PC); Simrathmull v CIT 64 ITR 166; Mukund v CIT 2 ITC 495; Ibrahimsa v CIT 3 ITC 33.
35. Mustafa v CIT 16 ITR 330 (PC); CIT v Kameshwar 3 ITR 305 (PC); CIT v Mohammed Sadak 3 ITR 1; Mukund v CIT 2 ITC 495; Ibrahimsa v CIT 3 ITC 33.
This principle does not apply where money-lender is a simple mortgagee without possession: Verrappa v CIT 9 ITR 56; Rajniti v CIT 4 ITC 264;
Mohammed Yakub v CIT 3 ITC 308.
36. Premier Construction Co Ltd v CIT 16 ITR 380, 3384.
37. Cassim v CIT 6 ITC 41.
38. Bhagavandas v Ag ITO 70 ITR 128; Mehta v State of Tamil Nadu 199 ITR 471.
39. Tuhi Ram v LAO 199 ITR 490.
40. Malabar Industrial v CIT 198 ITR 611.

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41. Umar Hayat Khan v CIT 2 ITC 52.

42. State Farming Corporation v CIT 181 ITR 271.
43. CIT v Maddid 20 ITR 151.
44. Gopal v CIT 3 ITR 233, 337 (PC); Mustafa v CIT 16 ITR 330 (PC); CIT v Lal Suresh 3 ITR 356.
45. Zamindarini of Tiruvur v CIT 3 ITC 428; Sundrabai v CIT 5 ITC 493; Re Saltanant Begum 1 ITR 379; Re Maharajkumar of Vizianagaram 2 ITR 186;
Jagdish v Dhanpati 13 ITR 64; Prov of Bihar v Bhubneshwari 15 ITR 477; Cf Kartar Singh v CIT 5 ITR 569.
46. Conville v CIT 3 ITR 404; Dandy v CIT 12 ITR 351. Contrast CIT v Chidambaram 106 ITR 292 (SC) (remuneration to partner from agricultural income
of firm); CIT v Amsoi 112 ITR 234 (FB); CIT v Mahindra 112 ITR 323; Mulk v C Ag IT 120 ITR 670.
47. Kameshwar v CIT 41 ITR 169 (SC); CIT v Trivikram 57 ITR 29 (SC).
48. Conville v CIT 4 ITR 137.
49. Habibulla v CIT 11 ITR 295 (PC); Jawad Ali v CIT 18 ITR 95.
50. Syed Mohammed v CIT 10 ITR 267, approved in Premier Const v CIT 16 ITR 380, 384 (PC). Cf Kameshwar v CIT 41 ITR 169 (SC).
51. Bacha Guzdar v CIT 27 ITR 1, followed in Thomos v C Ag IT 34 ITR 454; George Williamson (Assam) Ltd. v UOI 292 ITR 322, (2007) 3 GLT 950 .
52. CIT v Kamakshya Narain Singh 16 ITR 325, 328.
53. 27 ITR, l, 4; See also Visheshwara v CIT 26 ITR 573; Kumaraswami v ITO 43 ITR 423 ['deemed' divided under s 2(6A)(e) of 1922 Act.]
54. Cf Bomford v Osborne 23 TC 642 (HL), 10 ITR Suppl 27.
55. Bhubneshwari v CIT 8 ITR 550; Syed Mohammed v CIT 10 ITR 267; Jagdish v Dhanpati 13 ITR 64, 72.
56. Conville v CIT 3 ITR 404.
57. Forest Development Corporation of Maharashtra Ltd. v ACIT 399 ITR 467.
58. See 'Burden of proof' under s 1 ante.
59. Beohar Singh v CIT 16 ITR 433, 437; Brilhan Sugar v CIT 14 ITR 611, 616; Maharaja of Darbhanga v CIT 3 ITC 158, 164.
60. CIT v Annamalai Chettiar 273 ITR 404, (2004) 192 CTR (Mad) 288.
61. CIT v Kalawati 246 ITR 465; CIT v L Busappa Kumar 243 ITR 853; CIT v Kamla S Asrani 189 ITR 359; CIT v Mohd Khaleel 188 ITR 449.
62. Avadhesh Kumar Jain v CIT 187 ITR 217 (SC); S Arunachala Nadar v CIT 252 ITR 734; CIT v Pandari Laxmaiah 223 ITR 671; CIT v Shamsher Singh
(Major) (No 1) 184 ITR 456.
63. Gulab Chand v CIT 252 ITR 719; Rasiklal v CIT 121 Taxman 245.
64. Ins. as clause (1A), by the Finance (No. 2) Act, 1967 (20 of 1967), s 4(a) (w.e.f. 1-4-1967), Circular No. 5P, October 9, 1967.
65. Clause (1A) has been renumbered as clause (1B) by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(a) (w.e.f. 1-4-1989).
66. Subs., for "nine-tenths", by the Finance Act, 1999 (27 of 1999), s 3(a) (w.e.f. 1-4-2000). See Circular No. 779, September 14, 1999, 240 ITR (St.) 3.
67. Central India Industries Ltd. v CIT 99 ITR 211, 78 CWN 893, (1975) 45 Comp Cas 229 (Cal).
68. Clauses (1C) and (1D) have newly been inserted by the Finance Act, 2007 (22 of 2007), s 3(a) (w.r.e.f. 1-6-1994). See Circular No. 3, March 12, 2008,
299 ITR (St.) 8.
69. Clause (3) has been omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 126(1) (w.e.f. 1-4-1988). Prior to its omission, clause (3)
stood as follows:—
'(3) "Appellate Assistant Commissioner" means a person appointed to be an Appellate Assistant Commissioner of Income-tax under sub-section (1) of
section 117;'.
70. Subs., for "Chief Commissioner or Commissioner", by the Finance (No. 2) Act, 2014 (25 of 2014), s 4 (w.r.e.f. 1-6-2013). See Circular No. 1 of 2015,
January 21, 2015, 371 ITR (St.) 22. Earlier, the above words were substituted, for "Commissioner", by the Direct Tax Laws (Amendment) Act, 1987 (4 of
1988), s 2 (w.e.f. 1-4-1988).
71. Subs., for "Chief Commissioner or Commissioner", by the Finance (No. 2) Act, 2014 (25 of 2014), s 4 (w.r.e.f. 1-6-2013). Earlier, the above words
were substituted, for "Commissioner", by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988).
72. Subs., for "income-tax or super-tax", by the Finance Act, 1965 (10 of 1965), s 4(i) (w.e.f. 1-4-1965). See Circular No. 3P, October 11, 1965.
73. Subs., for "assessment of his income", by the Finance Act, 2005 (18 of 2005), s 3(a) (w.e.f. 1-4-2006). See Circular No. 3, February 27, 2006, 281 ITR
(St.) 222.
74. Shah Mahmood v Asst Commr 47 ITR 55; Thangavelu v Govt of Madras 80 ITR 486; MICO Employees Association v ACIT 292 ITR 567, (2007) 211 CTR
(Ker) 196 .
75. CIT v Southern Bank 120 ITR 92.
76. CIT v Manakram 183 ITR 382 [s 64(1)(iii)].
77. CIT v Sannanna 190 ITR 18.
78. Sunflag Iron and Steel Co. Ltd. v CBDT 387 ITR 674.
79. Kapurchand Shrimal v TRO 72 ITR 623, AIR 1969 SC 682 [LNIND 1968 SC 212] , (1969) 1 SCR 681 .
80. ITO v Delhi Development Authority 252 ITR 772, AIR 2002 SC 264 [LNIND 2001 SC 2720] , (2002) 1 SCC 695 [LNIND 2001 SC 2720] .
81. CIT v D.H. Joshi 216 ITR 482.
82. Shaw Wallace & Co. Ltd. v UOI 267 ITR 248, (2004) 189 CTR (Cal) 1.
83. CEPT v Ramnath 19 ITR 79, 83; Iqtida v ITO 41 ITR 165.
84. CIT v Joshi 216 ITR 482; CIT v Greenham Estates (P) Ltd. 217 ITR 80; CIT v Rajmohan Cashews (I) Ltd. 211 ITR 659.
85. Ins. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(b) (w.e.f. 1-4-1988).
86. Subs., for "Assistant Commissioner or Assistant Director", by the Finance (No. 2) Act, 1998 (21 of 1998), s 4(a) (w.e.f. 1-10-1998). See Circular No.
772, December 23, 1998, 235 ITR (St.) 35. Earlier, the above words were substituted, for "Assistant Commissioner", by the Finance (No. 2) Act, 1996 (33
of 1996), s 3(a) (w.e.f. 1-10-1996). See Circular No. 762, February 18, 1998, 230 ITR (St.) 12.
1. Ins. by the Finance Act, 2007 (22 of 2007), s 3(b)(i) (w.r.e.f. 1-6-1994). See Circular No. 3, March 12, 2008, 299 ITR (St.) 8.
2. Ins. by the Finance Act, 2007 (22 of 2007), s 3(b)(ii) (w.r.e.f. 1-10-1996).
3. Subs., for "Deputy Commissioner or Deputy Director", by the Finance (No. 2) Act, 1998 (21 of 1998), s 4(a) (w.e.f. 1-10-1998). See Circular No. 772,
December 23, 1998, 235 ITR (St.) 35. Earlier, the above words were substituted, for "Deputy Commissioner", by the Finance (No. 2) Act, 1996 (33 of
1996), s 3(a) (w.e.f. 1-10-1996). See Circular No. 762, February 18, 1998, 230 ITR (St.) 12.
4. Peerless v AO 248 ITR 113; Raju N.S.D. v DGIT 283 ITR 154, (2006) 1 KLT 147 [LNIND 2005 KER 642] .
5. Lakshman Shenoy v ITO 34 ITR 275.
6. CIT v Khemchand Ramdas 6 ITR 414 (PC), AIR 1938 PC 175 , 42 CWN 873 – followed in Abraham (C.A.) v ITO 41 ITR 425 (SC), AIR 1961 SC 609 [LNIND
1960 SC 297] . See also CIT v Rajesh Zaveri Stock Brokers Pvt. Ltd. 291 ITR 500 (SC), AIR 2007 SC 163 [LNIND 2006 SC 907] , (2008) 14 SCC 208 [LNIND
2007 SC 756] .
7. Kalawathi Devi Harlalka v CIT 66 ITR 680 (SC), AIR 1968 SC 162 [LNIND 1967 SC 171] .
8. Sankappa v ITO 68 ITR 760 (SC), AIR 1968 SC 816 [LNIND 1967 SC 375] .
9. ITO v Guruswamy 34 ITR 601 (SC), AIR 1958 SC 808 [LNIND 1958 SC 62] ; Lakshman Shenoy v ITO 34 ITR 275 (SC), AIR 1958 SC 795 [LNIND 1958 SC
64] ; Additional ITO v E. Alfred 44 ITR 442 (SC), AIR 1962 SC 663 .
10. CIT v T.K. Commercial Corporation Ltd . 105 ITR 219 (SC), AIR 1977 SC 459 [LNIND 1976 SC 313] ; CIT v Swarn Taneja 186 ITR 348 (SC), (1990) 87 CTR
(MP) 66.
11. Brij Lal v CIT 328 ITR 477 (SC), (2010) 1 SCC 1 [LNIND 2009 SC 1961] .
12. ACIT v Vijay Television P. Ltd. 407 ITR 642.
13. Premier Cable v CIT 237 ITR 202 (SC); CIT v FAL Industries Ltd. 314 ITR 47.
14. Ins. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(c) (w.e.f. 1-4-1988).
15. Ins. by the Finance (No. 2) Act, 1998 (21 of 1998), s 4(b) (w.e.f. 1-10-1998). See Circular No. 772, December 23, 1998, 235 ITR (St.) 35.
16. Ins. by the Finance Act, 2007 (22 of 2007), s 3(c) (w.r.e.f. 1-4-1988). See Circular No. 3, March 12, 2008, 299 ITR (St.) 8.

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17. CIT v Central Bank 185 ITR 6 (FB) followed in CIT v Impaco Ltd 186 ITR 714.
18. Subs. by the Finance (No. 2) Act, 1998 (21 of 1998), s 4(c) (w.e.f.1-4-1999), for the following:—
'(11) "block of assets" means a group of assets falling within a class of assets, being buildings, machinery, plant or furniture, in respect of which the
same percentage of depreciation is prescribed;'.
The above clause (11) was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 (46 of 1986), s 2 (w.e.f. 1-4-1988).
It may be noted that original clause (11) was omitted by the Finance Act, 1965 (10 of 1965), s 4(ii) (w.e.f. 1-4-1965). Prior to its omission, the original
clause (11) stood as follows:—
"(11) 'average rate of super-tax' means the rate arrived at by dividing the amount of super-tax calculated on the total income, by such total income;".
19. Subs., for "Central Board of Revenue constituted under the Central Board of Revenue Act, 1924 (IV of 1924)", by the Central Boards of Revenue Act,
1963 (54 of 1963), s 5 (w.e.f. 1-1-1964).
20. Ins. by the Finance Act, 2001 (14 of 2001), s 3(a) (w.e.f. 1-6-2001). See Circular No. 14, December 12, 2001, 252 ITR (St.) 65.
21. CIT v S.C. Naregal 329 ITR 615.
22. Narain Swadeshi v CEPT 26 ITR 765, 773, AIR 1955 SC 176 [LNIND 1954 SC 144] ; Mazagaon Dock Ltd. v CIT 34 ITR 368, 377, AIR 1958 SC 861 [LNIND
1958 SC 72] ; CIT v Distributors (Baroda) P. Ltd . 83 ITR 377, 383, AIR 1972 SC 288 [LNIND 1971 SC 472] ; Chamundi v CIT 166 ITR 683, 686, (1987) 30
Taxman 556 (Kar); CIT v Motilal 133 ITR 173, 178, 185; Upper India Chamber of Commerce v CIT 15 ITR 263, 275, 279; Down v Compston 6 ITR 596, 598;
Erichsen v Last 4 TC 422, 427; CET v Ambalal Sarabhai 73 ITR 78; Mridula Sarabhai v CET 73 ITR 85.
23. Re Indra Sen 8 ITR 187, 202; CIT v National Mutual Life Assn 1 ITR 350, 356, 361, reversed on another point National Mutual Life Assn v CIT 4 ITR 44
(PC).
24. Lakshminarayan v Govt of Hyderabad 25 ITR 449 (SC); Qamar v CEPT 39 ITR 611 (SC).
25. See under ss 2(13) and 10(3).
26. CIT v Bazzaz 200 ITR 131, (1992) 65 Taxman 91 (Ori).
27. CIT v Tamil Nadu Dairy Development Corporation Ltd. 216 ITR 535; CIT v Ganga Prasad 199 ITR 173, (1992) 101 CTR (Cal) 118.
28. Upper India Chamber of Commerce v CIT 15 ITR 263, 279.
29. Williams v Davies 26 TC 371.
30. Venkataswamy Naidu v CIT 35 ITR 594 (SC), AIR 1959 SC 359 [LNIND 1958 SC 150] .
31. City Board v CIT 46 ITR 1214.
32. National Association v Bolton [1943] AC 166 , 184 (HL), per Lord Wright; Smith Barry v Cordy 28 TC 250, 258 (CA).
33. Hesketh v Craddock 25 TC 1, 7, per Wrottesley J; CIT v Bazaz 200 ITR 131, (1992) 65 Taxman 91 (Ori).
34. Smith Barry v Cordy 28 TC 250, 259 (CA); Mazagaon Dock Ltd. v CIT 34 ITR 368, 376–78, AIR 1958 SC 861 [LNIND 1958 SC 72] .
35. Walton v Missoury 91 US 275, 23 L Ed 347.
36. Ram Saroop v Janki Dass, AIR 1976 Del 219 [LNIND 1975 DEL 175] , (1976) ILR Del 153.
37. State of Punjab v Bajaj Electricals Ltd. 70 ITR 730, AIR 1968 SC 739 [LNIND 1967 SC 361] ; Khoday Distilleries Ltd. v State of Karnataka (1995) 1 SCC
574 [LNIND 1994 SC 970] , 612, 1994 Supp 4 SCR 477.
38. Sarojini Rajah v CIT 71 ITR 504.
39. CIT v Lallubhai Nagandas 204 ITR 93, (1993) 114 CTR (Bom) 58.
40. Barendra Prasad Roy v ITO 129 ITR 295, 305, AIR 1981 SC 1047 [LNIND 1981 SC 214] .
41. IR v Incorporated Council of Law Reporting 3 TC 105, 113; Religious Society v Forbes 3 TC 415; Royal Ag Soc v Wilson 9 TC 62; Royal Western India
Turf Club v CIT 78 ITR 548; Krishna Menon v CIT 35 ITR 48, 52–53, AIR 1959 SC 75 [LNIND 1958 SC 122] ; Rajagopalachariar v CIT 50 ITR 196; CET v
Manorama 59 ITR 262; CIT v Ramkripal 125 ITR 408, (1980) 17 CTR (All) 79.
42. CIT v DCM Sriram Consolidated Ltd. 322 ITR 486, affirmed in CIT v DCM Shriram Consolidated Ltd. 368 ITR 720 (SC).
43. IR v Incorporated Council of Law Reporting 3 TC 105, 113.
44. IR v Cornish Mutual Association 12 TC 841 (HL); General Family Pension Fund v CIT 14 ITR 488; CIT v National Mutual Life Assn 1 ITR 350, reversed
on another point in National Mutual Life Association v CIT 4 ITR 44 (PC).
45. CIT v Shaw Wallace & Co. AIR 1932 PC 138 , 36 CWN 653.
46. Venkataswami Naidu & Co. v CIT 35 ITR 594, AIR 1959 SC 359 [LNIND 1958 SC 150] ; CIT v Sutlej Cotton Mills Company Ltd. 100 ITR 706, AIR 1975
SC 2106 [LNIND 1975 SC 570] . See also "single or isolated transactions" under s 4, infra.
47. Narain Swadeshi Weaving Mills v CEPT 262 ITR 765 (SC); Dalmia Cement Ltd. v CIT 105 ITR 633, AIR 1976 SC 2150 [LNIND 1976 SC 323] .
48. Khan Bahadur Alladin & Sons v CIT 68 ITR 673 (SC).
49. Janki Ram Bahadur Ram v CIT 57 ITR 21, AIR 1965 SC 1898 [LNIND 1965 SC 112] .
50. See post under s 4, 'Single or isolated transaction'.
51. CIT v Suresh Chand Goyal 298 ITR 277, (2007) 209 CTR 410 (MP).
52. DCIT v Gopal Ramnarayan Kasat 328 ITR 556.
53. Venkatswami Naidu & Co. v CIT 35 ITR 594, AIR 1959 SC 359 [LNIND 1958 SC 150] ; PCIT v John Poomkudy 409 ITR 149.
54. Janki Ram Bahadur Ram v CIT 57 ITR 21, AIR 1965 SC 1898 [LNIND 1965 SC 112] .
55. Saroj Kumar Mazumdar v CIT 37 ITR 242, AIR 1959 SC 1252 [LNIND 1959 SC 85] .
56. Juggilal Kamalpat v CIT 75 ITR 186, AIR 1970 SC 529 [LNIND 1969 SC 237] , (1969) 2 SCC 376 [LNIND 1969 SC 237] ; Janki Ram Bahadur Ram v CIT
57 ITR 21, AIR 1965 SC 1898 [LNIND 1965 SC 112] ; Venkatswami Naidu & Co. v CIT 35 ITR 594, AIR 1959 SC 359 [LNIND 1958 SC 150] ; Khan Bahadur
Ahmed Alladin and Sons v CIT 68 ITR 573, (1968) 2 SCR 439 [LNIND 1967 SC 345] , AIR 1968 SC 788 [LNIND 1967 SC 345] .
57. Dalmia Cement Ltd. v CIT 105 ITR 633, AIR 1976 SC 2150 [LNIND 1976 SC 323] ; Rajputana Textiles (Agencies) Ltd. v CIT 42 ITR 743, AIR 1962 SC 1267
[LNIND 1961 SC 169] ; Mohammed Meerakhan (P.M). v CIT 73 ITR 735, AIR 1969 SC 1053 [LNIND 1969 SC 57] ; Juggilal Kamlapat v CIT 75 ITR 186, AIR
1970 SC 529 [LNIND 1969 SC 237] , (1969) 2 SCC 376 [LNIND 1969 SC 237] ; Indramani Bai v ACIT 200 ITR 594, 1994 Supp (2) 114 ; Dalhousie Investment
Trust Co. Ltd. v CIT 68 ITR 486.
58. CIT v Rajasthan Mines Ltd. 78 ITR 45, AIR 1970 SC 1560 [LNIND 1970 SC 255] , (1970) 2 SCC 158 [LNIND 1970 SC 255] ; Raja Bahadur Kamakhhya
Narain Singh v CIT 77 ITR 253, AIR 1971 SC 794 [LNIND 1969 SC 304] ; CIT v P.K.N. Co. Ltd. 60 ITR 65, AIR 1966 SC 1256 [LNIND 1965 SC 366] .
59. CIT v Lala Dewan Chand Trust 190 ITR 451.
60. Subs. by the Finance Act, 2015 (20 of 2015), s 3(a) (w.e.f. 1-4-2016), Circular No. 19 of 2015, November 27, 2015, 379 ITR (St.) 19, for the following:—
'1[(13A) "business trust" means a trust registered as an Infrastructure Investment Trust or a Real Estate Investment Trust, the units of which are required
to be listed on a recognised stock exchange, in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15
of 1992), and notified by the Central Government in this behalf;]'. ———————————————
————————————————
1. Ins. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(I) (w.e.f. 1-10-2014).
61. The word 'and' has been omitted by the Finance Act, 2020 (12 of 2020), s 3(i)(a) (w.e.f. 1-4-2021).
62. The words "the units of which are required to be listed on recognised stock exchange in accordance with the aforesaid regulations" have been
omitted by the Finance Act, 2020 (12 of 2020), s 3(i)(b) (w.e.f. 1-4-2021).
63. Subs. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(II)(A) (w.e.f. 1-4-2015), Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22, for the
following:—

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'"capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include—

(i) any stock-in-trade,'.

