DIRECT TAXES CIRCULAR

Date of payment/ credit

Amount paid/ credited
(Rs.)

Amount of income-tax deducted
(Rs.)

Rate at which deducted

Date & Challan No. of deposit of tax into Central Government Account

Name of bank and branch where tax deposited

Section 194A l Interest other than
“Interest on securities”

1059. Clarifications regarding sections 194A, 194C, 194J and 194K, as amended/inserted by the Finance Act, 1995

The Finance Act, 1995, has enlarged the ambit of deduction of tax at source by amending sections 194A and 194C of the Income-tax Act, 1961, and by inserting sections 194J and 194K in the Act. As a result of these changes, deduction of tax at source is also required to be made from :—

(i) payments of Rs. 20,000 and above made by way of fees for professional and technical services;

(ii) payments in pursuance of contracts of Rs. 20,000 and above for advertising, broadcasting, telecasting, transport of goods and passengers and catering;

(iii) payments of interest of Rs. 10,000 and above on Time Deposits with a bank branch; and

(iv) income of Rs. 10,000 and above from units of Mutual Funds or of the Unit Trust of India.

The changes are likely to affect a large number of persons some of whom may not have taxable income. Persons having income below taxable limit may apply to the Assessing Officers for issue of certificates for non-deduction of tax. There may also be cases where assessees may apply for deduction of tax at a lower rate. Provision has also been made for making suo motu declarations to the payers for non-deduction of tax from interest on time deposits and income in respect of units.

2. In pursuance of the aforesaid new provisions, necessary amendments in the Rules and Statutory Forms have been carried out. These rules/forms primarily pertain to deduction of tax at lower rate, non-deduction of tax, filing of declaration by a person to the payer, payment of tax to the Government by the deductors, and filing of annual returns, etc. The details of forms amended or inserted in the Income-tax Rules, in this behalf, are indicated below :—

Sl. No.	Form No.	Subject	Remarks
1.	13	Application by a person for a certificate under section 197(1) for no deduction of tax or deduction at lower rates.	Amended to include income in respect of units.
2.	15AA	Certificate by the Assessing Officer under section 197(1)	- do –
3.	15H	Declaration under section 197A- (1A) for claiming receipt of interest other than “interest on securities” and income in respect of units.	Amended to include income in respect of units.
4.	16A	Certificate of deduction of tax at source under section 203	Amended to include fees for professional or technical services and income in respect of units.
5.	26	Annual return of deduction of tax from dividends/income in respect of units under section 206.	Amended to include income in respect of units.
6.	26K	Annual return of deduction of tax from fees for professional or technical services under section 206.	Inserted in view of section 194J.

3. Instructions have been issued to the Assessing Officers that the amended provisions relating to tax deduction at source are implemented in such a manner that they do not cause any hardships or inconvenience to the members of public. The taxpayers and others are advised to approach the tax authorities for issue of certificates of non-deduction or deduction of tax at a lower rate, as the case may be, who in turn, have been directed that :

(i) an application received for non-deduction of tax or deduction of tax at a lower rate should be disposed off at the earliest;

(ii) the requisite forms of declaration to the payer or for issue of certificate of non-deduction of tax or deduction of tax at lower rate, etc., should be made available in the income-tax offices, bank counters, post offices, UTI counters, etc.; and

(iii) the grievances, if any, relating to the implementation of provisions of tax deduction at source should be redressed promptly.

4. If a person has any difficulty in the matter, he may approach the Chief Commissioner of Income-tax concerned for redressal of the grievance. If necessary, he may also approach Director (Hqrs.), Central Board of Direct Taxes, North Block, New Delhi-110001.

Circular : No. 716, dated 9-8-1995.

1060. Whether interest payments under Land Acquisition Act are covered by section 194A

1. According to section 194A of the Income-tax Act, 1961, any person, not being an individual or HUF, who is responsible for paying to a resident any income by way of interest other than income by way of “Interest on securities” shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. The provisions contained therein are however subject to the exceptions provided in the said section. According to the provisions of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 194A shall pay, within the prescribed time, the sum so deducted to the credit of Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of Central Government, he shall be liable to action in accordance with the provisions of section 201. In this connection attention is also invited to the provisions of section 276B of the Income-tax Act, as substituted by the Direct Tax Laws (Amendment) Act, 1987 according to which if a person fails to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine.

2. It has come to notice that various State Development Authorities, the Housing Boards, Public Works Department, etc., acquire immovable property from the public for the purpose of their developmental activities. Huge amounts are disbursed on behalf of these departments as payments of compensation for land acquired including considerable amount of interest on excess compensation as per the Land Acquisition Act. The interest payment made under the Land Acquisition Act are covered by the provisions of section 194A. As a result tax will have to be deducted at source under section 194A from the interest payments made to the public under the Land Acquisition Act.

Circular : No. 526, dated 5-12-1988.

Judicial Analysis

Explained in - In Special Tehsildar and Land Acquisition Officer v. Dandu Saraswatamma [1994] 205 ITR 587 (AP), the Commissioner addressed a D.O. letter dated 1-3-1987 to the then Revenue Secretary requesting him to issue instructions to all the officers concerned with land acquisition to deduct income-tax on payment of interest and to follow the provisions as laid down under section 194A and other provisions of the Act. In paragraph 2 of that D.O. letter, it was stated that while paying interest, income-tax was deductible at the rates in force during that financial year with effect from 1-4-1975, if the amount exceeded Rs. 1,000.

Pursuant to those instructions, the Land Acquisition Officers, while depositing the enhanced compensation amounts in various execution petitions filed before the Subordinate Judge, Kovvur, had deducted income-tax on the interest accrued on the compensation amount.

The Court held that the Supreme Court in Rama Bai v. CIT [1990] 181 ITR 400 held that the interest on enhanced compensation for land compulsorily acquired under the Land Acquisition Act awarded by the Court on a reference under section 18 of the Land Acquisition Act or on further appeal has to be taken to have accrued not on the date of the order of the Court granting enhanced compensation but as having accrued year after year from the date of delivery of possession of the land till the date of such order and such interest cannot be assessed to income-tax in one lump sum in the year in which the order is made. The above decision of the Supreme Court in Rama Bai’s case (supra) has set at rest the conflict of decisions among some High Courts on the above issue. The effect of the decision of the Supreme Court referred to above is that on the enhanced compensation, for land compulsorily acquired under the Land Acquisition Act, awarded by the Court on a reference under section 18 of the Land Acquisition Act, interest is payable to the claimants. If so, section 194A of the Act empowers the person who is responsible for making the payment to deduct income-tax. But the direction given in the D.O. letter dated 1-3-1987, of the Commissioner of Income-tax stating that while paying interest, income-tax was deductible at the rates in force during that financial year (Emphasis supplied) with effect from 1-4-1975, if the amount exceeded Rs. 1,000 was not and could not be valid. Such a direction did not get support from section 194A under which Department sought deduction of income-tax at source.

The proviso to section 194A of the Act empowers the assessee to receive the income by filing an affidavit or statement in writing declaring that his estimated total income assessable to tax for the assessment year next following the financial year in which the income is credited or paid will be less than the minimum liable to income-tax. The orders under revision did not disclose the break-up in each execution petition about the compensation amount awarded and the interest payable thereon. The orders also did not disclose as to when possession of the land concerned in each execution petition was taken by the Government and the date of depositing the compensation amount. In the absence of those details, it was not possible to determine whether the individual claimants were liable to pay income-tax or not.

In view of above it was further held that Circular No. 526, dated 5-12-1988, which is on same line as D.O. stated above, will not have binding effect on Civil Court unless provisions of the Act are made applicable.

Clarification Two

I am directed to say that it had recently come to the notice of the Board that there was no uniform practice in vogue in the matter of the deduction of tax at source from interest payments awarded by the Courts of Law in land acquisition cases. At certain places such deduction was being made by the land acquisition authority who was responsible for paying the compensation (along with interest) to the persons whose land had been acquired under the Land Acquisition Act, while at other places, such deduction was being made by the Court of Law which awarded the compensation (with interest), after the concerned authority had deposited the entire amount with the Court, for payment to the concerned parties in accordance with the decree passed by the Court. In the latter case, it is observed that certain Courts were seeking assistance of the concerned Income-tax Authorities for effecting tax-deduction at source.

2. It has now been decided in consultation with the Ministry of Law & Justice that the responsibility for making deduction of tax at source under section 194A of the Income-tax Act, 1961, should be that of the Collector (Land Acquisition) or any other authority empowered under the Land Acquisition Act, 1894, to acquire land for the public purpose as laid down by that Act. When the concerned parties, whose land has been acquired, go to the Court of Law, seeking higher compensation (with interest) and the Court allows their claims the concerned authority which had acquired their land, shall, while paying the compensation, deduct tax at source from the amount of interest forming part of the compensation, and deposit the remaining amount with the Court of Law, for disbursement to the successful litigants. The same authority shall also issue the TDS certificates to the concerned parties in the prescribed Form 16A.

Order : F.No. 275/109/92-IT(B), dated 21-9-1994.

Annex - Ministry of Law, Justice & C.A. (Department of Legal
Affairs) Advice (B) Section

The question for consideration is as to who is the person responsible for deduction of tax at source for the purpose of section 204 of the Income-tax Act, 1961 in the case of payment of compensation under the Land Acquisition Act.

A prima facie view was expressed by us in the matter on the assumption that Collector, Land Acquisition is the person making payment and as such he is responsible for making deduction at source in terms of section 204(iii) of the Income-tax Act. However, we had requested the Department to confirm the factual position from the Ministry of Rural Development.

The Department of Rural Development have stated that the person responsible for payment of compensation under Land Acquisition Act is the Collector. In Baldeep Singh v. UOI [1993] 199 ITR 628 the Punjab and Haryana High Court held that “the Court is not the person responsible for paying any income by way of interest...As per the legal incidents, the legal person responsible for paying income by way of interest is the Land Acquisition Collector who had the money in his possession and was responsible for making the payment of that income to the petitioners....The Court is acting only as a conduit for getting the payment to the petitioner in execution of a decree passed in his favour.” In view of the above, we confirm the views expressed by us earlier, referred to above.

The Administrative Department have stated that while there may be no objection to TDS being made by Collector, in such cases a practical difficulty that may arise is that the Collector would be required by the court to deposit the entire amount of compensation and interest with it and if the Collector deducts tax from that amount it would be regarded as disobedience of the Court’s order.

In this connection the following observation made by the Supreme Court in Lt. Col. K.D. Gupta v. UOI [1989] 46 Taxman 124 is considered very relevant :

“We see no justification to initiate any contempt proceeding against the respondents for withholding a sum of Rs. 1,20,000 out of the sum of Rs. 4 lakhs directed to be paid to the petitioner. Rs. 1,20,000 have been withheld on the plea that under Chapter XVII of the Income-tax Act, 1961 (‘the Act’), the Union of India has the obligation to deduct income-tax at source. The intention of the payer in the facts of the case for withholding the amount cannot be held to be either mala fide or is there any scope to impute that the respondents intended to violate the direction of this Court.”

If out of the decretal amount the Land Acquisition Officer pays the TDS amount to the Central Government and deposits only the balance amount with the Court, in view of the aforesaid ruling, the Court may not hold it as disobedience of its orders.