64. Subs. by the Finance Act, 2007 (22 of 2007), s 3(d) (w.e.f. 1-4-2008). See Circular No. 3, March 12, 2008, 299 ITR (St.) 8, for the following:—

"(ii) personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the
assessee or any member of his family dependent on him.
Explanation.—For the purposes of this sub-clause, "jewellery" includes—

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals,
whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;
(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel".
The above sub-clause (ii) was substituted by the Finance Act, 1972 (16 of 1972), s 3(a) (w.e.f. 1-4-1973), Circular No. 108, March 20, 1973, for the
following:—

"(ii) personal effects, that is to say, movable property (including wearing apparel, jewellery and furniture) held for personal use by the assessee or
any member of his family dependent on him;".
65. Subs., for "(iii) agricultural land in India;", by the Finance Act, 1970 (19 of 1970), s 3(a) (w.e.f. 1-4-1970). See Circular No. 45, September 2, 1970, 79
ITR (St.) 33.
66. The words "according to the last preceding census of which the relevant figures have been published before the first day of the previous year"
have been omitted by the Finance Act, 2013 (17 of 2013), s 3(b)(i) (w.e.f. 1-4-2014). See Circular No. 3 of 2014, January 24, 2014, 361 ITR (St.) 1.
67. Subs. by the Finance Act, 2013 (17 of 2013), s 3(b)(ii) (w.e.f. 1-4-2014), for the following:—

'(b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality, or cantonment board referred to
in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant
considerations, specify in this behalf by notification1 in the Official Gazette;'.
————————————————
1. For Notification, see (1973) 89 ITR (St.) 145-60. The said Notification stands superseded by Notification No. SO 10(E), dated 6th January, 1994, which
has been reproduced in (1994) 205 ITR (St.) 121-63.
68. Ins. by the Taxation Laws (Amendment) Act, 1962 (54 of 1962), s 2 (w.e.f. 13-12-1962).
69. Ins. by the Finance (No. 2) Act, 1965 (15 of 1965), s 2 (w.e.f. 1-4-1965). See Circular No. 3P, October 11, 1965.
70. Ins. by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1965 (41 of 1965), s 2 (w.e.f. 19-10-1965).
71. Ins. by the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 (7 of 1981), s 5 (w.e.f. 12-1-1981).
72. Ins. by the Finance Act, 1999 (27 of 1999), s 3(b) (w.e.f. 1-4-2000). See Circular No. 779 September 14, 1999, 240 ITR (St.) 3.
73. Ins. by the Finance Act, 2016 (28 of 2016), s 3(a) (w.e.f. 1-4-2016). See Circular No. 3 of 2017, January 20, 2017, 391 ITR (St.) 253.
74. For text, see Appendix 106.
75. Notification No. GSR 634(E), dated 14-9-1999, and, subsequently amended by Notification No. 46(E), dated 24-1-2013.
76. Ins. by the Finance Act, 2012 (23 of 2012), s 3(i) (w.r.e.f. 1-4-1962).
77. The Explanation has been numbered as Explanation 1 by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(II)(B) (w.e.f. 1-4-2015).
78. Ins. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(II)(B) (w.e.f. 1-4-2015). See Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22.
79. For text, see Appendix 147.
80. PNB Finance v CIT 252 ITR 491.
81. CIT v East India 206 ITR 152.
82. Kirloskar v CIT 117 ITR 82.
83. West Coast Electricity Supply Corpn v CIT 107 ITR 483; Syndicate Bank v CIT 155 ITR 681; CIT v Periera 184 ITR 461; Karvalves v CIT 197 ITR 95; PNB
Finance v CIT 252 ITR 491. See further under s 45, 'Goodwill and certain other assets'.
84. Rangaswami v CIT 31 ITR 711; Sharfuddin v CIT 39 ITR 333.
85. Vaidyanathaswami v CIT 119 ITR 369; CIT v Ganapathi 119 ITR 715; Balasurbramania v CIT 119 ITR 504; CIT v Venkateswara 119 ITR 507.
86. Seshasayee v CIT 42 ITR 568; CIT v Damodara 119 ITR 583; CIT v General Industrial Society 262 ITR 1, (2003) 183 CTR 67 (Cal).
87. Foster's Australia Ltd., In re 302 ITR 289 (AAR).
88. Pfizer Corporation, In re 271 ITR 101 (AAR).
89. Rajendra v CIT 43 ITR 460; Gasper v CIT 117 ITR 581, affirmed in 192 ITR 382 (SC); CIT v Pramia 202 ITR 298; Rajabalai v CIT 163 ITR 7. But see under
s 45, 'Goodwill and certain other assets'; CIT v Sujatha Jewellers 290 ITR 631; CIT v Gotan Lime Stone Khanij Udyan 269 ITR 399; CIT v Hindustan Hotels
Ltd. 335 ITR 60. See also CIT v D.P. Sandu Bros . Chembur P. Ltd. 273 ITR 1, AIR 2005 SC 796 [LNIND 2005 SC 92] , (2005) 2 SCC 584 [LNIND 2005 SC 92] –
holding that the surrender of a tenancy right amounted to a transfer of a capital asset on the basis that a tenancy right is a capital asset.
90. Bafna v CIT 230 ITR 864.
1. CIT v Tata Services 122 ITR 594; CIT v Sterling Investments 123 ITR 441; CIT v Vijay Flexible 186 ITR 693; CIT v Vimal 187 ITR 613; Gulshan Malik v CIT 4
ITR-OL 275 (booking rights or right to purchase property).
2. CIT v Ismailia 181 ITR 174.
3. Hari v ITO 52 ITR 399, on appeal AIR 1967 Del 146 [LNIND 1966 DEL 139] ; Mathew v ITO 323 ITR 592, (2010) 1 KLT 798 [LNIND 2009 KER 827] , (2010)
230 CTR (Ker) 398 [LNIND 2009 KER 827] .
4. Praxair Pacific Ltd. In re 326 ITR 276 (AAR); Dow AgroSciences Agri. Products Ltd., In Re, 380 ITR 668 (AAR).
5. Mathew P.J. v ITO 323 ITR 592, (2010) 1 KLT 798, (2010) 230 CTR (Ker) 398 [LNIND 2009 KER 827] .
6. CIT v Dalmia 149 ITR 215; CIT v Abbasbhoy 195 ITR 28; Bharat Forge v CIT 205 ITR 339, 349–50. Also see Lead Counsel of Qualified Settlement Fund,
In Re, 381 ITR 1 (AAR) – Right to sue is a capital asset but cannot be transferred; Aberdeen Claims Administration Inc., In Re, 381 ITR 55 (AAR).
7. Patel Brass Works v CIT 286 ITR 598, (2006) 205 CTR (Guj) 139.
8. CIT v Laxmidevi Ratani 296 ITR 363.
9. CIT v Prakash 221 ITR 102 (precious stones).
10. CIT v Debmalya 207 ITR 996 (Gold Bond and gold are different assets)
11. CIT v Kuruvilla Abraham 356 ITR 519.
12. Venkatesan v CIT 144 ITR 886. See also under s 48, 'Computation of capital gain'.
13. CIT v All India Tea & Trading Co Ltd 117 ITR 525.
14. Vodafone International Holdings B.V. v UOI 341 ITR 1, 58, (2012) 6 SCC 613 [LNIND 2012 SC 64] (per Kapadia CJ).
15. Maharani Ushadevi v CIT 131 ITR 445; Venkatesh (minor) v CIT 243 ITR 367. [Vodafone, ibid pp 56, 90 and 114.]
16. Vodafone, International Holdings B. V. v UOI, pp. 90-91, 115, (2012) 6 SCC 613 [LNIND 2012 SC 64] (per Radhakrishnan J).
17. Vodafone India Services P. Ltd. v CIT 385 ITR 169.
18. Hemant Singhji v CIT 103 ITR 61, 64, followed in Ramanathan v CIT 152 ITR 493.

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19. CIT v Usha Devi 231 ITR 793 (SC), disapproving CIT v Nizam's Trusts 154 ITR 573 [SLP rejected earlier in 186 ITR (St) 72].
20. CIT v Sitadevi 148 ITR 506; Jayantilal v Anantharam 156 ITR 448; CIT v Benarashilal 185 ITR 493; CIT v Bijoy Kumar 200 ITR 667; Ashok Surana v CIT
384 ITR 267.
21. CIT v Saroj 140 ITR 88. For connotation of 'jewellery' see CWT v Godavaribai 169 ITR 245.
22. Faiz Murtaza Ali v CIT 360 ITR 200; CIT v Kuruvilla Abhraham 356 ITR 519.
23. Krishna Iyer v ITO 59 ITR 145; CIT v Ananthan 94 ITR 122; CIT v All India Tea 117 ITR 525.
24. CIT v Bhagavathy 240 ITR 451.
25. Sarifabibi v CIT 204 ITR 631; Gopal v CIT 209 ITR 946; Mahaveer v UOI 244 ITR 789; Vimal Singhvi v ACIT 370 ITR 275.
26. Gemini Pictures v CIT 220 ITR 43.
27. Rasiklal v CWT 56 ITR 608; Syed Rafiqur v CWT 75 ITR 318; CWT v Sheeladevi 77 ITR 693; CWT v Narandas 80 ITR 39; Ranchhodhhai v CIT 81 ITR
446; Avtar Singh v CIT 84 ITR 96; Shiv Shankar v CIT 94 ITR 433; CWT v Sankaran 103 ITR 366; Himatlal v CWT 106 ITR 658; CIT v Manilal 106 ITR 917;
Chandravati v CIT 114 1TR 302; CIT v Prakash 114 ITR 316; Yaswanti v CWT 114 ITR 318; CIT v All India Tea 117 ITR 525; Ranganatha v CIT 119 ITR 488;
CIT v Vajulal 120 ITR 21; CIT v Tarachand 123 ITR 567; CIT v Sutton 127 ITR 57; Arundhati v CIT 138 ITR 245; CIT v Borhat 138 ITR 783; CIT v Siddharth 139
ITR 628; Chandulal v CIT 139 ITR 642; CWT v Mungale 145 ITR 208; CIT v Universal Cine Trade Ltd 161 ITR 696; CWT v Tarachand 164 ITR 516; CIT v
Trivedi 172 ITR 95; Tea Estates India Ltd v CWT 59 ITR 428; CIT v Fagoomal 112 ITR 9. Cf CIT v Lilavati 152 ITR 565 (continuous past user for agricultural
purposes).
28. CWT v Officer-in-charge (Court of Wards), 105 ITR 133 (SC); CED v Venugopala 105 ITR 593 (SC) (forest land covered by trees of spontaneous
growth is not 'agricultural land'); Kalpetta v CIT 185 ITR 318; CIT v Joshi 202 ITR 1017; Chandravati v CIT 114 ITR 302; Chhotalal v CIT 116 ITR 631; CIT v
Vajulal 120 ITR 21; Gordhanbhai v CIT 127 ITR 664; Motibhai v CIT 127 ITR 671; Chandulal v CIT 139 ITR 642; Combined Industries v CIT 115 ITR 358; CIT
v Lilavati 152 ITR 565; Lilavati v CIT 201 ITR 293; Shankar Dalal v CIT 10 ITR-OL 733; Sakunthala Vedachalam v ACIT 369 ITR 558; PCIT v Mansi Finance
Chennai Ltd. 388 ITR 514.
29. Sakunthala Vedachalam v ACIT 369 ITR 558; PCIT v Mansi Finance Chennai Ltd. 388 ITR 514; CIT v KRN Prabhakaran 393 ITR 175.
30. PCIT v Pallavarajha 409 ITR 282.
31. CIT v Siddharth J Desai 139 ITR 628, followed in Sakunthala Vedachalam v ACIT 369 ITR 558.
32. Sarifabibi v CIT 204 ITR 631 (SC); Gopal v CIT 209 ITR 946; Kalpetta v CIT 185 ITR 318; Lilavati v CIT 201 ITR 293; Mohammed Othuman v CIT 31 ITR
480; Wilfred v CIT 53 ITR 747; Ranchhodbhai v CIT 81 ITR 446; CWT v Sitaram 109 ITR 13; Manibhai v CIT 131 ITR 120; CIT v Ashok Kumar Rathi 404 ITR
173; Synthite Industries Ltd. v CIT 404 ITR 605.
33. DLF United v CIT 217 ITR 333; DLF United v CIT 119 Taxman 373; CIT v Dumraon 141 ITR 700; CIT v Lilavati 152 ITR 565.
34. Gordhanbhai v CIT 127 ITR 664; Motibhai v CIT 127 ITR 671; Manibhai v CIT 131 ITR 120; Srinivas Naicker v ITO 292 ITR 481, (2007) 211 CTR (Mad)
222; Hindustan Industrial Resources Ltd. v ACIT 335 ITR 77.
35. CIT v Manilal 106 ITR 917; Maganlal v CIT 118 ITR 224; CIT v Madhabhai 208 ITR 638; PCIT v Heenaben Bhadresh Mehta 409 ITR 196.
36. CIT v Chhotanagpur Trading 79 ITR 161.
37. CIT v Alanickal 158 ITR 630; CIT v Ramaiah 158 ITR 611 (acquisition by government); CIT v Rajagiri 182 ITR 393; CIT v Travancore Rubbers 183 ITR
417.
38. CIT v Suman Tea 226 ITR 34, 47; Travancore Tea v CIT 93 ITR 314; Beverley v CIT 117 ITR 302.
39. Clen Leven v CIT 91 ITR 391.
40. See Notification No SO 77(E) dated February, 6 1973 (89 ITR (St.) 145); CIT v Marnta 162 ITR 365 (transfers made prior to Notification are not
taxable); Venkatesan v CIT 144 ITR 886.
41. Singhai v UOI 247 ITR 150.
42. Tuhi Ram v LAC 199 ITR 490; CIT v Hatinder 123 Taxman 320; CIT v Ravinder 121 Taxman 721.
43. Ambalal v UOI 98 ITR 237.
44. Jayachandra v ITO 161 ITR 190.
45. Omer Khan v CIT 196 ITR 269 (SC) affirming CIT v Omarkhan 116 ITR 950; Hidhayathuliah v CIT 158 ITR 20; CIT v Bolla 174 ITR 154.
46. Manubhai Sheth v Nirgudkar 128 ITR 87, followed in Nadirshah v ITO 154 ITR 629, Sulekha v Nadkarni 159 ITR 775 and CIT v Dhable 202 ITR 98.
47. See under s 2(1A), '1. Rent or revenue…'.
48. Cf Varghese v ITO 131 ITR 597, 617–18 (SC).
49. Raghottama v ITO 169 ITR 174, reversed in UOI v Muthyam 240 ITR 341 (SC).
50. CIT v Gurcharan Singh 292 ITR 387, (2007) 212 CTR (P&H) 420; CIT v Hoshnak Singh 292 ITR 390, (2007) 212 (P&H) 422.
51. Singhai v UOI 247 ITR 150 (SC); CIT v Thomas 195 ITR 531; CIT v Sivaramakrishnan 200 ITR 148; CIT v Guman 123 Taxman 595; CIT v Prakash 123
Taxman 319.
52. Omer Khan v CIT 196 ITR 268 (SC); CIT v Shiv Chand 231 ITR 663; CIT v Pyare Lal 231 ITR 785; CIT v Surjan 125 Taxman 1075; CIT v Laxman 124
Taxman 596; Hidhayathullah v CIT 158 ITR 20.
53. CIT v Rani Tara Devi 355 ITR 457.
54. See Notification No SO 77(E) dated February 6, 1973 [89 ITR (St) 145].
55. CIT v Nitish Rameshchandra Chordia 374 ITR 531; CIT v Vijay Singh Kadan 378 ITR 71.
56. CIT v Vijay Singh Kadan 378 ITR 71.
57. CIT v Mamta 162 ITR 365.
58. CIT v Gouri Shankar 201 ITR 550.
59. CIT v Thomas 211 ITR 897.
60. CIT v Murali Lodge 194 ITR 125.
61. CIT v Anjana Sehgal 355 ITR 294; CIT v Neeru Aggarwal 356 ITR 320.
62. Vodafone International Holdings BV v UOI 341 ITR 1 (SC).
63. Vodafone, ibid, p.56 and 90.
64. Srinivasa Setty 128 ITR 294 (SC).
65. Kalpetta v CIT 185 ITR 318; PCIT v Kalathingal Faizal Rahman 416 ITR 311.
66. CIT v Satinder Pal Singh (2010) 33 DTR 281 (P&H).
67. CIT v Mittal (2009) 32 DTR 345 .
68. Sarifabibi v CIT 204 ITR 631 (SC); Gemini v CIT 220 ITR 43 (SC); CIT v Thomas 211 ITR 897; CIT v Pandari 223 ITR 671; Mahaveer v UOI 244 ITR 789.
69. CIT v Thomas (PJ) 211 ITR 897.
70. Subs. by the Finance Act, 2008 (18 of 2008), s 3(b) (w.e.f. 1-4-2009), Circular No. 1, March 27, 2009, 310 ITR (St.) 42, for the following:—
"(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility a[* * *
*]".
————————————————
a. The words "not involving the carrying on of any activity for profit" have been omitted by the Finance Act, 1983 (11 of 1983), s 3(a) (w.e.f. 1-4-1984).
71. Ins. by the Finance Act, 2015 (20 of 2015), s 3(b)(i) (w.e.f. 1-4-2016). See Circular No. 19 of 2015, November 27, 2015, 379 ITR (St.) 19.
72. Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 3(a) (w.r.e.f. 1-4-2009). See Circular No. 5, June 3, 2010, 324 ITR (St.) 293.
73. Subs. by the Finance Act, 2015 (20 of 2015), s 3(b)(ii) (w.e.f. 1-4-2016) for the then existing first and second provisos, which stood as follows:—
'Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any
activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess
or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:]

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1[Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is 2[twenty-five lakh
rupees] or less in the previous year;]'.
1. Ins. by the Finance Act, 2010 (14 of 2010), s 3(a) (w.r.e.f. 1-4-2009). See Circular No. 1, April 6, 2011, 333 ITR (St.) 7.
2. Sub., for "ten lakh rupees", by the Finance Act, 2011 (8 of 2011), s 3 (w.e.f. 1-4-2009), Circular No. 2 of 2011, May 22, 2012, 343 ITR (St.) 157.
74. Circular No. 21 of 2016, 384 ITR (St.) 180. Also see DIT(E) v Khar Gymkhana 385 ITR 162; CIT v Mumbai Metropolitan Regional Iron and Steel Market
Committee 404 ITR 171; PCIT v Maharashtra Cricket Association 407 ITR 9.
75. Institute of Chartered Accountants of India v DGIT (Exemptions) 347 ITR 99. See also, Institute of Chartered Accountants of India v DGIT 358 ITR 91;
Bureau of Indian Standards v DGIT 358 ITR 78.
76. India Trade Promotion Organisation v DGIT 371 ITR 333.
77. DIT (Exemption) v Sabarmati Ashram Gaushala Trust 362 ITR 539.
78. GS1 India v DGIT 360 ITR 138.
79. DIT (Exemption) v Sabarmati Ashram Gaushala Trust 362 ITR 539; Ahmedabad Urban Development Authority v ACIT 396 ITR 323.
80. DIT v Women's India Trust 379 ITR 506.
81. Hamdard Laboratories India v ADIT 379 ITR 393.
82. Subs. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(III) (w.r.e.f. 1-6-2013), Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22, for the
following:—
" a[(15A) "Chief Commissioner" means a person appointed to be a Chief Commissioner of Income-tax under sub-section (1) of section 117;]".
————————————————
a. Ins. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(d) (w.e.f. 1-4-1988).
83. Ins. by the Finance Act, 2020 (12 of 2020), s 3(ii)(a) (w.e.f. 1-4-2020).
84. Ins. by the Finance Act, 2020 (12 of 2020), s 3(ii)(b) (w.e.f. 1-4-2020).
85. Ins. as clause (15A), by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 2 (w.e.f. 1-4-1976).
86. Clause (15A) has been renumbered as clause (15B) by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(d) (w.e.f. 1-4-1988).
87. CIT v Saraswati 195 ITR 185.
88. CIT v Abdul 243 ITR 409.
89. Subs. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(IV) (w.r.e.f. 1-6-2013), Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22, for the
following:—
'a[(16) "Commissioner" means a person appointed to be a Commissioner of Income-tax b [or a Director of Income-tax] under sub-section (1) of section
117c [* * * *];]'.
————————————————
a. Subs. by the Finance Act, 1970 (19 of 1970), s 3(b) (w.e.f. 1-4-1970), Circular No. 45, September 2, 1970, 79 ITR (St.) 33, for the following:—
"(16) 'Commissioner' means a person appointed to be a Commissioner of Income-tax under sub-section (1) of section 117;".
b. Ins. by the Finance Act, 2012 (23 of 2012), s 3(ii) (w.r.e.f. 1-4-1988).
c. The words ", and includes a person appointed to be an Additional Commissioner of Income-tax under that sub-section" have been omitted by the
Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(e) (w.e.f. 1-4-1988).
90. Ins. by the Finance (No. 2) Act, 1977 (29 of 1977), s 39 and the Fifth Schedule, Part I, item 1 (w.e.f. 10-7-1978). See Circular No. 229, August 9, 1977,
111 ITR (St.) 9.
91. Subs. by the Finance (No. 2) Act, 1971 (32 of 1971), s 3(a) (w.e.f. 1-4-1971), Circular No. 72, January 6, 1972, for the following:—
'(17) "company" means—

(i) any Indian company, or

(ii) any association, whether incorporated or not and whether Indian or non-Indian, which is or was assessable or was assessed under the Indian
Income-tax Act, 1922 (XI of 1922), as a company for the assessment year commencing on the 1st day of April, 1947, or which is declared by
general or special order of the Board to be a company for the purposes of this Act;'.
92. See CIT v Ion Exchange 110 ITR 98.
93. Bacha Guzdar v CIT 27 ITR 1, 5 (SC); APSRTC v ITO 52 ITR 524, 532 (SC).
94. Lakshminarayan v Govt of Hyderabad 25 ITR 449, 460 (SC); Bengal Investors v CIT 59 ITR 547, 554 (SC).
95. Upper India Chamber of Commerce v CIT 15 ITR 263, 270; Chamber of Commerce v CIT 4 ITR 397.
1. See post under s 2(35), 'Principal officer'.
2. See post under s 271, 'Penalty on company in liquidation'.
3. Per Viscount Maugham, Odhams v Cook 9 ITR Suppl 92, 109 (HL).
4. Wadia v CIT 17 ITR 63 (FC).
5. OK Trust v Rees 23 TC 358 (CA); IR v Gramophone & Typewriter 5 TC 358 (CA); IR v John 8 TC 20 (CA); Kodak v Clark 4 TC 549.
6. Per Phillimore J, Kodak v Clark 4 TC 549, 582.
7. Juggilal v CIT 73 ITR 702 (SC); Littlewoods v McGregor 45 TC 519, 536 (CA), 75 ITR 327, 346; Jindal v CIT 164 ITR 28.
8. Stanley v Gramophone & Typewriter 5 TC 358, 374, 378, 380–81 (CA); Dinshaw v CIT 2 ITC 255; Apthorpe v Peter 4 TC 41 (CA); IR v John 8 TC 20, 24–
25, 29, 31; IR v Morgan 20 TC 529, 536.
9. Stanley v Gramophone & Typewriter 5 TC 358, 374, 378, 382 (CA).
10. Dinshaw v CIT 2 ITC 255, 269.
11. See ARP No 7 of 1995, 223 ITR 462.
12. For assessment years 1984–85 to 1987–88 a company had similarly to pay tax on unreal total income under old s 80VVA before it was replaced by s
115J which applied to assessment years 1988–89 to 1990–91. A similar provision in s 115JA was in force for assessment years 1997–98 to 1999-2000.
13. CIT v Express Newspapers 40 ITR 38, 56–57, on appeal 53 ITR 250 (SC); Modi v UOI 144 29 (amalgamated company).
14. Howrah Trading v CIT 36 ITR 215, 217–18 (SC); Purshottamdas v CIT 48 ITR (SC) 206, 213; Lalita v TISCO 8 ITR 337, 345; Accountant-General v CIT 16
ITR 78, 87; IR v Cull 22 TC 603, 636 (HL), 8 ITR Suppl 1, 4; Barnes v Hely 22 TC 655, 672 (HL), 8 ITR Suppl 24, 28; IR v Blott 8 TC 101, 136 (HL); Canadian
Eagle v King 27 TC 205, 247 (HL).
15. Jit & Pal X-Ray Pvt. Ltd. v CIT 267 ITR 379; CIT v Paramount Exports (P) Ltd. 130 Taxman 601; CIT v Sundeep Construction Pvt. Ltd. 269 ITR 343,
(2004) 189 CTR (Guj) 440.
16. Farichem Laboratories Pvt. Ltd. v CIT 273 ITR 133, (2006) 203 CTR (Cal) 377; Bhai Sunder Dass Sardar Singh P. Ltd. v CIT 306 ITR 159; Rambagh
Palace Hotels P. Ltd. v CIT 316 ITR 49, (1995) 81 Taxman 25 (Raj).