1061. Clarification regarding applicability of provisions of section 194A to commercial papers and certificates of deposits

1. The Certificates of Deposits (CDs) and the Commercial Papers (CPs) are money-market related instruments which are traded in the secondary market. These are negotiable instruments in the nature of usance promissory notes which are issued and regulated in accordance with the instructions/guidelines issued by the Reserve Bank of India from time to time.

2. While, in terms of the Reserve Bank’s instructions pertaining to Certificates of Deposits and Commercial Papers, the conditions regarding their minimum face value, period of transferability/maturity, ceiling on the amount of issue, etc., differ, one aspect is common to both these instruments, namely, that they are issued at a discount to their face value and are freely transferable by endorsement and delivery. Thus, the issue price of these instruments is less than their face value.

3. A question has been recently raised as to whether the difference between the issue price and face value of these instruments should be treated as ‘interest’ in which case it would be liable to deduction of tax at source under section 194A of the Income-tax Act, 1961, or, it should be treated as ‘discount’ which is not liable to deduction of tax at source.

4. It is clarified for the information of all concerned that the difference between the issue price and the face value of the Commercial Papers and the Certificates of Deposits is to be treated as ‘discount allowed’ and not as ‘interest paid’. Hence, the provisions of the Income-tax Act relating to deduction to tax at source are not applicable in the case of transactions in these two instruments.

Circular : No. 647, dated 22-3-1993.

1061A. Application of section 194A to Hire Purchase Agreements

Clarification One

1. The question of consideration is whether a part of the hire purchase instalment paid by a hirer to the owner under a hire purchase contract can be deemed to constitute payment of interest thereby attracting the provisions of section 194A of the Income-tax Act.

2. Section 194A provides that any person, not being an individual or a Hindu Undivided Family who is responsible for paying to a resident any income by way of interest other than income chargeable under the head interest on securities shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash, or by issue of a cheque or draft or by any other mode, deduct income-tax thereon at the rates in force. The obligation to make deduction under section 194 would arise in the case of payment of any income by way of interest.

3. The expression ‘interest’ has been defined in section 2(28A) to mean interest payable in any manner in respect of any money 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 in respect of any credit facility which has not been utilised.

4. It has to be considered whether the payment of any instalment or instalments under a hire purchase agreement can be said to be by way of interest in respect of any moneys borrowed or debt incurred. In this context, it has to be borne in mind that a hire purchase agreement is a composite transaction made up of two elements bailment and sale. In such an agreement, the hirer may not be bound to purchase the thing hired. It is a contract whereby the owner delivers goods to another person upon terms on which the hirer is to hire them at a fixed periodical rental. The hirer has also the option purchasing the goods by paying the total amount of the agreed hire at any time or of returning before the total amount is paid. What is involved in the present reference is the real nature of the fixed periodical rental payable under a hire purchase agreement.

5. It may be pointed out that part of the amount of the hire purchase price is towards the hire and part towards the payment of price. The agreed amount payable by the hirer in periodical instalments cannot be characterised as interest payable in any manner within the meaning of section 2(28A) of the Income-tax Act. It is in the nature of a fixed periodical rental under which the hire purchase takes place.

6. It is true that the definition of the hire purchase price in section 2(d) of the Hire Purchase Act, 1972, also refers to any sum payable by the hirer under the hire purchase agreement by way of deposit or other initial payment or credit or amounts to be credited to him under such agreement on account of any such deposit or payment. But such deposit or payment is not in respect of any money borrowed or debt incurred within the meaning of section 2(28A) of the Income-tax Act.

7. In view of the above, it would appear that the provisions of section 194A will not be attracted in the case of payment of periodical instalments under a hire purchase agreement.

Instruction : No. OP 275/9/80-IT(B), dated 25-1-1981 [See Ashok Leyland Finance Ltd. v. Asstt. CIT [2002] 80 ITD 566 (Chennai).]

Clarification Two

1. ** ** **

2. In a hire-purchase contract the owner delivers goods to another person upon terms on which the hirer is to hire them at a fixed periodical rental. The hirer has also the option of purchasing the goods by paying the total amount of agreed hire at any time or of returning the same before the total amount is paid. It may be pointed out that part of the amount of the hire purchase price is towards the hire and part towards the payment of price. The agreed amount payable by the hirer in periodical instalments cannot, therefore, be characterised as interest payable in any manner within the meaning of section 2(28A) of the Income-tax Act, as it is not in respect of any money borrowed or debt incurred. In this view of the matter it is clarified that the provisions of section 194A of the Income-tax Act are not attracted in such transactions.

Instruction : No. 1425, dated 16-11-1981 [See Ashok Leyland’s case (supra)].

1062. Clarification regarding deduction from interest on Cumulative Deposits/Debentures/Bonds

1. Section 194A of the Income-tax Act, 1961 requires any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident, any income by way of interest, other than interest on securities, to deduct income-tax at the prescribed rate thereon, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

2. Similarly, section 193 of the Act lays down that the person responsible for paying any income by way of interest on securities (which term includes debentures, bonds, etc.) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax at the rate in force on the amount of interest payable.

3. According to the Explanations contained in sections 193 and 194A, where the interest income is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account for the payer, such crediting is deemed to be credit of interest income to the account of the payee and provisions of tax deduction at source of sections 193 and 194A, as the case may be, are attracted.

4. Instances have come to the notice of the Board, wherein tax has been deducted at source at the time of payment on maturity of the cumulative deposits/debentures/bonds and not at the time of credit of the interest income at periodical intervals. This causes unnecessary hardship to the recipients. As per the provisions of the law, tax has to be deducted at source at the time of credit of interest, or payment thereof, whichever is earlier.

5. It is hereby clarified that in respect of cumulative deposits/debentures/bonds tax is required to be deducted at source every time the interest is credited in the account books of the payer and is not to be postponded till the maturity of the deposit/debenture/bonds. The tax so deducted is also required to be deposited in the account of the Central Government within the prescribed time. However, in the case of cumulative deposits, tax is not required to be deducted if the aggregate amount of interest credited/paid or likely to be credited/paid during the financial year to each payee does not exceed Rs. 2,500.

6. By not deducting and depositing the tax, as aforesaid, the tax deductors are delaying payment of tax, which attracts penal provisions contained in the Income-tax Act. The tax deductors are advised to follow the correct position of law, as outlined above.

7. It may, however, be stated that tax is not required to be deducted from interest incomes which are otherwise exempted from tax deduction under sections 193 and 194A. These exemptions include interest on deposits with a banking company to which the Banking Regulation Act, 1949 applies.

Circular : No. 643, dated 22-1-1993.

1063. Whether payer would be liable to deduct tax at source from interest in a case where he follows mercantile system of accounting and he, instead of crediting interest income to the account of payee, credits the same to “Interest payable account”, etc.

1. Section 194A requires every person, other than an individual or a Hindu undivided family, to deduct income-tax at source at the prescribed rates from interest (other than “interest on securities”) at the time of credit of such interest to the account of the payee or at the time of payment thereof where the amount credited or paid, or likely to be credited or paid, to the assessee during any financial year exceeds Rs. 1,000. The deduction is required to be made under section 194A in the case of residents only. (For non-residents the provisions are different and are contained in section 195.)

2. Some representations have been received by the Board enquiring as to whether a person would be liable to deduct tax at source from interest where his accounts are being maintained in accordance with the mercantile system of accounting and who, instead of crediting the interest income to the account of the payee, credits the same to the “Interest Payable Account” or the “Liability for Expense Account” or “Suspense Account” or any other nominal account.

3. The material expression in section 194A(1) is “at the time of credit of such income in the account of the payee...”. When interest is debited to “Interest Account”, or any other nominal account, the debit is for a specific amount calculated with reference to the deductor’s liability to a particular creditor in accordance with the terms and conditions of the loan. What is, therefore, important is that the interest payable to a creditor has constructively been credited to the account of the payee; the apparent nomenclature of the particular account in which the credit is made is not conclusive in the matter. The nominal accounts like “Interest Payable Account”, “Liability for Expense Account”, “Suspense Account”, etc., are heads or captions meant to cover stray transactions of unidentifiable receipts and payments. Except in stray cases failure to credit the interest to the account of the payee cannot also be called a method of accounting regularly employed within the meaning of section 145(1) and would not, therefore, be accepted as an explanation for the consequential failure to deduct the tax at source. The burden of proving that there was a valid justification for crediting interest to any account other than the account of the payee would rest obviously on the person responsible for making the deduction. The time for deduction would be when the interest is credited.

4. It may be added that the time for making the payment of the tax deducted at source is governed by section 200 read with rule 30 of the Income-tax Rules and would reckon from the date of credit of interest made constructively to the account of the payee which would ordinarily be within one week from the last day of the month in which deduction is made. Where, however, the interest is credited by an assessee, carrying on business or profession, as on the date up to which the accounts thereof are made, the amount of tax deducted would be payable to the Central Government within two months of the expiration of the month in which the accounts of the assessee are made, falls. For example, if the accounts are made up to, say November 7, 1980, the tax deducted on the interest credited on that date would be payable to the Central Government by January 31, 1981 irrespective of when the closing entries are actually made.

5. The above clarification may please be brought to the notice of all your members so that they can comply with the requirement for deducting tax at source.

Circular: No. 288 [F. No. 275/46/79-IT(B)], dated 22-12-1980.

Judicial analysis

Commented upon - The above circular was adversely commented upon in Koshalya Investments (P.) Ltd. v. ITO [1990] 83 CTR (Trib.) (Ahd.) 143, with the following observations :

“6.3 The reliance placed by the authorities below and the learned Departmental Representative on Board’s Circular No. 288, dated 22nd December, 1980 is not valid as the clarifications issued by the Board are not in consonance with the clear interpretation based on the plain language of section 194A. If the interpretation as clarified by the Board in the aforesaid circular would have been possible on the basis of interpretation of section 194A as it existed prior to insertion of Explanation in section 194A, there would have been no need to insert the aforesaid Explanation in section 194A by the Finance Act, 1987. The provisions of section 194A clearly prescribe that the liability for deduction of tax at source will arise only when the amount of interest is credited to the account of the payee or when the same is paid to them, whichever is earlier. The Board in the aforesaid circular has mentioned that even if the amount is credited to nominal accounts like interest payable account, liability for expenses account, suspense account, etc., it should be treated as constructively been credited to the account of the payee when the specific amount calculated with reference to the deductor’s liability to a particular creditor in accordance with the terms and conditions of the loan has been provided for; such an interpretation, in the absence of such specific words in the language of section 194A would amount to extending the scope of section 194A as it stood prior to insertion of Explanation to the said section w.e.f. 1st June, 1987. The very fact that the framers of the law considered it necessary to insert an Explanation in section 194A clearly supports the assessee’s contention that but for the aforesaid Explanation the plain language of section 194A as it stood prior to the insertion of the aforesaid Explanation did not cover a case like that of the assessee and the assessee, according to the original section 194A was not liable to deduct tax at source at the time of crediting the interest in the interest payable account.” (pp. 159-160).