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17. J. Thomas & Co. Ltd. v CIT 267 ITR 585, (2004) 190 CTR (Cal) 355.
18. Vodafone International Holdings B.V. v UOI 341 ITR 1, (2012) 6 SCC 613 [LNIND 2012 SC 64] .
19. Subs. by the Finance Act, 1964 (5 of 1964), s 4(a)(i) (w.e.f. 1-4-1964), Circular No. 20D, July 7, 1964, for the following:—

"(a) if it is a company owned by the Government or in which not less than forty per cent. of the shares are held by the Government; or".
20. Ins. by the Finance (No. 2) Act, 1971 (32 of 1971), s 3(b) (w.e.f. 1-4-1971). See Circular No. 72, January 6, 1972.
21. For text, see Appendix 85.
* Repealed and replaced by Act 18 of 2013.
22. Ins. by the Finance Act, 1985 (32 of 1985), s 3 (w.r.e.f. 1-4-1984). See Circular No. 421, June 12, 1985, 156 ITR (St.) 130.
23. For text, see Appendix 85.
24. Ins. by the Finance Act, 1992 (18 of 1992), s 3(a) (w.e.f. 1-4-1993). See Circular No. 636, August 31, 1992, 198 ITR (St.) 1.
25. Subs. by the Finance Act, 1969 (14 of 1969), s 3 (w.e.f. 1-4-1970), Circular No. 22, July 17, 1969, for the following:—

"(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and
(i) its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not
less than fifty per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout
the relevant previous year beneficially held by—
(a) the Government, or
(b) a corporation established by a Central, State or Provincial Act, or
(c) any company to which this clause applies or any subsidiary company of such company where such subsidiary company fulfils the
conditions laid down in clause (b) of section 108 (hereinafter in this clause referred to as the subsidiary company), or
(d) the public (not being a director, or a company to which this clause does not apply);
(ii) the said shares were at any time during the relevant previous year the subject of dealing in any recognised stock exchange in India or were
freely transferable by the holder to other members of the public; and
(iii) the affairs of the company, or the shares carrying more than fifty per cent. of its total voting power were at no time during the relevant
previous year controlled or held by five or less persons.
Explanation 1.—In computing the number of five or less persons aforesaid,—

(i) the Government or any corporation established by a Central, State or Provincial Act or company to which this clause applies or the
subsidiary company of such company shall not be taken into account, and
(ii) persons who are relatives of one another, and persons who are nominees of any other person together with that other person, shall be
treated as a single person.
Explanation 2.—In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or
processing of goods or in mining or in the generation or distribution of electricity or any other form of power, sub-clause (b) shall have effect
as if for the words 'not less than fifty per cent.' and 'more than fifty per cent.' the words 'not less than forty per cent.' and 'more than sixty per
cent.' had been substituted;".
Earlier, the above sub-clause (b) was amended by the Finance Act, 1964 (5 of 1964), s 4(a)(ii) (w.e.f. 1-4-1964); by the Finance Act, 1965 (10 of
1965), s 4(iii) (w.e.f. 1-4-1965); and by the Finance Act, 1966 (13 of 1966), s 4(a) (w.e.f. 1-4-1966).

* Repealed and replaced by Act 18 of 2013.

26. Item (B) substituted by the Finance Act, 1983 (11 of 1983), s 3(b) (w.e.f. 2-4-1983), Circular No. 372, December 8, 1983, 146 ITR (St.) 9, for the
following:—

'(B) (i) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits)
carrying not less than 50 per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were
throughout the relevant previous year beneficially held by—
(a) the Government, or
(b) a corporation established by a Central, State or Provincial Act, or
(c) any company to which this clause applies or any subsidiary company of such company where such subsidiary company fulfils the
conditions laid down in clause (b) of section 108 (hereafter in this clause referred to as the subsidiary company), or
(d) the public (not being a director, or a company to which this clause does not apply);
(ii) the said shares were, during the relevant previous year, freely transferable by the holder to the other members of the public; and
(iii) the affairs of the company, or the shares carrying more than fifty per cent of its total voting power were at no time, during the relevant
previous year, controlled or held by five or less persons.
Explanation 1.—In computing the number of five or less persons aforesaid,—

(i) the Government or any corporation established by a Central, State or Provincial Act or a company to which this clause applies or the
subsidiary company of such company shall not be taken into account, and
(ii) persons who are relatives of one another, and persons who are nominees of any other person together with that other person, shall be treated
as a single person.
Explanation 2.—In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or
processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for
the words "not less than fifty per cent" and "more than fifty per cent", the words "not less than forty per cent" and "more than sixty per cent" had,
respectively, been substituted;'.

27. Subs., for "where such subsidiary company fulfils the conditions laid down in clause (b) of section 108", by the Finance Act, 1987 (11 of 1987), s
74(c)(i) (w.e.f. 1-4-1988). See Circular No. 495, September 22, 1987, 168 ITR (St.) 87.
28. CIT v Emtici Engg. Ltd. 310 ITR 266 – SLP dismissed 313 ITR (St.) 27.
29. CIT v Indian Potash Ltd. 246 ITR 805.

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30. 134 ITR (St.) 165.

31. Swabhimani Souharda Credit Cooperative Ltd. v GOI 421 ITR 670.
32. See ss 2(24)(vii) and 44.
33. Ins. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(f) (w.e.f. 1-4-1988).
34. The words "or an Additional Commissioner of Income-tax" have been omitted by the Finance (No. 2) Act, 1998 (21 of 1998), s 4(d) (w.e.f. 1-10-
1998). Earlier, the above words were inserted by the Finance Act, 1994 (32 of 1994), s 3(a) (w.e.f. 1-6-1994).
35. Ins. by the Finance Act, 1999 (27 of 1999), s 3(c) (w.e.f. 1-4-2000). See Circular No. 779, September 14, 1999, 240 ITR (St.) 3.
36. For text, see Appendix 85.
* Repealed and replaced by Act 18 of 2013.
37. Ins. by the Finance (No. 2) Act, 2019 (23 of 2019), s 3 (w.e.f. 1-4-2020).
38. Subs., for "proportionate basis", by the Finance Act, 2012 (23 of 2012), s 3(iii) (w.e.f. 1-4-2013).
39. Subs., for "the conditions specified in sub-clauses (i) to (vii) of this clause, to the extent applicable", by the Finance Act, 2000 (10 of 2000), s 3(b)
(w.e.f. 1-4-2000). See Circular No. 794, August 9, 2000, 245 ITR (St.) 21.
40. Notification No. SO 1159(E), dated 26-12-2000.
41. Ins. by the Taxation Laws (Amendment) Act, 2016 (47 of 2016), s 2 (w.e.f. 1-4-2017).
42. Rustom Cavasjee Cooper v UOI(1970) 40 Com Cases 325 . Also See Madras Gymkhana Club Employees Union v Management of the Gymkhana
ClubAIR 1968 SC 554 [LNIND 1967 SC 291] , 563.
43. In Re., Indo Rama Textile Ltd. 212 Taxman 462 (Del).
44. In Re., Nahar Spinning Mills Ltd., 138 Comp Cas 821; In Re., Reliance Industries Ltd., C.P. No. 731 of 2005, December 9, 2005, Bombay High Court;
In Re., Ceat Ltd., C.P. No. 719-720 of 2007, November 23, 2007.
45. Ins. by the Finance Act, 1999 (27 of 1999), s 3(c) (w.e.f. 1-4-2000). See Circular No. 779, September 14, 1999, 240 ITR (St.) 3.
46. Ins. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(f) (w.e.f. 1-4-1988).
47. Ins. by the Finance Act, 1994 (32 of 1994), s 3(b) (w.e.f. 1-6-1994). See Circular No. 684, June 10, 1994, 208 ITR (St.) 8.
48. Ins. by the Finance Act, 1994 (32 of 1994), s 3(c) (w.e.f. 1-6-1994).
49. The words "or an Additional Director of Income-tax" have been omitted by the Finance (No. 2) Act, 1998 (21 of 1998), s 4(e) (w.e.f. 1-10-1998).
* Repealed and replaced by Act 18 of 2013. 50. For text, see Appendix 85.
50. For text, see Appendix 85
51. Subs. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(V) (w.r.e.f. 1-6-2013), Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22, for the
following:—
'a[(21) "Director-General or Director" means a person appointed to be a Director-General of Income-tax, or as the case may be, a Director of Income-
tax, under sub-section (1) of section 117, and includes a person appointed under that sub-section to be b [an Additional Director of Income-tax or] a
Deputy Director of Income-tax or an Assistant Director of Income-tax;]'.
————————————————
a. Clause (21) has been substituted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(g) (w.e.f. 1-4-1988), for the following:—
'(21) "Director of Inspection" means a person appointed to be a Director of Inspection under sub-section (1) of section 117, and includes a person
appointed to be an Additional Director of Inspection, a Deputy Director of Inspection or an Assistant Director of Inspection;'.
b. Ins. by the Finance Act, 1994 (32 of 1994), s 3(d) (w.e.f. 1-6-1994).
52. Nalini Mahajan v DIT 257 ITR 123.
53. Subs., for "by way of advance or loan to a shareholder, being a person who has a substantial interest in the company,", by the Finance Act, 1987
(11 of 1987), s 3(a)(i) (w.e.f. 1-4-1988). See Circular No. 495, September 22, 1987, 168 ITR (St.) 87.
54. Ins. by the Finance Act, 1965 (10 of 1965), s 4(iv) (w.e.f. 1-4-1965). See Circular No. 3P, October 11, 1965.
55. Ins. by the Finance Act, 1966 (13 of 1966), s 4(b) (w.e.f. 1-4-1966). See Circular No. 4P, July 21, 1966.
56. Ins. by the Finance Act, 1987 (11 of 1987), s 3(a)(ii) (w.e.f. 1-4-1988).
57. Ins. by the Finance Act, 1999 (27 of 1999), s 3(d) (w.e.f. 1-4-2000). See Circular No. 779, September 14, 1999.
58. For text, see Appendix 85.
* Repealed and replaced by Act 18 of 2013.
59. Ins. by the Direct Taxes (Amendment) Act, 1964 (31 of 1964), s 2 (w.r.e.f. 1-4-1962).
60. Ins. by the Finance Act, 2018 (13 of 2018), s 3(a) (w.e.f. 1-4-2018). See Circular No. 8 of 2018, December 26, 2018, 410 ITR (St.) 1.
61. Ins. by the Finance Act, 1987 (11 of 1987), s 3(a)(iii) (w.e.f. 1-4-1988). See Circular No. 495, September 22, 1987, 168 ITR (St.) 87.
62. CIT v Chimanlal 92 ITR 59; CIT v Amin 106 ITR 368 (SC). Cf Rae v Lazard 41 TC 1 (HL), 54 ITR 721; Courtaulds v Fleiming 46 TC 111, 77 ITR 619.
63. Section 2(17) after its amendment in 1971 covers every company incorporated by or under a foreign law.
64. Veerappan v CIT 49 ITR 280.
65. Sadhana v CIT 188 ITR 318 followed in Star v CIT 203 ITR 11.
66. CIT v Mysodet 237 ITR 35 (SC); Contrast CIT v Selva 244 ITR 671.
67. Kantilal v CIT 41 ITR 275 (SC).
68. See p 58, n 61.
69. CIT v Surat Cotton 202 ITR 932.
70. See s 205 of Companies Act, 1956; Bharat Insurance v CIT 53 ITR 108 (SC); Ezra v CIT 18 ITR 762, 69.
71. Per Viscount Simon LC, Thomas Fattorini v IR 24 TC 328, 347 (HL), 11 ITR Suppl 50: Montague v IR 20 TC 48, 70–71, 77 (HL).
72. Kishinchand v CIT 46 ITR 640 (SC).
73. Kantilal v CIT 41 ITR 275 (SC).
74. Kantilal v CIT 41 ITR 275 (SC); IR v Blott 8 TC 101, 133 (HL); Pool v Guardian Investments STC 167, 177; Briggs v IR 17 TC 11. Under s 205(3) of
Companies Act, 1956 dividend must be paid in cash only.
75. CIT v Central India Inds 82 ITR 555 (SC); Ujjain v CIT 67 ITR 315. Cf CIT v Mahabir 75 ITR 83.
76. CIT v Surat Cotton 202 ITR 932.
77. CIT v Ravindra 208 ITR 815.
78. CIT v Mercantile Bank 4 ITR 239, 248 (PC).
79. Per Lord Sumner, IR v Fisher 10 TC 302, 340 (HL).
80. IR v Doncaster 8 TC 623.
81. See s 2(22)(iii).
82. Roe v IR 8 TC 613.
83. Punjab Distilling Industries Ltd v CIT 57 ITR 1.
84. CIT v John 181 ITR 1; CIT v Jamnadas 76 ITR 656; Punjab Distillery Industry v CIT 57 ITR 1, 9 (SC). Cf CIT v Harton l31 TR 708 ('distribution'
distinguished from 'declaration').
85. CIT v Mysodet 237 ITR 35 (SC).
86. See Board's Circular No 5-P dated October 9, 1967.
87. Bharat Insurance v CIT 53 ITR 108 (SC). This was a case of dividend proper under the general law and therefore it was not necessary to go to the
artificial definition.
88. Under special provisions of the Australian statute which does not require release of the company's assets, bonus shares have been held to be

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dividend: see Nicholas v Comr of Taxes 9 ITR Suppl 53 (PC).

89. IR v Blott 8 TC 101.
90. CIT v Dalmia 52 ITR 567, 577–78 (SC); CIT Ramaswamy 9 ITR 656; CIT v Binny 1 ITC 358; Steel v CIT 1 ITC 326. As regards the date of issue of bonus
shares, see Gopal v CIT 77 ITR 543 (SC). See also under s 48, 'Cost where bonus shares or "rights" shares are issued' See also Briggs of Burton (India) P.
Ltd. In re 274 ITR 595 (AAR).
91. IR v Wright 11 TC 181 (CA); Bouch v Sproule 12 AC 385 (HL). For a case where there was neither capitalisation nor any bona fide intention to
capitalise, see IR v Doncaster 8 TC 623.
92. IR v Coke 11 TC 181. That part of the judgment which decides that even shares accepted partly in lieu of cash would be divided, is, it is submitted,
no longer good law after IR v Wright 11 TC 181, 200 (CA).
93. Pool v Guardian Investments Trust Co Ltd 8 TC 167, approved in IR v Fisher 10 TC 302, 333 (HL).
94. Wilkinson v IR 16 TC 52; Briggs v IR 17 TC 11.
95. Shashibala v CIT 54 ITR 478.
96. Haridas v CIT 27 ITR 684 is superseded by legislation.
1. IR v Fisher 10 TC 302 (HL); CIT v Mercantile Bank 4 ITR 239 (PC); Whitmore v IR 10 TC 645.
2. IR v Fisher's Executors 10 TC 302, 333–34 (HL).
3. Blott's case 8 TC 101 (HL).
4. As to the meaning of 'accumulated profits' see post under Explanations 1 and 2.
5. CIT v Viswanatha 18 ITR 68.
6. IR v Burrell 9 TC 27.
7. See also Girdhardas v CIT 31 ITR 82; CIT v Chimanlal 92 ITR 59. The principle of Burrell does not apply to partnerships: CIT v Muthuktiruppan 3 ITR
208 (PC). See further post under s 4, 'Amounts received on winding up of company or dissolution of firm'.
8. Brogan v Stafford Coal & Iron Co Ltd. 41 TC 305, 54 ITR 555; Rae v Lazard 54 ITR 721, 733, 738 (HL), 41 TC 1 (distribution on partial liquidation of a
foreign company).
9. Dhandhania v CIT 35 ITR 400, 405 (SC); Gautam v CIT 52 ITR 921; Southern Agencies v CIT 70 ITR 838; Narayana v CIT 202 ITR 774.
10. Haridas v CIT 27 ITR 684 is superseded by statutory changes.
11. ITO v Short 60 ITR 83 (SC). On this point legislation has superseded Dhandhania v CIT 35 ITR 400 (SC); CIT v Murugappan 77 ITR 818 (SC); Haridas
v CIT 27 ITR 684; Appavu v CIT 29 IIR 768 and Girdhardas v CIT 31 ITR 82.
12. Kanhaiyalal v Off Liquidator 56 ITR 393.
13. CIT v Girdhardas 63 ITR 300 (SC). Cf Girdhardas v CIT 31 ITR 82.
14. Vijay Kumar v CIT 204 ITR 355; CIT v Surat Cotton 202 ITR 932; CIT v Jaykrishna 231 ITR 108; See also under s 46.
15. See s 100(1)(c) of Companies Act, 1956.
16. CIT v Jai Hind 202 ITR 316 (without deducting face value of shares). As to the year of taxability, see Punjab Distilling Industrial v CIT 57 ITR 1 (SC).
17. Tarulata v CIT 108 ITR 345 (SC); Sundaram v CIT 49 ITR 287; CIT v Badiani 76 ITR 369 (the question whether transactions in a genuine mutual, open
and current account can be treated as loans, was not argued in this case), on appeal Badiani v CIT 105 ITR 642 (SC); Walchand v CIT 100 ITR 598 and
Walchand v CIT 204 ITR 146 (loan for only a few days); Jindal v CIT 164 ITR 28 (supply of material); Sadhana v CIT 188 ITR 318 (shareholder is a
company); Cf Nandlal v CIT 122 ITR 405 (loan must be directly by company to shareholder); p 158, n, 25; CIT v Vir Vikram Vaid 367 ITR 365 (rental
premises of company); CIT v Universal Medicare Private Ltd. 324 ITR 263, (2011) 273 CTR (Bom) 147; Sahir Sami Khatib v ITO 411 ITR 637; CIT v Alfa Sai
Minerals P. Ltd. 398 ITR 660; CIT v Narmina Trade Investment P. Ltd. 388 ITR 243.
18. CIT v John 181 ITR 1; CIT v Srinivasan 50 ITR 788; CIT v Alagusundaram 109 ITR 508, affirmed in Alagusundaram v CIT 252 ITR 893 (SC); Nandlal v
CIT 122 ITR 405.
19. CIT v Mukundray Shah 290 ITR 433 (SC), AIR 2007 SC 1963 [LNIND 2007 SC 457] , (2007) 4 SCC 327 [LNIND 2007 SC 457] .
20. Dalmia v CIT 133 ITR 169, 179.
21. See post under Explanations 1 and 2; CIT v Nitin Shantilal Parikh 319 ITR 437; CIT v S.R. Talwar 305 ITR 286.
22. Sundaram v CIT 49 ITR 287; CIT v Maya 162 ITR 460.
23. Also see CIT v Hotel Hilltop 313 ITR 116; CIT v Ankitech P. Ltd. 340 ITR 14.
24. Govindarajulu v CIT 90 ITR 13, CIT v Savithiri 236 ITR 1003.
25. CIT v Venkataraman 101 ITR 673, 685–86. Cf CIT v Adaikappa 91 ITR 90 and CIT v Venkataraman 111 ITR 444, both affirmed on different grounds
in CIT v Adaikappa 249 ITR 800 (SC); CIT v Kulandaivelu 100 ITR 629, 634; Mehta v CIT 117 ITR 362.
26. CIT v Ravindra 208 ITR 815.
27. Sarada v CIT 229 ITR 444 (SC); Tarulata v CIT 108 ITR 345 (SC).
28. Sunil Kapoor v CIT 375 ITR 1.
29. CIT v Mayur 85 ITR 230; CIT v Bhagwat 105 ITR 62; CIT v Aratidebi 111 ITR 277.
30. Badinani v CIT 105 ITR 642, 650–51 (SC).
31. CIT v Badiani 76 ITR 369, on appeal Badiani v CIT 105 ITR 642 (SC). See also CIT v Narasimhan 118 ITR 60, affirmed partly on appeal in 236 ITR 327
(SC) [sub-cl (d)]; CIT v Surat Cotton 202 ITR 932.
32. CIT v Gayatri Chakraborty 407 ITR 730; CIT v Suraj Dev Dada 367 ITR 78.
33. CIT v Mittal 219 ITR 420.
34. CIT v Sokkalal 236 ITR 981; CIT v Parvathavarthini 219 ITR 661.
35. Howrah Trading v CIT 36 ITR 215 (SC); CIT v Shakuntala 43 ITR 352 (SC); ITO v Arvind Mafatlal 45 ITR 271 (SC); CIT v James Anderson 51 ITR 345
(SC); Cambatta v CIT 14 ITR 748, 757; Shakti Mills v CIT 16 ITR 187; Jaluram v CIT 22 ITR 490; Bikaner Trading v CIT 24 ITR 419; Hindustan Investment
Corpn Ltd v CIT 27 ITR 202; CWT v Sumitradevi 96 ITR 35. See further post under s 56(2), 'Amount, equivalent to dividend, received by person who is not
shareholder' See also Madura Coats P. Ltd., In re 274 ITR 609 (AAR) – following Rameshwarlal Sanwarmal v CIT 122 ITR 1, AIR 1980 SC 372 [LNIND 1979
SC 484], (1980) 2 SCC 371 [LNIND 1979 SC 484].
36. CIT v Ankitech P. Ltd. 340 ITR 14; CIT v MCC Marketing P. Ltd. 343 ITR 350.
37. CIT v Madhur Housing Development Co. 401 ITR 152 (SC).
38. Gopal and Sons (HUF) v CIT 391 ITR 1 (SC).
39. National Travel Services v CIT 401 ITR 154 (SC). It is submitted that the Supreme Court while issuing such order has only doubted the correctness
of the judgment in Ankitech and observed that it requires to be reconsidered. This being the position, the order in National Travel's case is only an
order for reference to larger bench and not the judgment of the Supreme Court. The judgment in case of Madhur Housing affirming the decision in
Ankitech will hold the field until the decision is overruled by bench of three judges or more.
40. National Travel Services v CIT 401 ITR 154, 163 (SC). Earlier in Madhur Housing the Supreme Court in principle agreed with interpretation of the
Delhi High Court including the decision in Ankitech which was followed in Madhur Housing.
41. Lailabi Khalid v CIT 408 ITR 385; PCIT v Rungta Properties P. Ltd . 403 ITR 234; CIT v Printwave Services P. Ltd . 373 ITR 665; CIT v C J International
Hotels P. Ltd . 373 ITR 684; CIT v Jignesh P Shah 373 ITR 392; Shashi Pal Agarwal v CIT 370 ITR 720; CIT v Impact Containers P Ltd. 367 ITR 346; ACIT v
Britto Amusement P. Ltd. 360 ITR 544; CIT v GTZ Securities Ltd. 359 ITR 345.
42. CIT v Sarathy 83 ITR 170 (SC); Rameshwarlal v CIT 122 ITR 1 (SC); Govindarajulu v CIT 90 ITR 13; Harish v CIT 132 ITR 30; Harish v CIT 132 ITR 806;
Ram Rattan v CIT 156 ITR 612; ITO v Chandmull 115 ITR 388 (loan to firm). This aspect was overlooked in CIT v Rameshwarlal 82 ITR 628 (SC).
43. Gordhandas v CIT 186 ITR 365.
44. CIT v Raj Kumar Singh Co. 295 ITR 9.
45. PCIT v Sunjewels International Ltd. 411 ITR 613.
46. CIT v Hotel Hilltop 313 ITR 116, (2008) 217 CTR (Raj) 527; CIT v Subrata Roy 375 ITR 207; PCIT v Rajeev Chandrashekar 397 ITR 263.
47. Shyama Charan Gupta v CIT 337 ITR 511.
48. CIT v Basant Poddar 412 ITR 529.
49. CIT v Sivasubramaniam 231 ITR 656; CIT v Shree Balaji Glass Manufacturing P. Ltd . 386 ITR 128; CIT v Bharat Hotels Ltd. 410 ITR 417; CIT v Indian