Commented upon - In Alkapuri Investment (P.) Ltd. v. D.S. Khoba [1997] 226 ITR 506 (Guj.) it was held that Circular No. 288, dated December 22, 1980, was not in consonance with the true import of section 194A and cannot be given effect to.

See also Sivakami Finance (P.) Ltd. ITO [1983] 6 ITD 351 (Mad. - Trib.)

CLARIFICATION 2

I am directed by the Committee of the Federation to address you as under : Under section 194A of the Income-tax Act, an assessee is required to deduct income-tax at source from the interest income of a resident at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or otherwise.

Many assessees, while finalising their accounts, do not necessarily credit the amount of interest payable to each creditor; instead they credit the interest payable on the amount of loans raised by them in a separate interest payable account. Since such assessees do not credit the amount of interest to the account of the respective payee, they do not deduct tax at the time of finalising the accounts. Tax is, however, deducted at the time when the interest is either actually credited to the account of the respective payee or is paid to them. It has been brought to the notice of the Federation that the Department is insisting upon deduction of tax at source even at the time of crediting the amount of interest to the interest payable account as aforesaid and has even launched prosecution for alleged failure to deduct tax at source and pay to Government.

The section, as it is worked, requires deduction of tax at source only at the time when the interest is credited to the account of the payee or payment thereof. There is, therefore, no obligation on the part of assessee to deduct tax at the time of making a provision in the accounts in respect of interest payable by him. The crediting of interest to the account of the payee is not the same thing as crediting the interest to the ‘interest payable account’. It is, therefore, suggested that suitable instructions be issued to the authorities below not to insist deduction of tax at source at the time of crediting the interest to the interest payable account. All pending penal or prosecution proceedings may also be directed to be withdrawn immediately.

Letter : No. 276/72/77-IT (B), dated 25-1-1979.

[Source : Arundathi Investments Ltd. v. ITO [1984] 10 ITD 754 (Mad.) (TM), 759, 760].

CLARIFICATION 3

3. The matter has been examined and the Board are advised that section 194A indicates not only the circumstances in which the person responsible to deduct tax at source has to do so but also specified the time at which the deduction has to be made. Thus, where payment has to be made in cash or by issue a cheque or draft, the deduction is to be made at the time of payment. But, if the payment is not made physically, but by way of book adjustment, as in the mercantile system of accounting then the income-tax at source is to be deducted at the time of credit of such income to the account of the payee. The question under consideration here rests on the exact meaning of the expression ‘credit of the income to the account of the payee’. These words have to be taken to mean that the persons should have credited the amount in the personal account of the payee or in some other manner to indicate his immediate intention to effect the transfer of the amount of interest to the payee. The mere fact of posting the entry in the Interest Payable Account or the ‘Liability for Expenses Account’ does not amount to crediting the entry in the account of the payee, even though it would be indicative of an acknowledgement of the liability to the creditors with respect to that amount of interest. As such the obligation to deduct the tax could not arise at that time but would arise when subsequently, the payment of interest is made to the payee or it is credited to his account.

Instruction : No. 1215 [F. No. 385/61/78-IT (B)], dated 8-11-1978.

[Source : Paterson Engg. Co. (P.) Ltd. v. ITO [1989] 30 ITD 454 (Bom.), 456]

1064. Instructions for deduction of tax at source from interest on deposits in joint names

1. Sub-section (1) of section 194A requires any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than “Interest on securities”, to deduct income-tax at the prescribed rate thereon, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

2. Certain doubts have been raised about the manner of deducting tax at source from interest income on deposits in joint names. They are :

(1) In respect of deposit(s) in joint names, if there are also deposits in individual names with the same person responsible for deducting tax, should the interest on deposit(s) in joint names be aggregated with the interest on deposits in individual names or not ? In other words, if there is a deposit in the joint names of X and Y and/or also deposits in the individual names of X and/or Y, should the interest be aggregated in the joint names of X and Y with the interest income on deposits in individual names of X and/or Y. This question becomes particularly relevant for the purpose of determining the limit of Rs. 1,000 up to which the interest income in a financial year does not require any deduction of tax at source.

(2) If the interest on a joint account has to be aggregated with the interest income on deposit in individual names should it be aggregated with the first name or the second name or either ?

(3) In what manner should the certificate under section 203 of the Act be issued ?

(4) Who will claim the credit for the tax deducted at source under section 199 ?

3. The Board are advised that in the case of a deposit in joint names, say in two names, in the absence of any proof to the contrary, both the persons can be treated as payees for the purpose of deduction of tax under section 194A. As such, unless the person paying the interest on such deposit(s) has definite information about the beneficial ownership of the deposit(s), the interest payable under a joint account can be aggregated with the amount of interest payable by that person to any one of the payees in their separate or independent accounts. The persons responsible for deducting the tax are advised that, in the absence of any information to the contrary, they may aggregate the interest on a joint account with the interest on deposit in the individual’s account who has higher interest income. Thus, if there is a deposit of Rs. 5,000 in a joint account of XY and there are deposit of Rs. 4,000 in the name of X and Rs. 3,000 in the name of Y with the same payer, the rate of interest being 12 per cent per annum, the payer may aggregate the interest in the joint account amounting to Rs. 600 with the interest of Rs. 480 on the deposit of X and since the aggregate interest during a financial year exceeds Rs. 1,000 he may deduct the tax at the prescribed rate. The fact that the joint account may be styled as YX instead of XY will not make any difference.

4. The certificate of deduction of tax at source under section 203 will be given to the person in whose name the interest on joint account has been aggregated and a suitable mention of the existence of the joint account and the amount of the deposit will be made in the said certificate.

5. Credit for the payment of tax deducted at source under section 199 will be given to the person in whose name the certificate under section 203 has been issued.