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Fruits Ltd. 369 ITR 581; Kishorilal Agarwal v CIT 364 ITR 158; Thankamma Oommen v ACIT 366 ITR 542; Krishna Gopal Maheshwari v ADIT 363 ITR 280.
50. CIT v Parle Plastics Ltd. 332 ITR 63.
51. Krishna Gopal Maheshwari v ACIT 363 ITR 280.
52. Badiani v CIT 154 ITR 204 (loan repaid before payment of dividend); Walchand v CIT 204 ITR 146.
53. CIT v Ambassador Travels P. Ltd. 318 ITR 376; CIT v Deepak Vegpro P Ltd. 406 ITR 496; CIT v Malyalam Manorama Co. Ltd. 405 ITR 595.
54. CIT v Raj Kumar 318 ITR 462; CIT v Alpex Exports P. Ltd. 361 ITR 297.
55. CIT v Creative Dyeing and Printing P. Ltd. 318 ITR 416, (2010) 228 CTR (Del) 506; Pradip Kumar Malhotra v CIT 338 ITR 538.
56. Circular dated June 12, 2017, 395 ITR (St.) 20.
57. CIT v Mittal (HK) 219 ITR 420.
58. Punjab Distilling Industrial Ltd v CIT 57 ITR 1 (SC).
59. Navnitlal v Sen 56 ITR 198 (SC) (under 1922 Act); Lakshmana v ITO 40 ITR 469; Kumaraswami v ITO 43 ITR 423.
60. Cognizant Technology Solutions India P. Ltd. v DCIT 416 ITR 462.
61. Dalmia v CIT 133 ITR 169.
62. ITO v Short 60 ITR 83 (SC), followed in Tea Estate v CIT 103 ITR 785 (SC); CIT v Mangesh 119 ITR 962.
63. Veerappan v CIT 49 ITR 280. Decision in CIT v Shrikrishan 47 ITR 833, and dicta in Phaltan Sugar v CIT 17 ITR 499, 507, to the contrary are, it is
submitted, incorrect. Observations to the contrary in Neumann v IR 18 TC 332, 363 (HL), were based upon special provisions of British statute; see
Cenlon v Ellwood 40 TC 176 (HL), 58 ITR 255.
64. Re Bates1928 Ch 682 .
65. IR v Reid's Trustees 17 ITR Suppl 41, 49.
66. Per Lord Russell, Hill v Permanent Trustee, [1930] AC 720 , 731 (PC).
67. CIT v Nalin Behari Lall Singha 74 ITR 849, followed in CIT v Shyama 85 ITR 115 (SC) and Chechamma v CIT 161 ITR 718.
68. CIT v Saila Behari Lal Singha 76 ITR 702.
69. CIT v Kamal Behari Lal Singha 82 ITR 460.
70. CGT v Getti 82 ITR 599, 605 (SC).
71. Kantilal v CIT 41 275 (SC); CIT v Nalin 74 ITR 849 (SC).
72. Bacha Guzdar v CIT 27 ITR 1 decided by Constitution Bench of five judges.
73. Kishinchand Chellaram v CIT 46 ITR 640, 645.
74. CIT v Damodaran 121 ITR 572 (SC); CIT v Badiani 76 ITR 369, 374, 379, on appeal Badiani v CIT 105 ITR 642 (SC); CIT v Shankaran 111 ITR 220.
75. CIT v Roshanlal 98 ITR 349 (subsequent declaration of actual dividend cannot go to reduce the accumulated profits).
76. See ante under sub-cl (c).
77. Badiani v CIT 105 ITR 642 (SC), CIT v Urmila 230 ITR 422 (SC); Star v CIT 203 ITR 11.
78. Tea Estate v CIT 103 ITR 785 (SC).
79. CIT v Srinivasan 50 ITR 788; CIT v Jaldu 140 ITR 168 (building reserve fund).
80. Badiani v CIT 105 ITR 642 (SC); Ramaswamy v CIT 86 ITR 768; Star v CIT 203 ITR 11.
81. Sadhana v CIT 188 ITR 318.
82. Badiani v CIT 105 ITR 642 (SC); Govindarajulu v CIT 90 ITR 13 should be deemed to have been overruled on this point.
83. CIT v Badiani 76 ITR 369, 373–74, on appeal Badiani v CIT 105 ITR 642 (SC); CIT v Jaldu 140 ITR 168.
84. CIT v Damodaran 85 ITR 590 (on appeal 121 ITR 572, SC held reference on this question to be incompetent).
85. CIT v Jamnadas 92 ITR 105; CIT v Scindia Steam 125 ITR 118; CIT v Maitin 136 ITR 805.
86. Navnitial v CIT 80 ITR 582; CIT v Jamnadas 92 ITR 105. In CIT v Bibhuti 48 ITR 233, Cal HC erroneously held that normal depreciation, if shown as
reserve in balance sheet, would form part of accumulated profits. Cf under deleted s 109(iii), 'Statutory percentage', post.
87. Girdhardas v CIT 31 ITR 82.
88. Badiani v CIT 105 ITR 642 (SC).
89. Rajpal v CIT 80 ITR 463.
* Omitted by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986.
90. CIT v Urmila 230 ITR 422 (SC); CIT v Vina 58 ITR 100; CIT v Puri 64 ITR 162; CIT v Rajan 125 ITR 207.
91. CIT v Narasimhan 236 ITR 327 (SC). See also ante p 136, n 31.
92. Rajputana Agencies v CIT 35 ITR 168 (SC); CIT v Elphinstone 40 ITR 142 (SC); CIT v Jalgaon Electric Supply Co 40 ITR 184 (SC); CIT v Khatau 40 ITR
189 (SC); CIT v PSS Investments 107 ITR 1 (SC); Motipur v CIT 32 ITR 606; Doctors Inst v CIT 42 ITR 185; Papanasam v CIT 43 ITR 53; Thirumal v CIT 48 ITR
745; CIT v Jamnadas 76 ITR 656; CIT v Chennai 79 ITR 462; CIT v Ahmedabad Kaiser-I-Hind 141 ITR 472; Wheeler v ITO 51 ITR 92.
93. CIT v John 181 ITR 1.
94. Ins. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(h) (w.e.f. 1-4-1989).
1. Ins. by the Finance Act, 2001 (14 of 2001), s 3(b) (w.e.f. 1-6-2001).
2. Ought to have been 'sub-clause'.
3. Ought to have been 'clause'.
4. For text, see Appendix 113.
5. Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 3(b) (w.e.f. 1-4-2010).
6. The Electoral Trusts Scheme, 2013 [Notification No. SO 309(E), dated 31-1-2013].
7. Circular No. 5 of 2010, June 3, 2010, (2010) 324 ITR St. 293.
8. Ins., as clause (22A), by the Finance Act, 1964 (5 of 1964), s 4(b) (w.e.f. 1-4-1964). See Circular No. 20D, July 7, 1964.
9. Clause (22A) has been renumbered as clause (22B) by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(h) (w.e.f. 1-4-1989).
10. Subs. by the Finance (No. 2) Act, 2009 (33 of 2009), s 3(c) (w.e.f. 1-4-2010), Circular No. 5, June 3, 2010, 324 ITR (St.) 293, for the following:—
'(23) "firm", "partner" and "partnership" have the meanings respectively assigned to them in the Indian Partnership Act, 1932 (IX of 1932); but the
expression "partner" shall also include any person who, being a minor, has been admitted to the benefits of partnership;'.
11. For text, see Appendix 108.
12. For text, see Appendix 120.
13. See s 30 of Indian Partnership Act, 1932. See also s 64 of this Act, under which there is included in individual's total income spouse's or minor
child's share in firm's profits.
* Now s 464 of the Companies Act, 2013, applicable from the date it is notified.
14. See s 4 of Indian Partnership Act, 1932; CIT v Official Liquidator 90 ITR 380.
15. Beniram v CIT 25 ITR 287. Cf Govindaraju v CIT 51 ITR 731.
16. IR v Lebus 27 TC 136 (CA).
17. Manohardas v CIT 18 ITR 914; Bhagwanchand v CIT 127 ITR 770.
18. See post under ss 184–85, 'Partner in a representative capacity...', and particularly the Explanation to s 185(1).
19. CIT v SU Services 221 ITR 107.
20. For relevant principles of Mahomedan law, see CIT v Puthiya 44 ITR 172 (SC); Hoosen v CIT 5 ITR 182; Mohammed Ishaq v CIT 19 ITR 70; CWT v
Puthiya 63 ITR 787; and CIT v Hassan 63 ITR 791.
21. CIT v Tapang 147 ITR 581.
22. CIT v Confeitaria 150 ITR 502.
23. CIT v Degaon 214 ITR 650 (SC); CIT v B Posetty 223 ITR 333 (SC); Murlidhar v CIT 62 ITR 323, 329 (SC); CIT v Agardih 27 ITR 540; CIT v Roopnarain 60
ITR 314.
24. Bharat Prakashan v CIT 54 ITR 109; Durgabati v CIT 30 ITR 101, reversed on another point CIT v Durgabati 43 ITR 228 (SC).

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25. CIT v Chandra 203 ITR 435.

26. Benares Cloth Dealers v ITO 51 ITR 507. See s 11(2) of Companies Act, 1956.
27. CIT v Bhawani 186 ITR 518; CIT v Chandrika 198 ITR 548; CIT v Hotel Sriraj 198 ITR 570; CIT v Suleman 257 ITR 170.
28. CIT v Mohandas 57 ITR 415 (SC); CIT v Jethaji 57 ITR 588 (SC); CIT v Sriram 176 ITR 180; CIT v Sriram 175 ITR 341.
29. Addepally v CIT 79 ITR 306.
30. Manvi v CIT 39 ITR 173. Cf CIT v Kedarmall 73 ITR 150.
31. Addepally v CIT 79 ITR 306, 315; CIT v Kesarimal 81 ITR 693; Chimanlal v CIT 98 ITR 306, 310; Jeewanram v CIT 64 ITR 483, 497–99; Krishna v CIT 69
ITR 135; Rameshwarlal v CIT 126 ITR 209; CIT v Syed Mohammed 149 ITR 441; Jagadhri v CIT 166 ITR 143; Lilavatiben v Shah 122 ITR 863, 875–76.
32. CIT v Mohandas 57 ITR 415 (SC); CIT v Jethaji 57 ITR 588 (SC); Jeewanram v CIT 64 ITR 483; CIT v Dhurmal 65 ITR 244; Hiralal v CIT 66 ITR 293;
National Trading v CIT 71 ITR 513; Addepally v CIT 79 ITR 306; CIT v Kesarimal 81 ITR 693; Narayan v CIT 102 ITR 748; Rameshwarlal v CIT 126 ITR 209;
Conpro v CIT 151 ITR 1; CIT v Three Aces 176 ITR 160. Partnership was wrongly held invalid in CIT v Mohammed Khalid 47 ITR 383. Cf CIT v Singh 118 ITR
30.
33. Abdul Aziz v CIT 98 ITR 299; CIT v Moonalal 104 ITR 688; CIT v Sohanlal 130 ITR 914; CIT v Associate Distributors 138 ITR 304; Srinivasa v CIT 167 ITR
1; Safari v CIT 169 ITR 695; CIT v Sriram 176 ITR 180. See also CIT v Jain 178 ITR 369; and under ss 184–85, 'There must be an instrument of partnership.
34. CIT v Dwarkadas 41 ITR 528 (SC); Ramamohan v CIT 89 ITR 274 (SC); Rajendra v CIT 104 ITR 39; CIT v Jagadish 119 ITR 19; Kishorechand v CIT 77
ITR 76; CIT v Khetan 45 ITR 170; CIT v Rupchand 50 ITR 295; CIT v Balkishan 52 ITR 784; Alagappa v CIT 55 ITR 605. Cf CIT v Jain Steel 177 ITR 498.
35. Modern Stores v CIT 157 ITR 589; CIT v Three Aces 176 ITR 160; CIT v Indian Timber Traders 178 ITR 545.
36. Rajendra v CIT 188 ITR 753; CIT v Shanker 222 ITR 445.
37. See s 4 of Indian Partnership Act, 1932; Sookinaboo v CIT 6 ITC 13 (mere sharing of income from investments); Beniram v CIT 25 ITR 287, 299, and
CIT v Ferozepur Ice Mfrs 84 ITR 607 (business carried on separately by parties); Ramniklal v CIT 36 ITR 464 and CIT v Phabiomal 158 ITR 773 (mere
sharing of rent from properties); Sunil v CIT 59 ITR 457 (mere sharing of commission); Newstead v Frost 53 TC 525 (HL) (partnership between an artiste
and a company to exploit that artiste's skill—object of avoiding tax irrelevant); Narasingha v CIT 113 ITR 712 (constructing and letting out shops); CIT v
Venkateswara 155 ITR 73 (letting out cinema theatre); Rangappa v CIT 145 ITR 250 (providing facilities for games); CIT v Pure Dhansar Coal 154 ITR
857 (business carried on through lessee as agent) [wrongly overruled in CIT v Agarwala 169 ITR 617 (FB): see under s 28(i), 'Scope']; CIT v Cossipore 107
ITR 965, Capital Foundry v CIT 138 ITR 833 and CIT v Ramaiah 159 ITR 929 (leasing godowns, factory buildings and/or machinery); CIT v Laxmi Rice 164
ITR 571 and Prem v CIT 166 ITR 211 (letting out mill or cinema theatre); CIT v Dadha 166 ITR 656 (business transferred, but assistance rendered to
transferee). Contrast CIT v Kuya 156 ITR 206 (letting out whole business). See further under s 22, 'Property held as business asset', and under s 28(i),
'Income from letting out business asset'.
38. Mandsaur v CIT 127 ITR 727; CIT v Jacobs 160 ITR 570; See also CIT v Bolts Mfg 143 ITR 297.
39. CIT v Admiralty Flats 133 ITR 895; CIT v Lakshmi 133 ITR 904; CIT v Narang 159 ITR 243.
40. CIT v Dhanalakshmi 46 ITR 1031.
41. CIT v Hind Commission Agents 48 ITR 615; Nagaland Stores v CIT 115 ITR 615.
42. Champaran v State of Bihar 49 ITR (SC) 152; Umarbhai v CIT 22 ITR 27; Wadia v CIT 39 ITR 754; Govindaraju v CIT 51 ITR 731; CIT v Official
Liquidator 90 ITR 380.
43. Umarbhai v CIT 22 ITR 27; Wadia v CIT 39 ITR 754; Kaurlala v CIT 26 ITR 642. Cf CIT v Rama 137 ITR 11.
44. BCGA (Punjab) v CIT 5 ITR 279, 303; Vijayalakshmi v CIT 63 ITR 513. Contrary decision in CIT v Janata Stores 155 ITR 377 is incorrect.
45. Kikabhai v CIT 4 ITC 178.
46. IR v Lebus 27 TC 136, 147 (CA).
47. CIT v Mangoomal 7 ITR 208.
48. CIT v Doshi 176 ITR 371.
49. Baroda City Ice Co v CIT 44 ITR 56; Lucknow Ice Assn v CIT 2 ITC 156; Khushiram v CIT 3 ITC 298.
50. Lahore Ice Factories v CIT 2 ITR 362.
51. CIT v Ferozepur Ice Mfrs 84 ITR 607.
52. Dreyfus v IR TC 560.
53. Davis v C Ag IT 35 ITR 803, 807 (SC); Re Lalliram 19 ITR 372; Fenston v Johnstone 23 TC 29.
54. Davis v C Ag IT 35 ITR 803, 807 (SC); Baboo v CIT 2 ITC 502; Mohammed Kassim v CIT 2 ITC 482. Cf IR v Lebus 27 TC 136 (CA).
55. Kamath v CIT 82 ITR 680 (SC); Re Lalliram 19 ITR 372; CIT v R S Shoe 47 ITR 917; Balubhai v CIT 46 ITR 492.
56. See post under s 32, 'Owned by the assessee'.
57. CIT v Agra Wines 201 ITR 875. Contrast Chaudhary v CIT 228 ITR 595.
58. Chandrakant v CIT 193 ITR 1 (SC).
59. Kamath v CIT 82 ITR 680 (SC); CIT v Pathrose 40 ITR 353; Balubhai v CIT 46 ITR 492; Ratnaswamy v CIT 46 ITR 1148; Mushtaque v CIT 84 ITR 561;
Vummitti v CIT 94 ITR 239; Jammula v CIT 96 ITR 625; Dhingra v CIT 102 ITR 643; CIT v Rama 137 ITR 11; CIT v R S Shoe 47 ITR 917. See further post
under ss 184–85, 'Genuine and sham partnerships'.
60. Champaran v State of Bihar 49 ITR (SC) 152; McKie v Luck 9 TC 511; Ramniklal v CIT 36 ITR 464; CIT v Phabiomal 158 ITR 773.
61. CIT v Metro 7 ITR 176.
62. Pratt v Strick 17 TC 459. Cf John v IR 15 TC 602.
63. Fenston v Johnstone 23 TC 29.
64. Wadia v CIT 39 ITR 754. Cf CIT v British Drug Houses 124 ITR 192.
65. Oswal Trading v CIT 233 ITR 385.
66. Waddington v O'Callaghan 16 TC 187, 197.
67. See post under ss 184–85, 'Instrument executed after end of accounting year'.
68. Mohammed Rowther v CIT 30 ITR 747.
69. Hillerns v Murry 17 TC 77. See further post under s 28, 'Business carried on in course of administration, or winding up or liquidating a concern'.
70. Thiagaraja v CIT 55 ITR 419.
71. Dayabhai & Co v CIT 59 ITR 364; Ramanatha v CIT 73 ITR 811 and National Roadways v CIT 99 ITR 97 (a firm owning and operating lorries on
permits which continued to stand in name of a third party); CIT v Narayana 74 ITR 341 (forest coupe contracts in name of a partner).
72. Dayabhai & Co v CIT 59 ITR 364, 377.
73. Jer & Co v CIT 79 ITR 546 (SC); CIT v Wine Chamber 195 ITR 195; CIT v Subash 230 ITR 16; CIT v Omprakash 227 ITR 590.
74. Biharilal Jaiswal v UOI 217 ITR 746, (1996) 1 SCC 443 [LNIND 1995 SC 1130] ; Motilal v CIT 234 ITR 472 (SC); CIT v Brij Mohan 249 ITR 681 (SC); CIT v
Rangila 254 ITR 230 (SC); CIT v Friends 256 ITR 177 (SC); CIT v Salika 207 ITR 274; CIT v Konan's 226 ITR 496; CIT v P Kunhiraman 234 ITR 133; CIT v
Jagdish 234 ITR 595; CIT v Circar 234 ITR 628; CIT v Grand 235 ITR 594; Mathew v Asst CITT 249 ITR 26; CIT v Gupta 229 ITR 731.
75. Narayanan & Co v CIT 223 ITR 209.
76. Jer & Co. v CIT 79 ITR 546 (SC); CIT v Wine Chamber 195 ITR 195; CIT v Subash 230 ITR 16; CIT v Omprakash 227 ITR 590.
77. Biharilal Jaiswal v UOI 217 ITR 746 (SC), (1996) 1 SCC 443 [LNIND 1995 SC 1130] ; Motilal v CIT 234 ITR 472 (SC); CIT v Brij Mohan 249 ITR 681 (SC);
CIT v Rangila 254 ITR 230 (SC); CIT v Friends 256 ITR 177 (SC); CIT v Salika 207 ITR 274; CIT v Konan's 226 ITR 496; CIT v P Kunhiraman 234 ITR 133; CIT v
Jagdish 234 ITR 595; CIT v Circar 234 ITR 628; CIT v Grand 235 ITR 594; Mathew v Asst CIT 249 ITR 26; CIT v Gupta 229 ITR 731.
78. CIT v Degaon 214 ITR 650 (SC); CIT v B Posetty 223 ITR 333 (SC); CIT v Uppala 187 ITR 653.
79. Jer & Co. v CIT 79 ITR 546 (SC); Umacharan v CIT 37 ITR 271 (SC); CIT v Prakash 72 ITR 366; CIT v Mandal 72 ITR 769; Kapoor v CIT 90 ITR 172 (FB);
CIT v Narpati 97 ITR 645; CIT v Nalli 145 ITR 759; CIT v Shantilal 143 ITR 308; CIT v Kondra 143 ITR 315. Cf CIT v Pagoda 93 ITR 271; CIT v Sheonarayan
100 ITR 213; Narsaiya v CIT 143 ITR 304; Shankarlal v CIT 175 ITR 299. Contrast Motilal v CIT 168 ITR 650 (FB); Malukhan v CIT 157 ITR 457.
80. Mohmmed Warasat v CIT 82 ITR 718.
81. CIT v Reddy 38 ITR 560.
82. CIT v Manick 106 ITR 860.
83. Ramakrishna v CIT 64 ITR 197.

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84. CIT v Gianchand 87 ITR 113.