6. If any objection is taken to the deduction of tax at source in the above manner or it is contended that the joint account holders constitute a separate person and no deduction of tax at source should be made, it will be up to them to point it out to the person paying the interest by leading evidence, i.e., by filing affidavits or statements in the manner laid down in the proviso to sub-section (1) of section 194A. The person paying the interest may act according to the affidavits or statements which the joint account holders may like before him in discharging his responsibilities under section 194A.

7. It may be clarified that the manner of deduction of tax at source is without prejudice to the powers of the Income-tax Officer to determine the beneficial owner of the deposit in the joint names and to tax the interest income accordingly at the time of assessment.

Circular : No. 256 [F. No. 275/17/79-IT(B)], dated 29-5-1979.

1065. Supplier drawing hundi on buyer and routing it through his banker with instructions to charge interest on amount of hundi from date of acceptance to date of actual payment - Whether tax is deductible at source by party retiring hundi from interest at the time of making payment to bank

CLARIFICATION 1

1. I am directed to invite a reference to the Board’s Circular No. 48 [F. No. 275/195/70-ITJ], dated 7-11-1970 [Clarification 2]. The Board has been requested to reconsider the views given in that circular. After a careful examination of the legal position the Board is of the view that to the following extent the earlier views need a modification. Where the supplier of goods makes over the usance bill/hundi to his bank which discounts the same and credits the net amount to the supplier’s account straightaway without waiting for realisation of the bill on due date, the property in the usance bill/hundi passes on to the bank and the eventual collection on due date is a receipt by the bank on its own behalf and not on behalf of the supplier. For such cases of immediate discounting the net payment made by the bank to the supplier is in the nature of a price paid for the bill. Such a payment cannot technically be held as including interest and therefore no tax need be deducted at source from such payments by the bank. Further, the buyer need not deduct any tax from the payment made by him on due date to the bank in respect of such discounted bill inasmuch as these payments to a bank or a banking cooperative society, conforming to the exemption granted by section 194A(3)(iii)(a).

2. On the other hand, where there is no immediate discounting and the bank merely acting as agent receives on the expiry of the period the payment for the bill from the buyer on behalf of the supplier and credits it to him accordingly, the bank receives interest on behalf of the supplier and the instructions contained in the Board’s above-mentioned circular dated November 7, 1970 would apply and the buyer will have to deduct the tax from the interest.

Circular: No. 65 [F. No. 275/97-ITJ], dated 2-9-1971.

CLARIFICATION 2

1. I am directed to invite a reference to the Board’s Circular No. 22/68-IT(B) [F. No. 12/23/68-IT(B)], dated 28-3/13-5-1968, regarding the provisions of section 194A. Instances have been brought to the notice of the Board where in the case of outstation sale of goods the supplier draws a hundi on the buyer and routes it through his banker along with transport documents with instructions to deliver the documents on retirement of the hundi and to charge interest on the amount of hundi from the date of acceptance thereof to the date of actual payment. A question has been raised whether, in such circumstances, tax is deductible at source by the party retiring the hundi on the amount of interest at the time of making payment to the bank, or whether the exemption provisions of section 194A(3)(iii)(a) would be attracted in this behalf.

2. In the above case the interest paid by the buyer to the supplier is not to the bank as such but only routed through the bank. In accordance with section 194A(3)(iii)(a), no tax is to be deducted at source in respect of interest paid to a bank but where the interest from the buyer is not for the bank as such, but only routed through bank to the supplier who is the recipient, the buyer has to deduct tax at source under section 194A from the interest paid and routing of the interest through bank will not make any difference.

Circular: No. 48 [F. No. 275/195/70-ITJ], dated 7-11-1970.

1066. Whether tax is to be deducted at source from interest paid by consignor to commission agent

Tax will have to be deducted at source in accordance with section 194A from the interest paid by consignors to their commission agents even where such interest is paid under an arrangement whereby the commission agent retains for himself the interest due to him at the time of paying to the consignor the moneys due to him on account of the consignment. Under rule 30(1)(b)(i) of the Income-tax Rules [as amended by the Income-tax (Fifth Amendment) Rules, 1968], the tax deducted at source has to be paid to the credit of the Central Government within one week from the last day of the month in which the deduction is made. Accordingly, the consignor will have to deduct the tax and pay the tax deducted by 7th of the month next following the month in which he received the sale proceeds from the commission agent without interest.

Letter: F. No. 12/12/68-IT(A-II), dated 23-9-1968.

1067. Whether tax is to be deducted at source from interest payable to educational institution/charitable trust whose income is exempt under section 10(22) and under section 11, respectively

I am directed to refer to letter dated 8-8-1968 [printed here as Annex] on the subject quoted above and to say that so far as an educational institution whose income is exempt from tax under section 10(22) is concerned the provision of section 194A will not apply to it and no deduction of tax at source from interest is required to be made by the payers. As regards a charitable trust whose income is exempt under section 11, a statement in writing may be made by the institution concerned under section 194A, or the institution may apply for a certificate for deduction at a lower rate or for authorisation of non-deduction at source under section 197.

Letter: F. No. 12/113/68-IT(A-II), dated 28-10-1968.

ANNEX - LETTER, DATED 8-8-1968 REFERRED TO IN CLARIFICATION

On reading your Circular No. 22/68-IT(B), dated 28-3-1968 addressed to all State Governments on the point of deduction of tax at source out of interest other than “interest on securities” in accordance with the provisions of section 194A, it appears to me that an educational institution whose income may be exempt under section 10(22) or a public charitable trust enjoying exemption under section 11 can also issue a statement in writing in Form No. 15A for receiving interest without deduction of tax at source. This is because the educational institution or the public charitable trust, as the case may be, does not have any income liable to income-tax. The total income may be more than Rs. 4,000 but that is exempt under section 11 or under section 10(22). Kindly clarify the position and oblige.

1068. General instructions for compliance of requirement of deducting tax at source from interest other than interest on securities in terms of the section from October 1, 1967

1. I am directed to refer to the provisions of section 194A as inserted in the Income-tax Act, 1961, by the Finance (No. 2) Act, 1967. According to these provisions any person (not being an individual or a Hindu undivided family) who is responsible for paying to a resident any income by way of interest other than interest on securities shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.

2. These provisions are equally applicable to persons responsible for paying such interest on behalf of the Government to any person resident in India. As the above provisions of the Act have already come into force with effect from October 1, 1967, you are requested to instruct all those responsible for paying interest on behalf of the Government to deduct income-tax at the rates mentioned below.

3. The following instructions may please be followed in this connection :

(a) Rates of deduction of tax - Tax is to be deducted at source on interest receivable by resident companies at the rate of 20 per cent and in the case of all other persons “resident in India” at the rate of 10 per cent.

(b) When tax is to be deducted - Tax is to be deducted only where the interest paid or credited at any one time exceeds Rs. 400. If the interest paid or credited at any one time is Rs. 400, or less, no deduction under section 194A is to be made.

(c) To be deducted at the time of cash payment - Where the interest is paid in cash, deduction will be made at the time of cash payment. Where interest is first credited to an account and paid in cash later, deduction will be made at the time of giving credit to the account. Where deduction has been made at the time of crediting interest to a payee’s account, no deduction will be made at the time of actual payment in cash.

(d) Provision applies to all interest - The provision for deduction of tax applies to all interest other than “interest on securities”. For instance, it will apply to interest on loans, whether secured or otherwise, interest on deposits by way of security, etc., ¹[***]; interest on borrowings of any kind except debentures or other securities for money issued by companies, statutory corporations or local authorities.

4. When tax need not be deducted - The provisions of section 194A do not apply to income credited or paid by way of interest to :

(a) any banking company to which the Banking Regulation Act, 1949 applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank);

(b) any financial corporation established by or under a Central, State or Provincial Act;

(d) the Unit Trust of India established under the Unit Trust of India Act, 1963;

(e) any company or co-operative society carrying on the business of insurance;

(f) such other institution, association or

5. When not deducted - No tax is to be deducted under section 194A from any income from interest which is wholly exempt from income-tax, such as interest on deposits in Post Office Savings Banks or interest credited to the individual accounts of employees, participating in a provident fund to which the Provident Funds Act, 1925 applies, etc.

6. Facilities for receiving interest without deduction of tax - For persons, other than companies and registered firms, whose income is otherwise not liable to tax, provision has been made so as to enable them to receive interest without deduction of tax. In such case no deduction will be made, if—

(a) an affidavit, sworn before a Magistrate or a Notary public, or

(b) a statement in writing is furnished to the person making the payment declaring that the declarant’s estimated total income assessable for the assessment year next following will be less than the minimum liable to tax. The statement shall contain the particulars prescribed in Form No. 15A and be signed in the presence of a Gazetted Officer of the Central Government or a State Government (including a Tehsildar or Mamlatdar) and bear proper attestation.

7. Deduction of tax at lower rates in small income cases - It is open to a non-corporate assessee (including a registered firm), whose total income is liable to tax at an average rate lower than that at which tax is deductible at source, viz., 10 per cent to make an application to the Income-tax Officer in Form No. 13A and to obtain from him a certificate authorising the payer to deduct tax at such lower rate as may be appropriate to his case. This certificate is valid for the period specified therein unless it is cancelled earlier.

8. Interest deductions to be rounded off - Under section 288B fractions of one rupee contained in the amount of tax (including advance tax and tax deducted at source) will have to be rounded off to the nearest rupee, by ignoring amounts less than fifty paise and increasing amounts of fifty paise or more to one rupee. Hence, the amount of tax to be deducted at source should be rounded off to the nearest rupee in accordance with the aforesaid provisions of the Act.

9. Obligations and liabilities of persons deducting tax at source under section 194A - TO PAY TAX TO THE CREDIT OF CENTRAL GOVERNMENT - ¹[Rule 30 of the Income-tax Rules, 1962, requires that any tax deducted on behalf of the Government shall be paid to the credit of the Central Government on the same day by book adjustment. Where, however, the sum is deducted from interest other than interest on securities in accordance with the provisions of section 194A and the interest income is credited by a person carrying on a business or profession to the account of the payee as on the date up to which the accounts of such business or profession are made up, the sum so deducted shall be paid within two months of the expiration of the month in which that date falls; in all other cases, the tax deducted from interest is to be paid to the credit of the Central Government within seven days from the close of the month in which the deduction is made. The Income-tax Officer may, in special cases, authorise the tax deducted under this section being credited to Government account quarterly on 15th July, 15th October, 15th January and 15th April.]

Challans for paying tax into Government treasury are obtainable from the Income-tax Officer.

TO ISSUE CERTIFICATES OF DEDUCTION - The person responsible for deducting tax is required to give to the person receiving the interest a certificate in Form No. 19A.

TO FURNISH QUARTERLY RETURNS OF DEDUCTION OF TAX - The person responsible for deducting tax is also required to furnish a return in Form No. 26A to the Income-tax Officer, every quarter on July 15, October 15, January 15 and April 15 giving particulars of deductions of tax made in the quarter immediately preceding.

TO FURNISH ANNUAL RETURN OF INTEREST CREDITED/PAID WITHOUT DEDUCTION OF TAX - Particulars of cases where payments of interest were made without deduction of tax on the basis of affidavits or statements referred to earlier have also to be furnished to the Income-tax Officer in a return in Form No. 27A within 30 days from the end of the financial year in which the interest was actually paid.