85. CIT v Mishra 147 ITR 424.
86. CIT v Benarsidas 44 ITR 835 and Lalchand v CIT 65 ITR 418 (opium); Mohapatra v CIT 58 ITR 671 (ganja and opium); CIT v Union Tobacco 41 ITR 115
(tobacco); CIT v Krishna Reddy 46 ITR 784; Mohideen v CIT 18 ITR 200, Mohammed Abdul v CIT 16 ITR 412 and Kumaraswami v ITO 31 ITR 457 (abkari).
87. CIT v Krishna Reddy 46 ITR 784; Mohammed Abdul v CIT 16 ITR 412; Kumaraswami v ITO 31 ITR 457; Thiagaraja v CIT 55 ITR 419.
88. Lalbhai v Kadri 34 ITR 449.
89. Malwa Knitting v CIT 107 ITR 379.
90. CST v Kelukutty 155 ITR 158 (SC); CIT v Parthasathy 236 ITR 350 (SC); CIT v Sree Radhakrishna 181 ITR 368; CIT v Shree Annapurna 224 ITR 142.
(question should be approached in light of Partnership Act and intention of parties); Jeshingbhai v CIT 18 ITR 23, and 28 ITR 454, differing from earlier
obiter to the contrary in Vissonji v CIT 14 ITR 272; Oswat v CIT 70 ITR 843; Iyanar v CIT 78 ITR 775; CIT v Ouseph 154 ITR 598 (FB); CIT v Veeri 168 ITR 567;
Martin v CIT 4 ITC 478; Krishna Ginning v CIT 5 ITC 334. In Kelukutty, SC merely criticised approach to the question in some of these decisions, but
affirmed the principle.
91. Latilia v IR 25 TC 107 (HL); Farrel v Sunderland 4 TC 605; CIT v SU Services 221 ITR 107. Doubt raised in Ganga v CIT 67 ITR 771 regarding a limited
company's competence to enter into partnership is unwarranted.
92. CIT v Kalubahu 37 ITR 123, 127 (SC); Re Ramkumar 22 ITR 474; Kaniram v CIT 27 ITR 294.
93. Lachhmandas v CIT 16 ITR 35, 41–42 (PC); Kaniram v CIT 27 ITR 294; CIT v Singh 118 ITR 30; Re Mangalchand 21 ITR 164.
1. Bhagatram v CEPT 29 ITR 521, 525 (SC); CIT v Kaluhahu 37 ITR 123, 127 (SC); CIT v Nandlal 40 ITR 1, 7 (SC); CIT v Govindram 57 ITR 510, 518 (SC);
Ram Laxman v CIT 66 ITR 613 (SC); Re Ramkumar 22 ITR 474; CIT v Kedarmall 73 ITR 150.
2. Agarwal v CIT 77 ITR 10 (SC); CIT v Hari Om 86 ITR 216; CIT v Agarwal 75 ITR 451 (one heir representing co-heirs).
3. Kshetra Mohan-Sannyasi Charan v CEPT 24 ITR 488, 492.
4. CIT v Hukumchand 78 ITR 18 (SC); Ramakrishna v CIT 68 ITR 107; CIT v Bagyalakshmi 55 ITR 660 (SC).
5. CIT v Bagyalakshmi 55 ITR 660 (SC); Kuppiah v CIT 63 ITR 522, 531–32; CIT v Dudwala 18 ITR 653.
6. Charandas v CIT 39 ITR 202 (SC); Ram Laxman v CIT 66 ITR 613 (SC); CIT v Pabbati 145 ITR 702; CIT v Ashokbhai 56 ITR 42 (SC) (share of profits of
whole accounting year in course of which partition took place, held assessable in hands of the coparcener to whom interest in firm and in the year's
profits was allotted on partition).
7. CIT v Govindram 57 ITR 510 (SC), overruling CIT v Laxminarayan 16 ITR 313 and approving Radha v CIT 18 ITR 225.
8. CIT v Banaik 119 ITR 282.
9. Sushila v ITO 38 ITR 316; Manvi v CIT 39 ITR 173 (mother, a partner as guardian of minor sons); Champa v Board of Revenue 46 ITR 81. Cf Gopinath v
CIT 146 ITR 586.
10. Atmaram v CIT 22 ITR 305.
11. Lachhmandas v CIT 16 ITR 35.
12. Chandrakant Manilal Shah v CIT 193 ITR 1 (SC).
13. CIT v Motilal 88 ITR 391; Purshottamdas v CIT 96 ITR 442; CIT v Nagamanickam 148 ITR 115; CIT v Mariappa 154 ITR 466. Cf Pitamberdas v CIT 53
ITR 341 (business found to belong to joint family).
14. Munavalli v CIT 74 ITR 529; Ramchand v CIT 130 ITR 826 (dissenting from Prabhudas); CIT v Gupta 131 ITR 492; CIT v Gaekwad 143 ITR 1; Gulraj v
CIT 148 ITR 326; CIT v Murlidhar 160 ITR 882; CIT v Curious House 163 ITR 573; CIT v Brij Bhushanlal 179 ITR 83. Decisions in Prabhudas v CIT 77 ITR 870
and Manilal v CIT 78 ITR 96 and Pitamberdas v CIT 53 ITR 341 overruled by Chandrakant.
15. Ratanchand Darbarilal v CIT 155 ITR 720, 727.
16. Lokenath v CIT 8 ITR 369, approved in Lachhmandas v CIT 16 ITR 35, 41–42 (PC).
17. Hoosen v CIT 5 ITR 182, 199; Kauralal v CIT 26 ITR 642.
18. Re Mohanlal 10 ITR 219.
19. CIT v Kandath Motors 224 ITR 663 (SC), AIR 1997 SC 111 (partner in dual capacity as a partner himself and as representing the heirs of a deceased
partner); CIT v Raghavji 100 ITR 246; CIT v Budhalal 129 ITR 97; Aruna v Fist ITO 196 ITR 831; CIT v Nataraja 242 ITR 844.
20. Dulichand Laxminarayan v CIT 29 ITR 535; Textile Supply v CIT 36 ITR 242 (SC); CIT v Biharilal 34 ITR 777; CIT v Gopal 34 ITR 548; Dugal v CIT 111
ITR 757; Re Jaidayal 1 ITR 186, 190; Shiv Narain v CIT 3 ITR 402; Mian v CIT 4 ITR 203. Cf National Non-ferrous Industrial v CIT 121 ITR 130 (association
of persons collectively cannot be a partner).
21. Kylasa Sarabhaiah v CIT 56 ITR 219; Chhotalal v CIT 34 ITR 351; CIT v Shantilal 31 ITR 903; Umamaheswar v CIT 52 ITR 749; CIT v New Life Const
107 ITR 361; Sanjay v CIT 134 ITR 248.
22. Chandrika Prasad Ram Swarup v CIT 7 ITR 269 (FB); CIT v Jadavji 48 ITR 41 (SC); Chhotalal v CIT 34 ITR 351; Jabalpur Ice Mfg Assn v CIT 27 ITR 88;
Benares Cloth Dealers v ITO 51 ITR 507; Morden v Monks 8 TC 450.
23. Mian v CIT 4 ITR 203; Mangatram v CIT 67 ITR 788; Ipoh v CIT 67 ITR 106 (SC).
24. Dulichand v CIT 29 ITR 535 (SC); CIT v Madhukant 132 ITR 159, 176; CIT v Gasper 8 ITR 100, 112.
25. CIT v Figgies & Co. 24 ITR 405.
26. City of London IT Comrs v Gibbs 24 TC 221, 244, 247–48, 10 ITR Suppl 121.
27. Latilla v IR 25 TC 107, 119, 11 Suppl 78, 82.
28. Per Romer L J, Watson v Blunden 18 TC 402, 409 (CA), approved in City of London IT Commrs v Gibbs 24 TC 221, 248 (HL); CIT v Figgies 24 ITR 405,
409 (SC); Bist v CIT 116 ITR 131, 133–34 (SC); Meka v ITO 32 ITR 274; Jittanram v CIT 23 ITR 288, 299; Kaniram v CIT 23 ITR 314, 321; Talipatigala v CIT 18
ITR 320, 327; Re Jaidayal 1 ITR 186, 191; Karupiah v CIT 9 ITR 1, 7. But see CIT v National Cycle 9 ITR 502, 508–09.
29. ITO v Arunagiri 220 ITR 232.
30. CIT v Standard Malting 226 ITR 1.
31. CIT v Figgies 24 ITR 405, 409 (SC); Narayana v ITO 35 ITR 388, 393–95 (SC); CIT v Abubdker 4 ITR 233, 237. Cf Subbier v CEPT 35 ITR 362. See further
under s 2(39).
32. Clause (23A) has been inserted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(i) (w.e.f. 1-4-1989).
33. Ins. by the Finance Act, 2005 (18 of 2005), s 3(b) (w.e.f. 1-4-2006). See Circular No. 3, February 27, 2006, 281 ITR (St) 222.
34. Ins. by the Finance Act, 2016 (28 of 2016), s 3(b) (w.e.f. 1-6-2016). See Circular No. 3 of 2017, January 20, 2017, 391 ITR (St.) 253.
35. Sub-clause (iia) has been inserted by the Finance Act, 1972 (16 of 1972), s 3(b)(i) (w.e.f. 1-4-1973). See Circular No. 108, March 20, 1973.
36. Subs., for "or by a trust or institution of national importance referred to in clause (d) of sub-section (1) of section 80F", by the Direct Tax Laws
(Amendment) Act, 1989 (3 of 1989), s 2(a)(i) (w.e.f. 1-4-1989). Earlier, the aforestated portion was substituted, for ", not being contributions made with
a specific direction that they shall form part of the corpus of the trust or institution", by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3( j)
(w.e.f. 1-4-1989).
37. Subs., for "or by any university or other educational institution referred to in sub-clause (vi) or by any hospital or other institution referred to in
sub-clause (via)", by the Finance Act, 2006 (21 of 2006), s 3(i)(A)(b) (w.e.f. 1-4-2007). See Circular No. 14, December 28, 2006, 288 ITR (St.) 9. Earlier the
above portion was inserted by the Finance Act, 2006 (21 of 2006), s 3(i)(A)(a) (w.r.e.f. 1-4-1999).
38. Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 3(d)(i) (w.e.f. 1-4-2010).
39. Sub-clauses (iiia) and (iiib) have been inserted by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 2(a)(ii) (w.r.e.f. 1-4-1962).
40. Sub-clause (iva) has been inserted by the Finance (No. 2) Act, 1980 (44 of 1980), s 3 (w.e.f. 1-4-1980). See Circular No. 281, September 22, 1980, 131
ITR (St.) 4.
41. Sub-clause (va) has been inserted by the Finance Act, 1990 (12 of 1990), s 3(i)(a) (w.r.e.f. 1-4-1962). See Circular No. 572, August 3, 1990, 186 ITR
(St.) 81.
42. Sub-clause (vb) has been inserted by the Finance Act, 1990 (12 of 1990), s 3(i)(b) (w.r.e.f. 1-4-1967).
43. Sub-clause (vc) has been inserted by the Finance Act, 1990 (12 of 1990), s 3(i)(c) (w.r.e.f. 1-4-1972).
44. Ins. as sub-clause (va), by the Finance Act, 1964 (5 of 1964), s 4(c)(i) (w.e.f. 1-4-1964). See Circular No. 20D, July 7, 1964.
45. Sub-clause (va) has been renumbered as sub-clause (vd) by the Finance Act, 1990 (12 of 1990), s 3(i)(a) (in effect, w.r.e.f. 1-4-1964).
46. Ins. by the Finance Act, 1992 (18 of 1992), s 3(b) (w.e.f. 1-4-1993). See Circular No. 636, August 31, 1992, 198 ITR (St.) 1.

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47. Ins. by the Finance Act, 2006 (21 of 2006), s 3(i)(B) (w.e.f. 1-4-2007). See Circular No. 14, December 28, 2006, 288 ITR (St.) 9.
48. Sub-clause (viii) has been omitted by the Finance Act, 1988 (26 of 1988), s 54(i) (w.e.f. 1-4-1988). Prior to its omission, sub-clause (viii) [which was
originally inserted by the Finance Act, 1964 (5 of 1964), s 4(c)(ii) (w.e.f. 1-4-1964)] stood as follows:—

"(viii) any annuity due, or commuted value of any annuity paid, under the provisions of section 280D;".
49. Ins. by the Finance Act, 1972 (16 of 1972), s 3(b)(ii) (w.e.f. 1-4-1972). See Circular No. 108, March 20, 1973.
50. Ins. by the Finance Act, 2001 (14 of 2001), s 3(c) (w.e.f. 1-4-2002).
51. Ins. by the Finance Act, 1987 (11 of 1987), s 3(b) (w.e.f. 1-4-1988). See Circular No. 495, September 22, 1987, 168 ITR (St.) 87.
52. Ins. by the Finance (No. 2) Act, 1996 (33 of 1996), s 3(b) (w.e.f. 1-10-1996). See Circular No. 762, February 18, 1998, 230 ITR (St.) 12.
53. This ought to have been 'sub-clause' and not 'clause'.
54. Ins. by the Finance Act, 2002 (20 of 2002), s 3(a) (w.e.f. 1-4-2003). See Circular No. 8, August 27, 2002, 258 ITR (St.) 13.
55. Subs., for "clause (vii)", by the Finance Act, 2003 (32 of 2003), s 3(a) (w.e.f. 1-4-2003). See Circular No. 7, September 5, 2003, 263 ITR (St.) 62.
56. Ins. by the Finance Act, 2018 (13 of 2018), s 3(b)(i)(A) (w.e.f. 1-4-2019). See Circular No. 8 of 2018, December 26, 2018, 410 ITR (St.) 1.
57. Ins. by the Finance (No. 2) Act, 2004 (23 of 2004), s 3 (w.e.f. 1-4-2005). See Circular No. 5, July 15, 2005, 276 ITR (St.) 151.
58. Ins. by the Finance Act, 2007 (22 of 2007), s 3(e) (w.e.f. 1-4-2007). See Circular No. 3, March 12, 2008, 299 ITR (St.) 8.
59. Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 3(d)(ii) (w.e.f. 1-10-2009). See Circular No. 5, June 3, 2010, 324 ITR (St.) 293.
60. Ins. by the Finance Act, 2010 (14 of 2010), s 3(b) (w.e.f. 1-6-2010). See Circular No. 1, April 16, 2011, 333 ITR (St.) 7.
61. Ins. by the Finance Act, 2012 (23 of 2012), s 3(iv) (w.e.f. 1-4-2013).
62. Ins. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(VI) (w.e.f. 1-4-2015). See Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22.
63. Ins. by the Finance Act, 2017 (7 of 2017), s 3(I) (w.e.f. 1-4-2017). See Circular No. 2 of 2018, February 15, 2018, 401 ITR (St.) 178.
64. Ins. by the Finance Act, 2018 (13 of 2018), s 3(b)(i)(B) (w.e.f. 1-4-2019).
65. Ins. by the Finance Act, 2015 (20 of 2015), s 3(c) (w.e.f. 1-4-2016). See Circular No. 19 of 2015, November 27, 2015, 379 ITR (St.) 19.
66. Subs., for 'other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in
accordance with the provisions of Explanation 10 to clause (1) of section 43' by the Finance Act, 2016 (28 of 2016), s 3(c) (w.e.f. 1-4-2017). See Circular
No. 3 of 2017, January 20, 2017, 391 ITR (St.) 253.
67. Rex v BC Fir [1932] AC 441 , 448 (PC); Raghuvanshi v CIT 22 ITR 484 (SC); Emil v CIT 114 ITR 515, Dilworth v Commr of Stamps [1899] AC 99 , 106;
Tennant v Smith [1892] AC 150 , 164, 3 TC 158 (HL).
68. Suresh Chand Talera v UOI 282 ITR 341, (2006) 201 CTR (MP) 153; Scooters India Ltd. v CIT 399 ITR 559.
69. CIT v K. Thangamani 309 ITR 15, (2009) 221 CTR (Mad) 742.
70. CIT v Karthikeyan 201 ITR 866 (SC); CIT v Avinash 251 ITR 360.
71. CIT v Kiranbhai 235 ITR 635, overruled in T.K. Ginarajan v CIT 356 ITR 618 (SC).
72. CIT v Motor and General Sales P. Ltd. 266 ITR 261, (2004) 188 CTR (All) 42.
73. Vodafone India Services P. Ltd. v UOI 368 ITR 1, 30.
74. Ayrshire v IR 27 TC 331, 347 (HL), 16 ITR Suppl 80, 85.
75. CIT v Calcutta Hospital 57 ITR 313 (SC). See further post under s 4, 'Mutual insurance associations'.
76. Indo-Gulf Fertilizers v UOI 195 ITR 485.
77. CIT v Shaw Wallace 6 ITC 178 (PC).
78. CIT v SRMT Staff Association 221 ITR 234.
79. State Bank Assn v Deputy GM 200 ITR 517.
80. CIT v MR Kini 190 ITR 282.
81. Rendell v Went 41 TC 641 (HL), 58 ITR 73 (costs of legal defence on criminal charge); CIT v Nar Hari 80 ITR 454 (foreign tour expenses); Lakshmipat
v CIT 93 ITR 162 and Dalmia v CIT 138 ITR 653 (rent-free accommodation); Neterwalia v CIT 122 ITR 880 (promoters' shares); Malik v CIT 124 ITR 522
(remission of debt); CIT v Ashraf 209 ITR 341 (interest forgone).
82. 'Whether convertible into money or not' constitutes departure from the general principle that benefit not convertible into money is not income:
see Tennant v Smith 3 TC 158 (HL), followed in Daly v IR 18 TC 641. See also CIT v Jain 167 ITR 161 (SC); Acharya Pande v CIT 56 ITR 152; CIT v Jain 65
ITR 416. Cash payment to employee is not covered by this part of the clause: CIT v Venkataraman 111 ITR 444, on appeal CIT v Adaikappa 249 ITR 800.
83. Lakshmipat v CIT 104 ITR 466.
84. CIT v Ramakrishnan 124 ITR 545; CIT v Lingappan 129 ITR 597.
85. CIT v KNB Investments P. Ltd. 367 ITR 616.
86. CIT v Varadarajan 224 ITR 9.
87. CIT v Ramnath 112 ITR 436; CIT v Ruia 170 ITR 512; CIT v Kannan 210 ITR 585; CIT v Parthasarathy 118 ITR 869.
88. CIT v Kamalini 208 ITR 139.
89. CIT v Surekha P Kothari 267 ITR 406, (2004) 188 CTR (Mad) 177.
90. CIT v Premnarain 136 ITR 407.
91. Krishan Bans Bahadur v CIT 306 ITR 411.
1. Ravi Prakash Khemka v CIT 295 ITR 33, (2008) 167 Taxman 115 (Mad).
2. CIT v Adaikappa 91 ITR 90 on appeal 249 ITR 800; CIT v Venkataraman 111 ITR 444; Mehta v CIT 117 ITR 362; CIT v Jawaharlal 171 ITR 136. Cf CIT v
Lingappan 129 ITR 597, 602; CIT v Venkataraman 101 ITR 673, 685–86 [s 2(22)(e)]; CIT v Kulandaivelu 100 ITR 629 and CIT v Lakshmi 113 ITR 368 [s 17(2)
(iii)] (director permitted to overdraw his account regularly without interest); CIT v Narayanan 180 ITR 303 (s 16).
3. CIT v Nar Hari 80 ITR 454.
4. Dalmia v CIT 106 ITR 895 (SC).
5. CIT v Varadarajan 224 ITR 9.
6. Aroon Purie v CIT 375 ITR 188.
7. CIT v Troilakya Chandra Bora 261 ITR 299, (2003) 182 CTR (Gau) 456, (2003) 1 GLT 638 .
8. Contrast s 2(22)(e).
9. CIT v Oberoi 183 ITR 103; Ishran Devi v ITO 250 ITR 362.
10. CIT v Gurdial Singh 100 Taxman 507; CIT v Tara Singh 233 ITR 669.
11. VM Salgaocar & Bros Pvt Ltd v CIT 243 ITR 383.
12. Aero Leather v UOI 194 ITR 7.
13. Cadell Weaving v CIT 243 ITR 265, dissenting from CIT v Gulabchand 192 ITR 495.
14. CIT v Karthikeyan 201 ITR 866 (SC), applied in CIT v Avinash 251 ITR 360.
15. CIT v Jhaveri Industries 300 ITR 300.
16. CIT v Dy. Director of Small Savings Department 266 ITR 27, (2004) 187 CTR (Mad) 562; CIT v Dr. S.P. Sugeena Seelan 353 ITR 391.
17. CIT v J.K. Synthetics Ltd. 143 ITR 396, (1983) 33 CTR (All) 216.
18. Logitronics P. Ltd. v CIT 333 ITR 386.
19. Circular No. 19 of 2015, November 27, 2015, 379 ITR (St.) 19.
20. Chamber of Tax Consultants v UOI 400 ITR 178 (the Court observed: 'ICDS -VII which provides that recognition of Government grants cannot be
postponed beyond the date of accrual receipt, is in conflict with the accrual system of accounting. To that extent, it is ultra vires the Act and to be
struck down as such').
21. CIT v Ponni Sugars and Chemicals Ltd. 306 ITR 392 (SC), (2008) 9 SCC 337 ; Sahney Steel Press Works Ltd. v CIT 228 ITR 253 (SC); CIT v Chaphalkar
Brothers 400 ITR 279, 290 (SC); CIT v Shree Balaji Alloys 7 ITR-OL 50 (SC).
22. CIT v Kirloskar Oil Engines Ltd. 364 ITR 88; PCIT v Ankit Metal and Power Ltd. 416 ITR 591; CIT v Gloster Jute Mills Ltd. 416 ITR 458; DCIT v Inox
Leisure Ltd. 386 ITR 626.

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23. Varghese K.P. v ITO 131 ITR 597 (SC); Godhra Electricity Co. Ltd. v CIT 225 ITR 746 (SC); CIT v Bokaro Steel Ltd. 236 ITR 315 (SC).
24. PCIT v Ankit Metal and Power Ltd. 416 ITR 591.
25. DIT v Dharm Pratisthanam 234 ITR 842.
26. CIT v Khosla (SS) 220 ITR 65.
27. Subs. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(k) (w.e.f. 1-4-1988), for the following:—
'(25) "Income-tax Officer" means a person appointed to be an Income-tax Officer under section 117;'.
28. The words, brackets and figure "sub-section (1) of" have been omitted by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 2( b) (w.r.e.f. 1-
4-1988).
29. Subs. by the Finance Act, 2007 (22 of 2007), s 3(f) (w.r.e.f. 25-8-1976), Circular No. 3, March 12, 2008, 299 ITR (St.) 8, for the following:—
'a[(25A) "India" shall be deemed to include the Union territories of Dadra and Nagar Haveli, Goab , Daman and Diu, and Pondicherryc ,—

(a) as respects any period, for the purposes of section 6; and

(b) as respects any period included in the previous year, for the purposes of making any assessment for the assessment year commencing on the 1st
day of April, 1963, or for any subsequent year;]'.
————————————————
a. Ins. by the Taxation Laws (Extension to Union Territories) Regulation, 1963 (No. 3 of 1963), s 3 and Sch. (w.e.f. 1-4-1963). The Act with these
provisions has effect when the 1961 Act is applied to the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry.
b. Goa has attained statehood with effect from 30-5-1987.
c. With effect from 1-10-2006 'Puducherry'.
* Repealed and replaced by Act 18 of 2013.
30. Subs. by the Taxation Laws (Extension to Union Territories) Regulation, 1963 (3 of 1963), s 3 and Sch. (w.e.f. 1-4-1963).
31. Ins. by the Finance (No. 2) Act, 1971 (32 of 1971), s 3(c)(i) (w.e.f. 1-4-1971). See Circular No. 72, January 6, 1972.
32. Ins. by the Taxation Laws (Extension to Union Territories) Regulation, 1963 (No. 3 of 1963), s 3 and Sch. (w.e.f. 1-4-1963).
33. Goa has attained statehood w.e.f. 30-5-1987.
34. With effect from 1-10-2006 'Puducherry'.
35. Subs., for "registered office of the company", by the Finance (No. 2) Act, 1971 (32 of 1971), s 3(c)(ii) (w.e.f. 1-4-1971).
36. Clauses (26A) and (26B) have been inserted by the Finance Act, 2006 (21 of 2006), s 3(ii) (w.e.f. 1-4-2006). See Circular No. 14, December 28, 2006,
288 ITR (St.) 9.
37. Clause (27) has been omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3( l), (w.e.f. 1-4-1988). Prior to its omission, clause (27)
stood as follows:—
'(27) "Inspecting Assistant Commissioner" means a person appointed to be an Inspecting Assistant Commissioner of Income-tax under sub-section (1)
of section 117;'.
38. Subs., for "sub-section (2)", by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(m) (w.e.f. 1-4-1988).
39. Ins. by the Finance Act, 1976 (66 of 1976), s 3(a) (w.e.f. 1-6-1976). See Circular No. 202, July 5, 1976, 105 ITR (St.) 17.
40. Cauvery Spinning and Weaving Mills Ltd. v Dy CIT 340 ITR 550; Beacon Projects P. Ltd. v CIT 377 ITR 237 (debtor-creditor relationship between the
parties).
41. CIT v Kesoram Industries Ltd. [2019] 13 ITR-OL 621.
42. Bikram v LAC 224 ITR 551 (SC).
43. Viswapriya v CIT 258 ITR 496; CIT v Avenue Super Chits P. Ltd. 375 ITR 76.
44. LMN India Ltd., In re 307 ITR 40 (AAR); Z, In re 345 ITR 11.
45. CIT v Sahib Chits (Delhi) (Pvt) Ltd. 328 ITR 342, (2009) 226 CTR (Del) 119.
46. CEAT Ltd. v CBDT 383 ITR 300.
47. Beacon Projects P. Ltd. v CIT 377 ITR 237.
48. Rupesh Rashmikant Shah v UOI 417 ITR 169; Court on its Own Motion v H.P. State Co-operative bank Ltd . 2015 (276) CTR 264 ; CIT v Oriental Co.
Ltd. 211 Taxman 369; Managing Director, Tamil Nadu State Transport Corporation v Chinnadurai 385 ITR 656.
49. Kailash Narain Gupta v CIT 225 ITR 921; Sharda Pareek v ACIT 416 ITR 441.
50. CIT v Ghanshyam (HUF) 315 ITR 1 (SC). On this point, Puneet Singh v UOI 415 ITR 215 is incorrect, although on its reading of ss 56 and 145A, it is
correct.
51. Rupesh Rashmikant Shah v UOI 417 ITR 169.
52. CIT v West Bengal House Infrastructure Development Corporation Ltd. 413 ITR 82.
53. Infrastructure Development Finance Co. Ltd. v ACIT 412 ITR 115.
54. Ins. by the Finance Act, 1988 (26 of 1988), s 3 (w.e.f. 1-4-1989).
55. Ins. by the Finance Act, 2001 (14 of 2001), s 3(d) (w.e.f. 1-4-2002). See Circular No. 14, December 12, 2001, 252 ITR (St.) 65.
56. For text, see Appendix 116.
57. Clauses (28C) and (28D) have been inserted by the Finance (No. 2) Act, 1998 (21 of 1998), s 4(f) (w.e.f. 1-10-1998). See Circular No. 772, December
23, 1998, 235 ITR (St.) 35.
58. Arun Kumar Maheshwari v ITO 285 ITR 179, (2007) 207 CTR (All) 558; Dharam Pal Singh Rao v ITO 271 ITR 223, (2004) 191 CTR (All) 158.
59. For text, see Appendix 80.
60. CIT v Navnital 125 ITR 67, reversed on another point in Navnit Lal v CIT 193 ITR 16 (SC).
61. Ins. by the Finance Act, 1987 (11 of 1987), s 3(c) (w.e.f. 1-4-1988). See Circular No. 495, September 22, 1987, 168 ITR (St.) 87.
62. Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 3(e) (w.r. e.f. 1-4-2009). See Circular No. 5, June 3, 2010, 324 ITR (St.) 293.
63. CIT v Budharaja (N.C.) and Co. 204 ITR 412, AIR 1993 SC 2529 [LNIND 1993 SC 663] , 1994 Supp (1) SC 280 .
64. UOI v Delhi Cloth Mills Ltd. AIR 1963 SC 791 [LNIND 1962 SC 333] , 795, 1963 Supp (1) SCR 586 .
65. CIT v Emptee Poly-Yarn Pvt. Ltd. 320 ITR 665 (SC), (2010) 2 SCC 720 [LNIND 2010 SC 91] .
66. CIT v Oracle Software India Ltd. 320 ITR 546 (SC), (2010) 2 SCC 677 [LNIND 2010 SC 58] .
67. CIT v Radio Today Broadcasting 382 ITR 42 [in the context of s 32(1)(iia)].
68. And, indeed, the editors of this commentary would be entitled to additional depreciation under s 32(1)(iia).
69. PCIT v Lakesh Handa 399 ITR 305.
70. Madura Coats P. Ltd. v DCIT 417 ITR 115.
71. CIT v Murudeshwar Décor Ltd. 370 ITR 626.
72. CIT v Sunilbhai S. Kakad 365 ITR 427.
73. CIT v Deco De Trend 360 ITR 1.
74. ITO v Arihant Marbles and Tiles Ltd . 320 ITR 79 (SC), (2010) 2 SCC 699 [LNIND 2009 SC 2054] ; followed in CIT v Sophisticated Marbles and Granite
Ltd. 331 ITR 96, (2009) 225 CTR (Del) 410.
75. Ins. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(n) (w.e.f. 1-4-1989).

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76. Ins. by the Finance (No. 2) Act, 1991 (49 of 1991), s 3(a) (w.r.e.f. 1-4-1991).
77. Ins. by the National Tax Tribunal Act, 2005 (49 of 2005), s 30 and the Schedule, Part I, item (1) (w.e.f. 28-12-2005).
78. For text, see Appendix 128.
79. Madras Bar Association v UOI 368 ITR 42 (SC).
80. Ins. by the Finance Act, 1999 (27 of 1999), s 3(e) (w.e.f. 1-4-1999). See Circular No. 779, September 14, 1999, 240 ITR (St.) 3.
81. The words, figures and brackets ", and for the purposes of sections 92, 93 †[*] and 168, includes a person who is not ordinarily resident within the
meaning of sub-section (6) of section 6" have been omitted by the Finance (No. 2) Act, 1998 (21 of 1998), s 4(g) (w.e.f. 1-4-1999). In the above portion,
a comma and the figures ", 113" were, earlier, omitted from the place put within the parentheses marked with † by the Finance Act, 1965 (10 of 1965), s
4(v) (w.e.f. 1-4-1965).
As section 6(6), concerning the special status of 'not ordinarily resident', has been retained, consequential amendment to section 2(30) ought not to
have been made by the Finance (No. 2) Act, 1998, as finally enacted.
82. Ins. by the Finance Act, 2002 (20 of 2002), s 3(b) (w.e.f. 1-4-2002). See Circular No. 8, August 27, 2002, 258 ITR (St.) 13.
83. Madras Electricity v Boardland 27 ITR 612 (HL). Cf CIT v Dredging Corpn 174 ITR 682.
84. Ramprasad v CIT 4 ITC 247, 253, overruled on another point in Patiala State Bank v CIT 11 ITR 617 (PC).
85. Sind Light Rly v CIT 6 ITC 271.
86. CIT v All India Hindu Mahasabha 140 ITR 748.
87. Asitkumar v Commissioner of Ag IT 22 ITR 177. See further post under ss 159 and 168.
88. PCIT v Maruti Suzuki India Ltd. 416 ITR 613 (SC).
89. CIT v Gujarat Pradesh Congress Samiti 207 ITR 622.
1. CIT v Om Prakash 238 ITR 1044 (SC).
2. CIT v Salem Bank 8 ITR 269; Mian v CIT 4 ITR 203; Re Ramratan 3 ITR 183. Contrast CIT v Ahmedabad Millowner's Assn 7 ITR 369.
3. Jogendra v CIT 74 ITR 33 (SC); Official Trustee v CIT 93 ITR 348 (SC); Sridhar Jiew v ITO 63 ITR 192.
4. CIT v Bar Council 11 ITR 1.
5. AP SRTC v ITO 47 ITR 101, affirmed in 52 ITR 524 (SC); Pepsu RTC v ITO 51 441. See also Kerala FC v WTO 82 ITR 477 (FB).
6. Currimbhoy v CIT 5 ITC 484, affirmed 2 ITR 148 (PC).
7. Punjab Province v Federation of Pakistan 32 ITR 198, 209. See also CIT v Ahmedabad Mill Owner's Assn 7 ITR 369.
8. WTO v Mammed 129 ITR 307 (SC); Director of IT v SBM Trust 247 ITR 1 (public charitable trust); ITO v Arihant Trust 214 ITR 306 (private trust); Niti
Trust v CIT 221 ITR 435, CIT v Venu Trust 221 ITR 649, CIT v Deepak Trust 211 ITR 575 and CIT v Shri Krishna Trust 201 ITR 989 (discretionary trusts).
9. Shridhar v CIT 45 ITR 577. Cf Rex v Newmarket Commrs 7 TC 49, 54 (CA).
10. CIT v Om Prakash 238 ITR 1044 (SC); Rasiklal v CIT 193 ITR 246; CIT v Jhabarmal 195 ITR 351.
11. CWT v Champa 83 ITR 720 (SC).
12. See ante under s 2(7), 'Assessee'. See also Bejoy Singh v CIT 1 ITR 135, 137 (PC); Govindarajulu v CIT 12 ITR 97, 101.
13. See under s 171(1), 'Disrupted Hindu family deemed to be undivided'.
14. Tunki Sah v CIT 212 ITR 632 (SC); CIT v Maharani Raj Laxmi 224 ITR 582 (SC).
15. CIT v Srinivasa 232 ITR 730, 742.
16. Gowli v CIT 60 ITR 293 (SC); Pushpadevi v CIT 109 ITR 730, 738 (SC); Re Chanandevi 12 ITR 153, 158; Bhagwati v CIT 9 ITR 31, 38, affirmed 15 ITR 409
(PC). Cf CIT v Venkataraman 109 ITR 247 (a Hindu, his Christian wife and Christian daughter do not constitute an HUF).
17. CIT v Khanna 49 ITR 232; Hanumantha v CWT 65 ITR 586; Autoways v CIT 102 ITR 761.
18. Kalyanji Vithaldas v CIT 5 ITR 90.
19. Sushila v ITO 38 ITR 316; Kshetra v CEPT 20 ITR 423, affirmed in 24 ITR 488 (SC).
20. Gowli Buddanna v CIT 60 ITR 293.
21. Vedathanni v CIT 1 ITR 70 (SB); Nathu v CIT 2 ITR 463; Ramdas v CIT 115 ITR 815; CIT v Purwar 116 ITR 908; CIT v Ghanshamdass 118 ITR 930; CIT v
Bhagat 229 ITR 239.
22. Att-Gen v Arunachalam 34 ITR 42 (PC); Bharatkumar v CIT 71 ITR 1.
23. ClT v Swamy Gomedalli 5 ITR 416.
24. Narendranath v CWT 74 ITR 190 (SC), explaining Srinivasan v CIT 60 ITR 36 (SC); Hirday v ITO 78 ITR 26, 29–30 (SC); Pannalal v CIT 65 ITR 592;
Bharatkumar v CIT 71 ITR 1; CIT v Beniprasad 71 ITR 322; CIT v Arjan Singh 73 ITR 576; Pavanasa v CIT 87 ITR 552; CWT v Pannalal 96 ITR 110; Pratap v
CIT 63 ITR 505; CWT v Basappa 51 ITR 790; CIT v Krishna Kumar 143 ITR 462 (FB); Premchand v CIT 148 ITR 440; CIT v Harshvadan 194 ITR 136
(daughter); CIT v Ramanlal 195 ITR 9 and CIT v Parmandas 208 ITR 35 (wife and daughter) CWT v Sridharan 104 ITR 436 (SC); Valluri v CGT 66 ITR 255,
258; Arvind v CIT 140 ITR 241 (family arrangement); CIT v Bhagat 229 ITR 239. Under s 171(9), partial partition made on or after January 1, 1979 is
ineffectual for purposes of this Act.
25. Premkumar v CIT 121 ITR 347. Contra CIT v Vishnukumar 142 ITR 357 and CIT v Shankarlal 165 ITR 380 (FB).
26. CIT v Veerappa Chettiar 76 ITR 467; CIT v Sarwan 13 ITR 361; Savitri v CIT 104 ITR 385.
27. CIT v Snadhya Rani 248 ITR 201 (SC).
28. Krishna Prasad v CIT 97 ITR 493 (SC); Ramji v CWT 92 ITR 470; Ramachandra v CWT 48 ITR 959; Seethammal v CIT 130 ITR 597.
29. CWT v Chander 161 ITR 370 (SC); CIT v Ram Rakshpal 67 ITR 164; CIT v Manicka 114 ITR 521; CIT v Karuppan 114 ITR 523 (FB); Malchand v CIT 121
ITR 976; Shrivallabhdas v CIT 138 ITR 673; CWT v Mukundgirji 144 ITR 18; Atwal v CWT 172 ITR 223 (sons and widow). CIT v Babubhai 109 ITR 417 is,
and CWT v Harshadlal 97 ITR 86 and Bhupatrai v CIT 109 ITR 97 must be deemed, overruled. See also CIT v Khimji 115 ITR 168; CIT v Shambhu 138 ITR
373; CIT v Radhambal 153 ITR 440 and CWT v Balaramakrishna 159 ITR 832 (testate succession); Bansidhar v CIT 123 ITR 58 (accident insurance policy
taken out by father, moneys under which were received by sons); Mehrotra H.N. v CIT 276 ITR 158, (2005) 147 Taxman 488 .
30. CIT v Radhe Shyam 230 ITR 21; CIT v Bhavani Bai 195 ITR 78.
31. Prakash B. Sultane (Dr.) v CIT 280 ITR 593, (2005) 198 CTR (Bom) 529.
32. Vijay Prakash Toshniwal v CIT 284 ITR 306, (2006) 203 CTR (Raj) 207.
33. CIT v Thiagarajan 49 ITR 581.
34. Beni Bai v Raghubir Prasad 236 ITR 898 (SC); CIT v Arun Kumar 223 ITR 45; Rukmini v CWT 54 ITR 430; Subramaniam v CIT 64 ITR 367; CIT v
Roopchand 69 ITR 868; Radhakrishna v CED 81 ITR 521; CWT v Yasodamma 146 ITR 445; CIT v Mehta 194 ITR 365; CED v Alladi 108 ITR 439 (SC);
Gurupad v Hirabai 129 ITR 440 (SC). Cf CIT v Lakshmanan 8 ITR 545.
35. CWT v Chander Sen 161 ITR 370 (SC); CIT v Karuppan 197 ITR 646 (SC); CIT v Nagarathnamma 76 ITR 352; CIT v Harish 167 ITR 101; CIT v
Rajendrasinghji 213 ITR 225; CIT v Lalwani 240 ITR 750; CWT v Kantilal 90 ITR 289; CIT v Shantikumar 105 ITR 795; Navnitlal v CWT 106 ITR 512. But
under s 171 (1) until a finding of partition is recorded the Hindu undivided family shall be assessed for the entire income: Tunki Sah v CIT 212 ITR 632
(SC); CIT v Maharani Raj Laxmi 224 ITR 582 (SC). Cf CIT v Balubhai 220 ITR 334. Contrast Verma v CIT 187 ITR 465.
36. Siishila v ITO 38 ITR 316; Champa v Board of Revenue 46 ITR 81.
37. Shridhar v CIT 45 ITR 577.
38. See s 10(2).
39. Kalyanji v CIT 5 ITR 90, 94 (PC).
40. Including:

(a) his beneficial interest in a trust: CIT v Gopaldas 116 ITR 613, and
(b) his share in a firm: CIT v Dilbaghrai 117 ITR 842; CIT v Kishanlal 124 ITR 19; CIT v Keshavlal 131 ITR 229; CIT v Sivaprakasa 144 ITR 285 (part of his
share); CIT v Narayan 150 ITR 103; CIT v Muthuramakishnan 157 ITR 654; CIT v Rajendra 166 ITR 359. CIT v Madan Lal 198 ITR 287; CIT v Jagdish
207 ITR 842; CIT v Gandhi 217 ITR 171.

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41. Banarsilal v CIT 124 ITR 310.

42. Subramania v CIT 28 ITR 352; Damodar v CIT 46 ITR 1252; CIT v Khanna 49 ITR 232; Natesan v CIT 49 ITR 941, 946; CIT v Pushpadevi 82 ITR 7, on
appeal Pushpadevi v CIT 109 ITR 730 (SC); Ramdas v CIT 115 ITR 815; CIT v Purwar 116 ITR 908; CIT v Bhikraj 119 ITR 883; CIT v Dilbaghrai 117 ITR 842;
CIT v Kishanlal 124 ITR 19; CIT v Talukdar 135 ITR 628 (Dayabhaga school).
43. See post under s 64, 'Transfer of assets to or for benefit of spouse, minor child, son's wife or son's minor child'.
44. CIT v Keshavlal 55 ITR 637, 641 (SC); CIT v Stremann 56 ITR 62 (SC); Ratilal v CIT 55 ITR 517; Hari Singh v CIT 65 ITR 267; Hanumantha v CWT 65 ITR
586; Ananda v CIT 67 ITR 675; CIT v Kanhaiyatal 75 ITR 702; Gundlapalli v Gundlapalli 84 ITR 685; Rajamani v CED 84 ITR 790; Autoways v CIT 102 ITR
761; CIT v Bhikraj 119 ITR 883; CIT v Himmatmal 126 ITR 391; CIT v Sarannath 133 ITR 658; CIT v Krishna Murthy 113 ITR 133. Cf Chhaganlal v CIT 48 ITR
893; Chandmull v CIT 66 ITR 347; Vrajlal v CIT 80 ITR 299 and Bipinbhai v CIT 126 ITR 779 (no clear intention); Natesan v CIT 49 ITR 941; Subramania v
CIT 74 ITR 407; Ajit Singh v CIT 188 ITR 242. Cf also under s 171, 'Oral partition…', post.
45. Ranchhodraiji v CIT 54 ITR 664; CIT v Gordhandas Vora 96 ITR 50.
46. CIT v Kanodia 195 ITR 557.
47. CIT v Khanna 49 ITR 232.
48. Pushpadevi v CIT 109 ITR 730 (SC); CIT v Sita 91 ITR 193; Padma v CIT 128 ITR 174. Cf CGT v Munshilal 85 ITR 129; Ramlal v CIT 124 ITR 157.
49. CIT v Satyendra Kumar 232 ITR 360 (SC); CIT v Ghanshamdass 118 ITR 930.
50. Sukhlal Bhanwarlal (HUF) v CIT 226 ITR 513, 517
51. Surjitial Chhabda v CIT 101 ITR 776; CIT v Vishnukumar 142 ITR 357; CIT v Satyanarayan 147 ITR 140; CIT v Shankarlal 165 ITR 380 (FB); CIT v
Rajeshwari 166 ITR 789; CIT v Chopra 191 ITR 455.
52. CIT v Inder Singh Uppal 98 ITR 368.
53. Ramdas Pai v CIT 115 ITR 815.
54. CIT v Polaki 174 ITR 430, 433.
55. Surjitial Chhabda v CIT 101 ITR 776, 795–96.
56. Ibid at p 795.
57. See p 170, nn 20-25.
58. Murugappa v CIT 21 ITR 319; Hanumanthappa v CIT 22 ITR 364; Knightsdale v CIT 28 ITR 650.
59. Ram Jha v CIT 31 ITR 987.
60. Re Haridas 15 ITR 124; Kaniram v CIT 27 ITR 294, 306; CIT v Gurbux Singh 139 ITR 220.
61. Ranchhodraiji v CIT 54 ITR 664; Nilakantha v CIT 173 ITR 336.
62. Piyarelal v CIT 40 ITR 17 (SC).
63. CIT Ranjiitsinhji 232 ITR 140; CIT v Venkatasubban 240 ITR 674.
64. Padampat v CIT 24 ITR 184.
65. CIT v Thaver 2 ITR 230; CIT v Doraiswami 1 ITC 214, 217; Bansidhar v CIT 123 ITR 58. Cf CIT v Charandass 123 ITR 194.
66. Amerchand v CIT 30 ITR 238.
67. Harisingh v CIT 2 ITC 80; South Indian Lucifer v CIT 43 ITR 319.
68. CIT v Doraiswami 1 ITC 214; Bajanlal v CIT 5 ITC 118; Re Mullick 6 ITR 99; Deokinanden v CIT 4 ITC 398 (where partnership was between a member
of family and strangers).
69. Kaniram v CIT 27 ITR 294; Knightsdale v CIT 28 ITR 650; Dhanwatey v CIT 32 ITR 682. See further ante under s 2(23), 'Joint family, company or
firm...as partner'.
70. Re Mangalchand 21 ITR 164; Kaniram v CIT 27 ITR 294.
71. CIT v Kalubabu 37 ITR 123, 128 (SC); Mathuraprasad v CIT 60 ITR 428 (SC); CIT v Charandass 123 ITR 194; Agarwalia v CIT 114 ITR 471 (SC) (minor
sons admitted to benefits of partnership on karta's death).
72. Padampat v CIT 24 ITR 184; Kapoor v CIT 27 ITR 348; Jainal-ayan v CIT 31 ITR 271; Premsukhdas v CIT 46 ITR 376; Chandmull v CIT 66 ITR 347.
73. Jitumal v CIT 12 ITR 296; Jainarayan v CIT 31 ITR 271; Madanlal v CED 74 ITR 84; CIT v Champaklal 81 ITR 293; Satinder v CIT 106 ITR 64; Singar
Singh v CIT 10 ITR 441.
74. Mangilal v CIT 39 ITR 167; Prahlad v CIT 166 ITR 149.
75. Gopiram v CIT 39 ITR 513; Tolaram v CIT 112 ITR 750 (SC).
76. Sahu v State of UP 31 ITR 895.
77. Kapoor v CIT 27 ITR 348; Chunilal v CIT 70 ITR 288. Cf Ranchhodraiji v CIT 54 ITR 664.
78. CIT v Vaiyapuri 215 ITR 836; Parmanand v CIT 135 ITR 673.
79. CIT v Braham 46 ITR 387; Hirday v CIT 57 ITR 363; CIT v Motilal 76 ITR 43; Jugalkishore v CIT 79 ITR 598; CIT v Ramgopat 123 ITR 693; Thamma v
Thamma 168 ITR 760 (SC); CIT v Ratanbai 68 ITR 1; CIT v Govind 101 ITR 602; CIT v Daijit Singh 131 ITR 719; CIT v Gangadhar 142 ITR 677; Anilkumar v
CWT 142 ITR 831; CIT v Anil 148 ITR 3; Malpani v CIT 215 ITR 241; Gupta v CIT 233 ITR 456 and post under s 5(l)(b), 'Incomplete or ineffective gifts…'.
Contra CGT v Tejnath 86 ITR 96 (FB); CIT v Gurprit Singh 139 ITR 48.
80. CWI v Shanmughasundaram 232 ITR 354 (SC); CIT v Rameshwar 241 ITR 204.
81. Arunachala Mudaliar v Muruganatha Mudaliar[1954] SCR 243 [LNIND 1953 SC 90] ; Parthasarathy v CIT 76 ITR 688 (SC); Periakaruppan v CIT 99
ITR 1 (SC); CIT v Bahadur Singh 162 ITR 343 (SC); CIT v Gordhandas 96 ITR 50; CIT v Krishan 96 ITR 714; Ananda v CIT 67 ITR 675; CIT v Khimji 115 ITR
168; CIT v Shambhu 138 ITR 373; CIT v Radhamal 153 ITR 440; CWT v Balaramakrishna 159 ITR 832; Jagga v CIT 166 ITR 862; CIT v Balasubramanian
182 ITR 117 (FB).
82. Raghbir Singh v CIT 34 ITR 719; CIT v Ramgopal 123 ITR 693.
83. CGT v Ranganatha 133 ITR 890; Gangadhar v CIT 162 ITR 320; CGT v Tejnath 86 ITR 96 (FB).
84. CIT v Admiralty Flats 133 ITR 895.
85. Pranjirandas v CIT 201 ITR 1047; CIT v Dwarka Das 212 ITR 579; Gangadhar v CIT 217 ITR 588.
86. CIT v Shanmugha 115 ITR 178, affirmed on another ground in CWI v Shanmughasundaram 232 ITR 354 (SC); Sushil Kumar and Sons v ITO 234 ITR
98.
87. CIT v Partapchand 36 ITR 262.
88. CIT v Kalubabu 37 ITR 123 (SC); Palaniappa v CIT 68 ITR 221 (SC); Dhanwatey v CIT 68 ITR 365 (SC); Dhanwatey v CIT 68 ITR 385 (SC); CIT v
Gurunath 72 ITR 192 (SC); Krishna Iyer v CIT 73 ITR 539 (SC); CIT v Shah 73 ITR 692 (SC); Bhagwant v CIT 38 ITR 436; Mohan v CIT 46 ITR 1230; Daljit
Singh v CIT 52 ITR 933, overruled on another point in CIT v Madho 105 ITR 179 (SC); Lal Girjesh v CIT 55 ITR 167; Rathnasabapathy v CIT 62 ITR 358;
Rameshwar v CIT 65 ITR 482; Nagardas v CIT 66 ITR 203; CIT v Talwar 69 ITR 704; Trilok Singh v CIT 71 ITR 29.
89. CIT v Dineshchandra 112 ITR 758, 770.
90. Rajkumarsingh Hukamchandji v CIT 78 ITR 33, followed in Agarwalla v CIT 114 ITR 471 (SC). Cf Arvind v CIT 140 ITR 241, 268, 72.
91. Gajanand v CIT 92 ITR 119; Bimal v CIT 93 ITR 225; Khubchand v CIT 100 ITR 206; Bhandarkar v CIT 158 ITR 724; Balak Ram v CIT 221 ITR 678.
1. Brij Mohan v CIT 201 ITR 831 (SC); CIT v Trilok Nath 231 ITR 278 (SC); Subbiah v CIT 237 ITR 11 (SC); Dhirendra v CIT 188 ITR 19; CIT v Deenadayalan
241 ITR 133; Premnath v CIT 78 ITR 319 (SC); Rajarathnam v CIT 80 ITR 705; CIT v Bhaskar 82 ITR 345; Patel v CIT 91 ITR 353; Hiralal v CIT 92 ITR 49;
Balakrishnan v CIT 96 ITR 469; Dasappa v CIT 96 ITR 523; Harikrishna v CIT 105 ITR 612; CIT v Mohanial 107 ITR 579; Khushal v CIT 109 ITR 814; CIT v
Dineshchandra 112 ITR 758; CIT v Sanghavi 119 ITR 863; CIT v Jain 124 ITR 880; CIT v Pratap 125 ITR 598; CIT v Subbaiah 127 ITR 505, CIT v Sardar Singh
132 ITR 352; CIT v Trilochan 132 ITR 523; Laxmandas v CIT 138 ITR 628; CIT v Thyagaraja 140 ITR 128; CIT v Atmaram 146 ITR 240 (FB); CIT v Surendra
154 ITR 264; CIT v Rathaiah 159 ITR 945; Pannalal v CIT 162 ITR 158; Dhirendra v CIT 188 ITR 19; CIT v Swamy 248 ITR 131; CIT v Sankaralinga 18 ITR
194; CIT v Darsanram 13 ITR 419; Indra Singh v CIT 11 ITR 16, 36.
2. CIT v Kamal Singh 89 ITR I (SC); CIT v Gyan Manjuri 13 ITR 55. Cf CIT v Patwardhan 75 ITR 68.
3. ITR 695, 701. See also post s 27(ii) and under s 22, 'Owner'.
4. Re Kaliprasad 29 ITR 42.
5. CIT v Taraprasad 51 ITR 98. Cf post under s 159, 'Income of deceased till date of death...'.
6. Dhanwatey v CIT 68 ITR 365, 375 (SC); Krishna Iyer v CIT 73 ITR 539 (SC).

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7. Narendranath (P) v CIT 221 ITR 418; CIT v Yash Kumar Rastogi 221 ITR 66; CIT v Sarika Saree House 191 ITR 517; CIT v Shyam Lal Surendra Kumar
191 ITR 81.
8. CIT v Sharadaprasad Motilal & Brothers 229 ITR 647.
9. CIT v Kanpur Coal Syndicate 53 ITR 225 (SC); Manoharlal Gupta & Co v CIT 220 ITR 145 (SC). Cf post under ss 182–83, 'Direct assessment on partner
without assessment on firm'.
10. Ipoh v CIT 67 ITR 106 (SC).
11. ITO v Ch Atchaiah 218 ITR (SC); Mahendra v ITO 103 ITR 688; Rodamal v CIT 109 ITR 7; Punjab Cloth Store v CIT 121 ITR 604; Choudry Bros v CIT 158
ITR 224; Bhoomiamma v CIT 194 ITR 723; CIT v Lalita 234 ITR 319; CIT v Abdul Rasheed 240 ITR 402; CIT v Murugesa 244 ITR 461. Contra SC in Atchaiah
expressly overruled decisions in CIT v Pure Nichitpurcolliery 101 ITR 79 and impliedly overruled decisions in Ramanlal v CIT 116 ITR 657; C Ratan & Co
and SN Agarwalla v ITO 128 ITR 39; Laxmichand v CIT 128 ITR 747; CIT v Sheth 148 ITR 169; Venkatakrishna Rice v CIT 163 ITR 129; CIT v
Chandrasekaran 182 ITR 392; Kandan Chettiar 186 ITR 339; CIT v Manjunatha 197 ITR 321. See also CIT v Manoharlal 220 ITR 145 (SC) (firm); Neela
Productions v CIT 223 ITR 504 (body of individuals).
12. CIT v Govindbhai Mamaiya 367 ITR 498 (SC).
13. Cf CIT v Ahmedabad Millowners' Assn 7 ITR 369.
14. Ipoh v CIT 67 ITR (SC). Cf Mian v CIT 4 ITR 203; CIT v Salem Bank 8 ITR 269. See also ante under s 2(23), 'Joint family, company or firm...as partner'.
15. CIT v All India Hindu Mahasabha 140 ITR 748.
16. Mohammed Noorullah v CIT 42 ITR 748 (SC); Ipoh v CIT 67 ITR 106, 116 (SC); Murugesan v CIT 88 ITR 432 (SC); CIT v Laxmidas 5 ITR 584.
17. Gouranga Lal v ITO 247 ITR 737; CIT v Oriental Structural Engineers P. Ltd. 374 ITR 35.
18. Linde AG Linde Engineering Division v ADIT 365 ITR 1.
19. See also s 40(ba).
20. Re Elias 3 ITR 408, 415; Saldhana v CIT 6 ITC 114, 118 (FB); Mohammed Abdul v CIT 16 ITR 412, 426.
21. Re Elias 3 ITR 408, 417; Mohammed Abdul v CIT 16 ITR 412; Jotiprasad v ITO 37 ITR 107; Taranand v State of Bihar 40 ITR 460; Sunil v CIT 71 ITR 618;
CIT v Moosa 153 ITR 360; CIT v Friends Enterprises 171 ITR 269.
22. CIT v T. George 316 ITR 333, (2009) 223 CTR (Ker) 471.
23. CIT v Laxmi Pd. and Sons 316 ITR 330.
24. CIT v Cloth Semi-Wholesalers 29 ITR 500; CIT v Laxmi Pd. & Sons 316 ITR 330; CIT v Sehgal Oil & General Mills 303 ITR 102.
25. Shanmugham v CIT 81 ITR 310 (SC). Contrast CIT v SB Sugar 156 ITR 273.
26. CIT v Buldana Cloth Importers 42 ITR 172 (SC).
27. Joint Committee v CIT 48 ITR 427.
28. George v CIT 171 ITP 386.
29. Re Nizamuddin 11 ITR 443; Zainuddin v CIT 30 ITR 36; Choodamani v CIT 35 ITR 676; Govindaraju v CIT 51 ITR 731; CIT v Memodevi 113 ITR 335;
Aleemullakhan v C Ag IT 148 ITR 696; CIT v Arumugham 224 ITR 391; CGT v Valsala 82 ITR 828 (SC).
30. CIT v Indira Balkrishna 39 ITR 546, followed in Murugesan v CIT 88 ITR 432 (SC) (dividends received by joint shareholders); Narayan v CIT 136 ITR
133 and CIT v Desale 137 ITR 117; Milan Supari v ITO 184 ITR 106; CIT v Chandmal 213 ITR 789; Madhusudan v CIT 209 ITR 888; CIT v Arumugham 224
ITR 391; Sardar Harvinder v ACIT 227 ITR 512; CIT v Chandrasekharan 229 ITR 406; CIT v Sethu 241 ITR 711; CIT v Ashok 244 ITR 104; CIT v Abdul Jaffar
250 ITR 736; CIT v Shiv Sagar Estates 201 ITR 953; CIT v Shivsagar 204 ITR 1; CIT v Marsons 188 ITR 224; Lalchand v JK Kuriyah 188 ITR 253; CIT v
Shyamaraju 189 ITR 392.
31. Mohammed Noorullah v CIT 42 ITR 115.
32. C Ag IT v Ratan Gopal 59 ITR 728, 732; Aleemullakhan v C Ag IT 148 ITR 696.
33. State of Madras v Karuppan 61 ITR 488; State of Madras v Subramania 61 ITR 613; State of Madras v Pattammal 62 ITR 485; Punja v C Ag IT 63 ITR
442; CIT v Devadasan 63 ITR 569; Ladukishore v State of Orissa 87 ITR 555; Periaswamy v Ag ITO 134 ITR 155; Manjappa v State of Karnataka 150 ITR
303. Cf CIT v Desale 137 ITR 117, 125–26.
34. CIT v Malibu Estate P. Ltd. 298 ITR 72, (2006) 205 CTR (Del) 134; Geoconsult ZT GmbH, In re 304 ITR 283 (AAR).
35. Mohammed Noorullah v CIT 42 ITR 115 (SC); Mohammed Rowther v CIT 49 ITR 39; Saldhana v CIT 6 ITC 114 (FB); Re Dwarkanath 5 ITR 716; CIT v
Baporia 7 ITR 225; Ghulam v CIT 10 ITR 405; Chowdhury v CIT 29 ITR 759; Viswanatha v Ag ITO 55 ITR 692. Cf CIT v Indira 39 ITR 546 (SC); Abdul
Rahman v CIT 12 ITR 302.
36. CIT v Gool 184 ITR 248; CIT v Pobati 145 TR 702; CIT v Vimla 143 ITR 16.
37. L.R. Patel Family Trust v ITO 262 ITR 520, (2003) 182 CTR (Bom) 255.
38. PILCOM v CIT 335 ITR 147.
39. Abdul Rahman v CIT 12 ITR 302. See also ss 26, 67A, 86(v), 164 and 167B.
40. CIT v Indira 39 ITR 546 (SC); Mohammed Aslam v CIT 4 ITR 412; Aleemullakhan v C Ag IT 148 ITR 696; Bolla v CIT 71 ITR 209 and CIT v
Kanakarathinam 146 ITR 364 (lease by co-owners); CIT v Deghamwala 109 ITR 416 and CIT v Saraswati 137 ITR 656 (capital gains on sale of property);
Ramadevi v CIT 117 ITR 256 and CIT v Har Parshad 178 ITR 591 (sale by co-owners); CIT v Shiv Sagar Estates 201 ITR 953; CIT v Shivsagar 204 ITR 1; CIT
v Patni 234 ITR 12; CIT v Deghamwala 121 ITR 684; CIT v Suresh 121 ITR 985.
41. Re Keshardeo 5 ITR 246, 259, affirmed in 7 ITR 394 (PC); Manjappa v State of Karnataka 150 ITR 303.
42. CIT v Indramohan 13 8 ITR 699; Shantikumar v CIT 148 ITR 11; CIT v Pobbati 145 ITR 702.
43. Mazumdar v CIT 15 ITR 484, overruled on another point in Mohammed Noorullah v CIT 42 ITR 115 (SC); Taranand v State of Bihar 40 ITR 460; CIT v
SB Sugar 156 ITR 273 (receiver appointed to run mill belonging to litigating co-owners).
44. Mohammed Noorullah v CIT 42 ITR 115 (SC) (co-heirs to business), overruling on this point Mazumdar v CIT 15 ITR 484; Mohammed Rowther v CIT
49 ITR 39 (executor carrying on business with consent and concuffence of Muslim co-heirs); Ambaji v CIT 58 ITR 675 (co-owners of temple in collective
management); CIT v Kalpana 152 ITR 576.
45. Parvathi v CIT 164 ITR 675.
46. Re Elias 3 ITR 408; CIT v Laxmidas 5 ITR 584; CIT v Chhotalal 8 ITR 114; Ghulam v CIT 10 ITR 405; Viswanatha v Ag ITO 55 ITR 692.
47. Mazumdar v CIT 15 ITR 484, 493, overruled on another point in Mohammed Noorullah v CIT 42 ITR 115 (SC); Bolla v CIT 71 ITR 209.
48. Abdul Rahman v CIT 12 ITR 302, 308.
49. Mohammed Abdul v CIT 16 ITR 412.
50. Kumaraswami v ITO 31 ITR 457.
51. See ante under s 2(23), 'Illegal partnerships'.
52. Gopalji v CIT 5 ITC 257.
53. CIT v Indira 39 ITR 546, 552 (SC); Re Elias 3 ITR 408, 417; CIT v Baporia 7 ITR 225, 234, 237; Re Nizamuddin 11 ITR 443, 446.
54. Hyundai Rotem In Re AAR 323 ITR 277 (AAR).
55. CIT v Malibu Estate 298 ITR 72, (2006) 205 CTR (Del) 134.
56. Hyosung Corporation, In Re 314 ITR 343 (AAR).
57. Geoconsult ZT Gmbh, in Re 304 ITR 283 (AAR); ABC, In re 345 ITR 119; Linde AG, In re 349 ITR 172.
58. Hyundai Rotem Co. in Re 323 ITR 277 (AAR).
59. See ante under 'Association of persons, connotation' and 'Co-owners'.
60. CIT v Desale 137 ITR 117 (promoters appointed for getting co-operative society registered).
61. CIT v Vimla Lal 143 ITR 16, 25–27 (co-heirs having ascertainable shares) (SLP rejected 151 ITR (St.) 11); CIT vSB Sugar 156 ITR 273.
62. CIT v Parukutty Mooppitamma 149 ITR 131 (one of quondam members of disrupted Hindu family managing properties on behalf of all). See also
Sunanda v CIT 174 ITR 664 (Karnataka).
63. CIT v Pabbati 145 ITR 702; CIT v Vimla 143 ITR 16 (capital gains).
64. CIT v Indira Balkrishna 39 ITR 546.
65. Mohammed Noorullah v CIT 42 ITR 115.
66. CIT v Deghamwala Estates 121 ITR 684, affirmed CIT v Suresh 119 Tax 275 (SC) followed in CIT v Pattabhiraman 164 ITR 786. See also CGT v

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Valsala 82 ITR 828 (SC). Cf CIT v Bangalore Turf Club 145 ITR 323 (SLP rejected 169 ITR (St.) 14).
67. CIT v Suresh Chandran 121 ITR 985, on appeal 249 ITR 786 (SC).
68. Deccan Wine v CIT 106 ITR 111. Question of correctness of this decision was left open in Pannabai v CIT 153 ITR 608, 611, 614, 624 (FB). Cf CIT v
Gattupalli 171 ITR 69 (sale of inherited import entitlements).
69. Meera v CIT 224 ITR 635 (SC); CIT v S.C. Shah 274 ITR 217, (2005) 193 CTR (Guj) 226.
70. CIT v Artex 227 ITR 260.
71. Sakinabai Ibrahim v CIT 101 Tax 473.
72. M Jaymohan v CAIT 240 ITR 386.
73. Calcutta STC v CIT 219 ITR 515 (SC). See s 3(31) of General Clauses Act.
74. City Board v CIT 46 ITR 1214; City Board v CIT 22 ITR 259, 263.
75. CIT v Ag Market Committee 143 ITR 1020; Krishi Samiti v ITO 158 ITR 742.
76. Calcutta STC v CIT 219 ITR 515 (SC).
77. British Broadcasting Corpn v Johns 41 TC 471 (CA).
78. Bar Council v CIT 143 ITR 584.
79. Mangalam Service Co-operative Bank Ltd. v ITO 354 ITR 601.
80. CIT v Children's Education Society 358 ITR 373.
81. Circular No. 4 of 2019, January 28, 2019, 410 ITR (St.) 207.
82. The Official Assignee, Madras High Court v CBDT WP No. 21785 of 2019 on the file of the Madras High Court. The High Court has granted interim
stay of the operation of the Circular.
83. CIT v Parvathavarthini 219 ITR 661.
84. CIT v Sokkalal 236 ITR 981.
85. Cf Expln 3 to s 2(22) and Expln 2 to s 64(1).
86. Filtrona v CIT 207 ITR 545; Star v CIT 203 ITR 11.
87. Suresh Deole v CCIT 188 ITR 741, 746.
88. Ins. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(VII) (w.r.e.f. 1-6-2013). See Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22.
89. Subs., for "Income-tax Officer", by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988).
90. Hungerford v ITO 142 ITR 601.
91. Managing director cannot be equated with manager: ITO v Joseph 83 ITR 362.
92. Hungerford v ITO 142 ITR 601; Pratap v Muthuramalingam 149 ITR 798 (managing director). Contrast Greatway v ACIT 199 ITR 391.
93. Kalanithi Maran v UOI 405 ITR 356.
94. PCIT v NRA Iron & Steel P. Ltd. 418 ITR 449 (SC).
1. See post under ss 222–23, 'Priority for tax dues: Liquidation of company and insolvency'.
2. CIT v Official Liquidator 2 ITR 79; Ravi v Federation of Pakistan 27 ITR 475, 492–23; Tikaram v CIT 51 ITR 403; Official Liquidator v CIT 79 ITR 399;
Official Liquidator v CIT 80 ITR 108, reversed on another point in Imperial v ITO 219 ITR 498 (SC); ITO v Official Liquidator, 106 ITR 119 [official liquidator
scrutinising, under s 497(6) of Companies Act, 1956, the records of company]. See also ss 178 and 179 and Narula v CIT 253 ITR 49.
3. Madhumilan Syntex Ltd v UOI 290 ITR 199 (SC), AIR 2007 SC 1481 [LNIND 2007 SC 380] , (2007) 11 SCC 297 [LNIND 2007 SC 380] .
4. ITO v Delhi Iron Works P. Ltd. 331 ITR 5.
5. CIT v Lallubhai Nagardas 204 ITR 93.
6. Ins. by the Finance Act, 1987 (11 of 1987), s 3(d) (w.e.f. 1-4-1987). See Circular No. 495, September 22, 1987, 168 ITR (St.) 87.
7. For text, see Appendix 85.
* Repealed and replaced by Act 18 of 2013. 8. For text, see Appendix 109.
8. For text, see Appendix 109.
9. Clause (37A) has been inserted by the Finance (No. 2) Act, 1967 (20 of 1967), s 4(b) (w.e.f. 1-4-1967). See Circular No. 5P, October 9, 1967.
10. The words, brackets, figures and letter "or sub-section (9) of section 80E from any payment referred to therein" have been omitted by the Direct
Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3( o)(i)(1) (w.e.f. 1-4-1989). See Circular No. 6P, July 6, 1968. Earlier, this portion was inserted by the
Finance Act, 1968 (19 of 1968), s 4 (w.e.f. 1-4-1968).
11. Subs., for "computation of the 'advance tax' payable under Chapter XVII-C, the rate or rates of income-tax specified in this behalf in the Finance
Act of the relevant year", by the Finance Act, 1970 (19 of 1970), s 3(c) (w.e.f. 1-4-1971).
12. Subs., for "in a case not falling under section 164", by the Finance Act, 1976 (66 of 1976), s 3(b)(i) (w.e.f. 1-6-1976). See Circular No. 202, July 5,
1976, 105 ITR (St.) 17.
13. Subs., for "section 115B or section 164", by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(o)(i)(2) (w.e.f. 1-4-1988).
14. Subs., for "or section 115BB or section 115E", by the Finance Act, 2002 (20 of 2002), s 3(c) (w.e.f. 1-4-2003).
15. The words, figures and letter "or section 167A" have been omitted by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 2( c)(A) (w.e.f. 1-4-
1989).
16. Ins. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(o)(i)(3) (w.e.f. 1-4-1989).
17. Subs., for "in a case falling under section 164, the rate specified in that section", by the Finance Act, 1976 (66 of 1976), s 3(b)(ii) (w.e.f. 1-6-1976).
18. Subs., for "section 115B or, as the case may be, section 164", by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3( o)(i)(4) (w.e.f. 1-4-
1988).
19. The figures and letters "194A, 194B" were substituted for "194A" by the Finance Act, 1972 (16 of 1972), s 3(c) (w.e.f. 1-4-1972).
20. Subs., for "194B,", by the Finance Act, 1978 (19 of 1978), s 32(a) (w.e.f. 1-4-1978).
21. Subs., for "194D and 195", by the Finance (No. 2) Act, 1991 (49 of 1991), s 3(b)(i) (w.e.f. 1-10-1991). Earlier, in effect, "194D" was inserted by the
Finance Act, 1973 (21 of 1973), s 3(a) (w.e.f. 1-4-1973). Further, the figures and letter ", 194E" were omitted by the Direct Tax Laws (Amendment) Act,
1989 (3 of 1989), s 2(c)(B) (w.r.e.f. 1-4-1988). These were, in effect, inserted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3( o)(ii) (w.e.f. 1-
4-1988).
22. Subs. by the Finance Act, 1992 (18 of 1992), s 3(c) (w.e.f. 1-6-1992), Circular No. 636, August 31, 1992, 198 ITR (St.) 1, for the following clause (iii):—

"(iii) for the purposes of deduction of tax under section 195, the rate or rates of income-tax specified in section 115A or the rate or rates of income-
tax specified in this behalf in the Finance Act of the relevant year, whichever is applicable;".
The above sub-clause (iii) was originally inserted by the Finance (No. 2) Act, 1991 (49 of 1991), s 3(b)(ii) (w.e.f. 1-10-1991).
23. Ins. by the Finance Act, 2015 (20 of 2015), s 3(d) (w.e.f. 1-4-2016). See Circular No. 19 of 2015, November 27, 2015, 379 ITR (St.) 19.
24. Ins. by the Finance Act, 2016 (28 of 2016), s 3(d) (w.e.f. 1-6-2016). See Circular No. 3 of 2017, January 20, 2017, 391 ITR (St.) 253.
25. Sub., for "an agreement entered into by the Central Government under section 90, whichever is applicable by virtue of the provisions of section
90;", by the Finance Act, 2006 (21 of 2006), s 3(iii) (w.e.f. 1-6-2006), Circular No. 14, December 28, 2006, 288 ITR (St.) 9.
26. Subs., for "Chief Commissioner or Commissioner", by the Finance (No. 2) Act, 2014 (25 of 2014), s 4 (w.r.e.f. 1-6-2013). See Circular No. 1 of 2015,
January 21, 2015, 371 ITR (St.) 22. Earlier, the above words were substituted, for "Commissioner", by the Direct Tax Laws (Amendment) Act, 1987 (4 of
1988), s 2 (w.e.f. 1-4-1988).
27. Now, the short title is "the Employees' Provident Funds and Miscellaneous Provisions Act, 1952". Meaning of the recognised provident fund has
been explained in CBDT Circular No. 153, dated November 30, 1974, 98 ITR (St.) 37.
28. Clause (39) has been omitted by the Finance Act, 1992 (18 of 1992), s 3(d) (w.e.f. 1-4-1993), Circular No. 636, August 31, 1992, 198 ITR (St.) 1. Prior
to this, clause (39) stood as follows:—
'(39) "registered firm" means a firm registered under the provisions of clause (a) of sub-section (1) of section 185 or deemed to be registered under the

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provisions of sub-section (6) of that section or under those provisions read with sub-section (7) of section 184;'.
The above clause (39) was, earlier, substituted by the Direct Tax Laws (Second Amendment) Act, 1989 (36 of 1989), s 2( i) (w.e.f. 1-4-1989), for the
following:—
'(39) "registered firm" means a firm registered under the provisions of clause (a) of sub-section (1) of section 185 or under that provision read with
sub-section (7) of section 184;'.
The omission of clause (39) by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3( p) (w.e.f. 1-4-1989) has been set at naught as a result of the
omission of that section 3(p) by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 95(a)(1) (w.e.f. 1-4-1989).
29. Subs., for "section 143", by the Finance Act, 1990 (12 of 1990), s 3(ii) (w.r.e.f. 1-4-1989).
30. Charles v CIT 147 ITR 694, 700.
31. Ins. by the Finance Act, 1999 (27 of 1999), s 3(f) (w.e.f. 1-4-2000). See Circular No. 779, September 14, 1999, 240 ITR (St.) 3.
32. Ins. by the Finance (No. 2) Act, 1962 (20 of 1962), s 3 (w.e.f. 1-4-1962).
33. Subs. by the Finance Act, 1973 (21 of 1973), s 3(b) (w.e.f. 1-4-1974), Circular No. 126, November 28, 1973, 93 ITR (St.) 36, for the following:—
'"short-term capital asset" means a capital asset held by an assessee for not more than twenty-four months immediately preceding the date of its
transfer but does not include a capital asset, being a certificate issued by an authorised dealer as defined in clause (ai) of section 2 of the Foreign
Exchange Regulation Act, 1947 (7 of 1947), as evidence of the remittance of foreign currency, or other foreign exchange [as defined respectively in
clause (c) and clause (d) of the said section] to India from a country outside India in accordance with the provisions of the said Act and any rules made
thereunder, during the period commencing on the 26th day of October, 1965, and ending on the 28th day of February, 1966, or such later date as the
Central Government may, by notification in the Official Gazette, specify in this behalf, notwithstanding that such capital asset has been held by the
assessee for not more than twenty-four months immediately preceding the date of its transfer.'.
The above portion was, earlier, amended by the Finance Act, 1966 (13 of 1966), s 4(c) (w.e.f. 1-4-1966) and by the Finance Act, 1968 (19 of 1968), s 30
and Sch. III (w.e.f. 1-4-1969).
34. Subs., for "sixty months", by the Finance (No. 2) Act, 1977 (29 of 1977), s 3 (w.e.f. 1-4-1978). See Circular No. 229, August 9, 1977, 111 ITR (St.) 9.
35. Ins. by the Finance Act, 1987 (11 of 1987), s 3(e) (w.e.f. 1-4-1988). See Circular No. 495, September 22, 1987, 168 ITR (St) 87.
36. Subs. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(VIII)(A)(i) & (ii) (w.e.f. 1-4-2015), Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22, for
the following:—
"a share held in a company a[or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under
the Unit Trust of India Act, 1963 (52 of 1963), or a unit of a Mutual Fund specified under clause (23D) of section 10],".
————————————————
a. Ins. by the Finance Act, 1994 (32 of 1994), s 3(e)(i) (w.e.f. 1-4-1995). See Circular No. 684, June 10, 1994, 208 ITR (St.) 8.
It is pertinent to note that the italicized words both in body text and above footnote, are existing words not touched by the Finance (No. 2) Act, 2014,
but for making understand the impact of 1994-amendment in toto, the same have been given as such.
37. Now, Act 52 of 1963, has been repealed by s 21 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002).
38. Ins. by the Finance Act, 2005 (18 of 2005), s 3(c) (w.e.f. 1-4-2006).
39. Ins. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(VIII)(B) (w.e.f. 1-4-2015). See Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22.
40. Ins. by the Finance Act, 2016 (28 of 2016), s 3(e) (w.e.f. 1-4-2017). See Circular No. 3 of 2017, January 20, 2017, 391 ITR (St.) 253.
41. Ins. by the Finance Act, 2017 (7 of 2017), s 3(II)(a) (w.e.f. 1-4-2018). See Circular No. 2 of 2018, February 15, 2018, 401 ITR (St.) 178.
42. Explanation has been renumbered as Explanation 1 by the Finance Act, 1994 (32 of 1994), s 3(e)(ii) (w.e.f. 1-4-1995).
43. Subs., for "clauses (i) to (iii)", by the Finance (No. 2) Act, 1967 (20 of 1967), s 4(c)(i) (w.e.f. 1-4-1967). See Circular No. 5P, October 9, 1967.
44. Ins. by the Finance Act, 2018 (13 of 2018), s 3(b)(ii)(A) (w.e.f. 1-4-2018). See Circular No. 8 of 2018, December 26, 2018, 410 ITR (St.) 1.
45. Ins. by the Finance (No. 2) Act, 1967 (20 of 1967), s 4(c)(ii) (w.e.f. 1-4-1967).
46. Ins. by the Finance Act, 1994 (32 of 1994), s 3(e)(ii) (w.e.f. 1-4-1995). See Circular No. 684, June 10, 1994, 208 ITR (St.) 8.
47. Ins. by the Finance Act, 1995 (22 of 1995), s 3 (w.e.f. 1-4-1996). See Circular No. 717, August 14, 1995, 215 ITR (St.) 70.
48. Ins. by the Finance Act, 1999 (27 of 1999), s 3(g) (w.e.f. 1-4-2000). See Circular No. 779, September 14, 1999, 240 ITR (St.) 3.
49. Sub-clauses (h) and (ha) have been inserted by the Finance Act, 2003 (32 of 2003), s 3(b) (w.e.f. 1-4-2004). See Circular No. 7, September 5, 2003,
263 ITR (St.) 62.
50. Ins. by the Finance Act, 2007 (22 of 2007), s 3(g)(i) (w.e.f. 1-4-2008). See Circular No. 3, March 12, 2008, 299 ITR (St.) 8.
51. Ins. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(VIII)(C) (w.e.f. 1-10-2014). See Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22.
52. Ins. by the Finance Act, 2015 (20 of 2015), s 3(e) (w.e.f. 1-4-2016). See Circular No. 19 of 2015, November 27, 2015, 379 ITR (St.) 19.
53. Ins. by the Finance Act, 2017 (7 of 2017), s 3(II)(b)(A) (w.e.f. 1-4-2018). See Circular No. 2 of 2018, February 15, 2018, 401 ITR (St.) 178.
54. Ins. by the Finance Act, 2017 (7 of 2017), s 3(II)(b)(B) (w.e.f. 1-4-2017).
55. Ins. by the Finance Act, 2020 (12 of 2020), s 3(iii) (w.e.f. 1-4-2020).
56. Ins. by the Finance Act, 1994 (32 of 1994), s 3(e)(iii) (w.e.f. 1-4-1995). See Circular No. 684, June 10, 1994, 208 ITR (St.) 8.
57. For text, see Appendix 147.
58. Ins. by the Finance Act, 2007 (22 of 2007), s 3(g)(ii) (w.e.f. 1-4-2008).
59. Ins. by the Finance (No. 2) Act, 2014 (25 of 2014), s 3(VIII)(D) (w.e.f. 1-4-2015). See Circular No. 1 of 2015, January 21, 2015, 371 ITR (St.) 22.
60. Subs., for "the Explanation to clause (38) of section 10", by the Finance Act, 2018 (13 of 2018), s 3(b)(ii)(B) (w.e.f. 1-4-2018). See Circular No. 8 of
2018, December 26, 2018, 410 ITR (St.) 1.
61. CIT v Chunilal 93 ITR 369, 379–80 (beneficial ownership is enough) and CIT v Ved Parkash 207 ITR 148; CIT v Sood 161 ITR 92 (mere agreement to
purchase is not enough). See also CIT v All India Tea 117 ITR 525 (constructive or symbolic possession); CWT v Rai 119 ITR 553, 560; Sushila v CWT 172
ITR 74. Cf CIT v Swadeshi Match 139 ITR 833.
62. The period was twelve months up to assessment year 1968–69, twentyfour months for assessment years 1969–70 to 1973–74, and sixty months for
assessment years 1974–75 to 1977–78.
63. CIT v Frick India Ltd. 369 ITR 328.
64. CIT v Vimal Lalchand 187 ITR 613; South India Minerals Corporation v ACIT 417 ITR 306 (possession under lease-cum-sale agreement).
65. CIT v Vimal Chand 201 ITR 442; CIT v Citibank 261 ITR 570, (2003) 182 CTR (Bom) 635; CIT v Lakshmi Menon 264 ITR 76, (2003) 184 CTR (Ker) 52 .
66. CIT v Citibank 261 ITR 570, (2003) 182 CTR (Bom) 635.
67. CIT v R Jeyashankar 373 ITR 120.
68. CIT v Chunital 93 ITR 369; Manecklal v CIT 186 ITR 554. Cf Harish v CIT 135 ITR 191 (sub-division of shares).
69. Ghosh v CIT 141 ITR 45.
70. CIT v Debmalya 207 ITR 996.
71. Ins. by the Finance Act, 1987 (11 of 1987), s 3(f) (w.e.f. 1-4-1988), Circular No. 495, September 22, 1987 168 ITR (St.) 87.
72. Ins. by the Finance Act, 1999 (27 of 1999), s 3(h) (w.e.f. 1-4-2000), Earlier clause (42C) [which was, originally, inserted by the Direct Tax Laws
(Second Amendment) Act, 1989 (36 of 1989), s 2(ii) (w.e.f. 1-4-1990)] has been omitted by the Finance Act, 1990 (12 of 1990), s 3(iii) (w.e.f. 1-4-1990).
Prior to its omission, clause (42C) stood as follows:—

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'(42C) "security" means a Government security as defined in clauses (2) of section 2 of the Public Debt Act, 1944 (18 of 1944);'.
Now, with effect from April 1, 1990, this definition has been carried to section 80L(1) for the purposes of that section only.
Section 2(2) of the Public Debt Act, 1944, reads as follows:—
'(2) "Government security" means—

(a) a security, created and issued, by the Government for the purpose of raising a public loan, and having one of the following forms, namely:—
(i) stock transferable by registration in the books of the Bank; or
(ii) a promissory note payable to order; or
(iii) a bearer bond payable to bearer; or
(iv) a form prescribed in this behalf;
(b) any other security created and issued by the Government in such form and for such of the purposes of this Act as may be prescribed.'.
73. See Vatsala Shenoy v JCIT 391 ITR 363 (SC); Vatsala Shenoy v JCIT 389 ITR 519 (SC).
74. CIT v Bharat Bijlee Ltd. 365 ITR 258.
75. Clauses (43) and (43A) have been substituted by the Finance Act, 1965 (10 of 1965), s 4(vi) (w.e.f. 1-4-1965), for the following:—
"(43) 'tax' means income-tax and super-tax chargeable under the provisions of this Act;".
76. Ins. by the Finance Act, 2005 (18 of 2005), s 3(d) (w.e.f. 1-4-2006), Circular No. 3, February 27, 2006, 281 ITR (St.) 222.
77. In December 1976, the Bombay High Court rejected a reference application (ITA No 123 of 1976, CIT v South East Asia Shipping Co) from the
tribunal's decision holding that foreign tax is not a 'tax' for the purposes of this Act and therefore does not fall within s 40(a)(ii). (This was followed by
the same court in ITA No 89 of 1989, CIT v Tata Sons, in March 1993.)
78. CIT v Manoj Kumar Beriwal 316 ITR 218, (2008) 217 CTR (Bom) 407.
79. Sanjay Ghai v ACIT 352 ITR 468; H Ebrahim v DCIT 332 ITR 122. These judgments are no longer good law after the insertion of the Explanation to s
179.
80. Clause (43B) [which was originally inserted by the Finance (No. 2) Act, 1971 (32 of 1971), s 3(d) (w.e.f. 1-1-1972)] has been omitted by the Direct
Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3(q) (w.e.f. 1-4-1989). Prior to its omission, clause (43B) stood as follows:—
'(43B) "Tax Recovery Commissioner" means a Commissioner or an Assistant Commissioner of Income-tax who may be authorised by the Central
Government, by general or special notification in the Official Gazette, to exercise the powers of a Tax Recovery Commissioner;'.
81. Subs. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 3( r) [as amended by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s
95(a)(2)] (w.e.f. 1-4-1988), for the following:—
'(44) "Tax Recovery Officer" means—

(i) a Collector or an Additional Collector;

(ii) any such officer empowered to effect recovery of arrears of land revenue or other public demand under any law relating to land revenue or other
public demand for the time being in force in the State as may be authorised by the State Government, by general or special notification in the
Official Gazette, to exercise the powers of a Tax Recovery Officer;
(iii) any Gazetted Officer of the Central or a State Government who may be authorised by the Central Government, by general or special notification in
the Official Gazette, to exercise the powers of a Tax Recovery Officer;'.
The above clause (44) was, earlier, substituted by the Finance Act, 1963 (13 of 1963), s 4 (w.r.e.f. 1-4-1962).
82. Subs., for "Chief Commissioner", by the Finance (No. 2) Act, 2014 (25 of 2014), s 4 (w.r.e.f. 1-6-2013). See Circular No. 1 of 2015, January 21, 2015,
371 ITR (St.) 22.
83. Subs., for "Commissioner", by the Finance (No. 2) Act, 2014 (25 of 2014), s 4 (w.r.e.f. 1-6-2013).
84. Ins. by the Taxation Laws (Amendment) Act, 2006 (29 of 2006), s 2 (w.e.f. 13-7-2006).
85. ITO v Ponnoose 75 ITR 174 (SC) (pre-1988 clause).
86. CIT v Manilal 44 ITR 876, 881 (SC); Nalinikant Mody v Narayan 61 ITR 428, 432–23 (SC); Re Kamdar 14 ITR 10, 39; CIT v Dat 83 ITR 823.
87. Re Kamdar 14 ITR 10, 21, per Stone CJ in his dissenting judgment. See also CIT v Hariprasad 99 ITR 118, 125 (SC).
88. See ss 160, 61 and 64.
89. ACIT v A. R. Enterprises 350 ITR 489 (SC).
90. CIT v Raiji 17 ITR 180 [under s 5(4) of 1922 Act].
91. CIT v Raiji 17 ITR 180, 184.
92. CIT v Raiji 17 ITR 180, 185, followed in Panna v CIT 74 ITR 396; Shivaji v CIT 115 ITR; CIT v Brakes India 118 ITR 820; CIT v Gargiben 130 ITR 479 and
CIT v Mustakhusein 143 ITR 951. Ratio of Panna was disapproved (wrongly) in majority judgement in CIT v Kamalini 112 ITR 652 (FB) [reversed on
appeal in 209 ITR 101 (SC)]. Cf CIT v Bhagirathibai 49 ITR 892.
1. Clause (46) has been omitted by the Finance Act, 1965 (10 of 1965), s 4(vii) (w.e.f. 1-4-1965). See Circular No. 3P, October 11, 1965. Prior to its
omission, it stood as follows:—
"(46) 'total world income' includes all income wherever accruing or arising, except incomes which are not included in the total income under any of
the provisions of Chapter III and except any capital gains which are not includible in the total income of an assessee;".
2. Subs. by the Taxation Laws (Amendment) Act, 1984 (67 of 1984), s 2 (w.e.f. 1-4-1985), Circular No. 397, October 16, 1984, 152 ITR (St.) 29, for the
following:—
'(47) "transfer", in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or
the compulsory acquisition thereof under any law;'.
3. Ins. by the Finance Act, 1987 (11 of 1987), s 3(g) (w.e.f. 1-4-1988). See Circular No. 495, September 22, 1987, 168 ITR (St.) 87.
4. Ins. by the Finance Act, 2005 (18 of 2005), s 3(e) (w.e.f. 1-4-2006). See Circular No. 3, February 27, 2006, 281 ITR (St.) 222.
5. For text, see Appendix 158.
6. Explanation has been numbered as Explanation 1 thereof by the Finance Act, 2012 (23 of 2012), s 3(v) (w.r.e.f. 1-4-1962).
7. Ins. by the Finance Act, 2012 (23 of 2012), s 3(v) (w.r.e.f. 1-4-1962).
8. Sanofi Pasteur Holding SA v Department of Revenue 354 ITR 316.
9. Sunil Siddharthbhai v CIT 156 ITR 509 (SC), AIR 1986 SC 368 [LNIND 1985 SC 303] , (1985) 4 SCC 519 [LNIND 1985 SC 303] . The inclusive character
was overlooked in CIT v Abdul Khader Motor and Lorry Service 112 ITR 360; CIT v Rajan H. and Kannan H. 149 ITR 545.
10. CIT v Narang Dairy Products 219 ITR 478 (SC), (1996) 7 SCC 700 [LNIND 1996 SC 497] .

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11. Mangalore Electric Supply Co. Ltd. v CIT 113 ITR 655 (SC).
12. Vania Silk Mills (P.) Ltd. v CIT 191 ITR 647 (SC); DCIT v Garden Silk Mills Ltd. 320 ITR 720; CIT v Grace Collis 248 ITR 323 (SC), AIR 2001 SC 1133
[LNIND 2001 SC 529] , (2001) 3 SCC 430 [LNIND 2001 SC 529] .
13. New India Sugar Mills Ltd. v CSTAIR 1963 SC 1207 , 1963 Supp 2 SCR 459. See also State of Madras v Gannon Dunkerley & Co. Ltd. AIR 1958 SC 560
[LNIND 1958 SC 39] , (1959) 1 SCR 379 .
14. Calcutta Electric Supply Corporation Ltd. v CIT 19 ITR 406, AIR 1951 Cal 151 [LNIND 1951 CAL 18] .
15. CIT v Motors and General Stores (P.) Ltd. 66 ITR 692 (SC), AIR 1968 SC 200 [LNIND 1967 SC 176] .
16. M.P. Sugar Mills Ltd. v CIT 115 ITR 534.
17. CIT v Rasiklal Maneklal 177 ITR 198 (SC), AIR 1989 SC 1333 [LNIND 1989 SC 189] , (1989) 2 SCC 454 [LNIND 1989 SC 189] .
18. CIT v Rasiklal Maneklal 95 ITR 656 – affirmed in CIT v Rasiklal Maneklal 177 ITR 198 (SC), AIR 1989 SC 1333 [LNIND 1989 SC 189] , (1989) 2 SCC 454
[LNIND 1989 SC 189] .
19. Jayakumari and Dilharkumari v CIT 165 ITR 787, (1986) 56 CTR (Kar) 196 .
20. CIT v Motors and General Stores (P.) Ltd. 66 ITR 692 (SC), AIR 1968 SC 200 [LNIND 1967 SC 176] , (1968) 1 AnWR 26 .
21. Anarkali Sarabhai v CIT 224 ITR 422 (SC), AIR 1997 SC 1677 , (1997) 3 SCC 238 .
22. Madurai Mills Co. Ltd. v CIT 74 ITR 623, (1969) 39 Comp Cas 946 (Mad) – affirmed in CIT v Madurai Mills Co. Ltd. 89 ITR 347 (SC); Natarajan v CIT 92
ITR 347.
23. Rasiklal, supra.
24. Srinath K.R. v Asstt. CIT 268 ITR 436.
25. Vania Silk Mills (P.) Ltd. v CIT 191 ITR 647 (SC), AIR 1991 SC 2104 [LNIND 1991 SC 384] , (1991) 4 SCC 22 [LNIND 1991 SC 384] ; Marybongand Tea
Industries Ltd. v CIT 224 ITR 589 (SC), AIR 1997 SC 1878 [LNIND 1997 SC 1858] , (1997) 4 SCC 188 [LNIND 1997 SC 1858] ; CIT v Hade Navigation (P.) Ltd .
239 ITR 726, (2000) 3 Bom CR 396 [LNIND 1999 BOM 511] ; Bharat Forge Co. Ltd. v CIT 205 ITR 339, (1993) 112 CTR (Bom) 68.
26. CIT v Grace Collis 248 ITR 323 (SC), AIR 2001 SC 1133 [LNIND 2001 SC 529] , (2001) 3 SCC 430 [LNIND 2001 SC 529] .
27. Sanjeev Lal v CIT 365 ITR 389, 398 (SC); Kishorbhai Harjibhai Patel v ITO 417 ITR 547.
28. CIT v Dinesh D. Ranka 380 ITR 440.
29. CIT v HCL Infosystems Ltd. 385 ITR 35.
30. Grace Collis, ibid; Shaw Wallace & Co. Ltd. v CIT 119 ITR 399.
31. Forbes Forbes Campbell and Company Ltd. v CIT 150 ITR 529, (1983) 37 CTR (Bom) 212.
32. Kartikeya V. Sarabhai v CIT 228 ITR 163 (SC), AIR 1997 SC 3794 [LNIND 1997 SC 1173] ; CIT v Oswal Spinning and Weaving Mills Ltd. 338 ITR 648.
33. CIT v Laxmidevi Ratani 296 ITR 363.
34. Vodafone International Holdings BV v UOI 341 ITR 1, 40-49.
35. Vodafone International Holdings BV v UOI 341 ITR 1, 40, 41 and 48 (SC).
36. Sanofi Pasteur Holding SA v Department of Revenue 354 ITR 316, 448.
37. See Circular No.461, July 9, 1986, 161 ITR (St.) 17; Circular No. 495, September 22, 1987, 168 ITR (St.) 87, 92.
38. Shrimant Shamrao Suryavanshi v Prahlad Bhairoba Suryavanshi AIR 2002 SC 960 [LNIND 2002 SC 55] , (2002) 3 SCC 676 [LNIND 2002 SC 55] –
applied in C S Atwal v CIT 378 ITR 244 later affirmed in CIT v Balbir Singh Maini 398 ITR 531, 547-549 (SC).
39. CS Atwal v CIT 378 ITR 244, affirmed in CIT v Balbir Singh Maini 398 ITR 531 (SC). Also see P. Madhusudhan v ACIT 419 ITR 194; South India
Minerals Corporation v ACIT 417 ITR 306; PCIT v Sewa Singh Sekhwan 400 ITR 347.
40. CIT v Balbir Singh Maini 398 ITR 531, 548-549 (SC), followed in PCIT v Fardeen Khan 411 ITR 533.
41. Dr. Joao Souza Proenca v ITO 401 ITR 105; CIT v Harbour View 409 ITR 599.
42. See further commentary under s 45 at p 1373.
43. CIT v Balbir Singh Maini 398 ITR 531 (SC). Also see Punjabi Co-operative House Building Society 386 ITR 116.
44. Seshasayee Steels P. Ltd. v ACIT 421 ITR 46, 57 (SC).
45. Ibid.
46. Jasbir Singh Sarkaria, In re 294 ITR 196 (AAR). Also see Potla Nageswara Rao v DCIT 365 ITR 249; CIT v Harbour View 409 ITR 599.
47. Kasturi D. v CIT 323 ITR 40, (2010) 233 CTR (Mad) 581.
48. CIT v Texspin Engg and Manufacturing Works 263 ITR 345, (2003) 180 CTR (Bom) 497.
49. Khadervali Saheb N. v N. Gudu Sahib 261 ITR 1, (2003) 2 All MR 354 (SC).
50. CIT v Balbir Singh Maini 398 ITR 531, 550 (SC) reversed C S Atwal v CIT 378 ITR 244 on this point.
51. Seshasayee Steels P. Ltd. v ACIT 421 ITR 46, 57 (SC).
52. Kanaiyalal Chandulal Monim v Indumati T. Podar AIR 1958 SC 444 [LNIND 1958 SC 15].
53. Bhoruka Engineerings Ltd. v CIT 356 ITR 25.
54. Seshasayee Steels P. Ltd. v ACIT 421 ITR 46, 57 (SC). Contra see Sanjeev Lal v CIT 365 ITR 389, 398 (SC).
55. Vodafone International Holdings B.V. v UOI 341 ITR 1, 115, (2012) 1 SCALE 530 [LNIND 2012 SC 64] .
56. Vodafone, ibid. p. 40 (SC).
57. Vodafone International Holdings BV v UOI 341 ITR 1 (SC).
58. Vodafone, ibid, p. 39-40.
59. Sanoji Pasteur Holding SA v Department of Revenue 354 ITR 316.
60. Ins. by the Finance Act, 2005 (18 of 2005), s 3(f) (w.e.f. 1-4-2006). See Circular No. 3, February 27, 2006, 281 ITR (St.) 222. Earlier clause (48) was
omitted by the Finance Act, 1992 (18 of 1992), s 3(e) (w.e.f. 1-4-1993). Still earlier, the omission of clause (48) by the Direct Tax Laws (Amendment) Act,
1987 (4 of 1988), s 3(s) (w.e.f. 1-4-1989) was set at naught as a result of the omission of that section 3(s) by the Direct Tax Laws (Amendment) Act, 1989
(3 of 1989), s 95(a)(1) (w.e.f. 1-4-1989). The omitted clause (48) read as follows:—
'(48) "unregistered firm" means a firm which is not a registered firm.'.
61. Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 3(f)(i) (w.r.e.f. 1-4-2009). See Circular No. 5, June 3, 2010, 324 ITR (St.) 293.
62. Notification No. 369/2006, dated 15-12-2006; Notification No. 370/2006, dated 15-12-2006; Notification No. 371/2006, dated 15-12-2006;
Notification No. 372/2006, dated 15-12-2006; Notification No. 373/2006, dated 15-12-2006; Notification No. 374/2006, dated 15-12-2006; Notification
No. SO 1355(E), dated 3-8-2007; Notification No. SO 267(E), dated 6-2-2008; Notification No. SO 240(E), dated 3-2-2010 and Notification No. SO 793(E),
dated 8-4-2010.
63. The Explanation has been omitted by the Finance Act, 2006 (21 of 2006), s 3(iv) (w.e.f. 1-4-2006). Prior to its omission, the Explanation stood as
follows:—
'Explanation.—For the purposes of this clause, the expressions "infrastructure capital company" and "infrastructure capital fund" shall have the same
meanings respectively assigned to them in clauses (a) and (b) of Explanation 1 to clause (23G) of section 10.'.
64. Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 3(f)(ii) (w.r.e.f. 1-4-2009).

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