10. In cases of doubt the Income-tax Officer concerned may be consulted before giving credit for, or making payment of, interest other than “interest on securities”.

Circular: No. 22/68-IT(B), [F. No. 12/23/68-IT(B)], dated 28-3/13-5-1968 as modified by letter F. No. 12/23/68-IT(B), dated 7-11-1968.

1069. Deduction of tax at source, as per the rate specified in Part II of First Schedule to Finance Act, 1987, to be increased by a surcharge at the rate of 5 per cent - Effective from 16-12-1987

I am directed to say that the rates at which tax is to be deducted at source under section 194A by persons who are responsible for paying to a resident any income by way of interest other than income chargeable under the head “Interest on securities” are given in Part II of the First Schedule to the Finance Act, 1987. The exempted categories from which such deduction will not be made are given in the said section. It is brought to your notice that vide section 3 of the Finance (Amendment) Act, 1987, the First Schedule to the Finance Act has been amended with immediate effect. According to this amendment, the amount of income-tax computed on the basis of the rates laid down in the Finance Act shall be increased by a surcharge for purposes of the Union calculated at the rate of 5 per cent of such income-tax. The levy of surcharge has come into force with effect from 16-12-1987.

Circular: No. 510 [F. No. 275/25/88-IT(B)], dated 23-2-1988.

1070. Clarification regarding extension of applicability to interest on time deposits with banks*

1. According to the provisions of section 194A of the Income-tax Act, 1961, any person, not being an individual or HUF, who is responsible for paying to a resident (for non-residents, the provisions are different and are contained in section 195) any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. These provisions are, however, subject to the exceptions provided in the said section.

2. One such exception, contained in clause (vii) of sub-section (3) of section 194A, hitherto related to interest income credited or paid in respect of deposits with, (i) a banking company to which the Banking Regulation Act, 1949 applies, or (ii) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank).

3. The Finance (No. 2) Act, 1991 has, however, substituted the aforesaid clause with the following clauses with effect from the 1st October, 1991 :

(vii) to such income credited or paid in respect of deposits (other than time deposits) with a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act);

(viia) to such income credited or paid in respect of—

(a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank;

(b) deposits (other than time deposits) with a co-operative society other than a co-operative society or bank referred to in sub-clause (a),

engaged in carrying on the business of banking.

Explanation : For the purposes of clauses (vii) and (viia) “time deposits” means deposits (excluding recurring deposits) repayable on the expiry of fixed periods.

4. The effect of the aforesaid change is that income-tax shall now be deductible at source from the interest income on the deposits with, (i) a banking company, or (ii) a co-operative society engaged in carrying on the business of banking, other than a co-operative land mortgage bank, a co-operative land development bank, primary agricultural credit society or a primary credit society. Deduction of tax at source will have to be made from such interest income credited or paid on or after 1st October, 1991. In this connection, the following points may be noted :

(a) Deduction of tax is required to be made at the time of credit of interest income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier.

(b) Where the interest is credited in the books of account of the payer, to any account, whether called “Interest payable account” or “suspense account” or of any other name, such crediting shall be deemed to be credit of such interest to the account of the payee and tax will have to be deducted at source. Thus, in the case of cumulative time deposits where interest is credited periodically but the payment to the depositor is made only at the time of maturity, tax will have to be deducted at source, every time the credit of interest is made in the account books of the payer/bank.

(c) In the case of cumulative deposits made prior to 1-4-1991 no tax is required to be deducted in respect of interest income which relates to the period prior to 1-4-1991.

(d) The new provisions are not applicable to interest on savings bank accounts.

5. The rates at which the tax is required to be deducted on income by way of interest other than interest on securities are contained in Part II of the First Schedule to the Finance (No. 2) Act, 1991 and are summarised below :

(a) in the case of non-corporate taxpayers, resident in India, at the rate of 10% of the interest income and surcharge thereon, which is at present 12% of such income-tax (thus, the rate of tax deduction will be 11.2%).

(b) in the case of domestic companies, at the rate of 20% of the interest income and surcharge thereon, which is at present 15% of such income-tax (thus, the rate of tax deduction will be 23%).

No deduction of tax under certain circumstances.

6. There will, however, be no deduction of tax at source provided the amount of interest income does not exceed Rs. 2,500 during a financial year. [This is in terms of the provisions of clause (i) of sub-section (3) of section 194A]. The limit of Rs. 2,500 is to be worked out with reference to the aggregate of the amounts of interest income credited or paid or likely to be credited or paid during a financial year by a payer to a payee. For the current year the banks will have to take into account the amount of interest paid or credited during the entire period of the financial year 1991-92, and not only the interest paid or credited after the 1st October, 1991.

7. There will also be no deduction of tax at source where the recipient of the interest income, being a resident individual, furnishes a declaration in writing, in duplicate, in Form No. 15H (copy enclosed), to the effect that the tax on his estimated total income of the relevant financial year will be nil (provisions of section 197A of the I.T. Act). This declaration is to be furnished to the person responsible for paying the interest income.

8. Besides above, proviso to sub-section (1) of section 194A of the Income-tax Act provides that in the case of a person (not being a company or a registered firm), there will be no deduction of tax at source provided he furnishes (i) an affidavit, or (ii) a statement in writing, in Form No. 15A (copy enclosed) to the effect that his estimated total income for the relevant assessment year is below the taxable limit. The statement in Form No. 15A is required to be attested by a Member of Parliament, a Gazetted Officer of the Central or State Government, an officer of any banking company, etc., as indicated in the Form. This provision applies in the case of trusts also which are not companies.

9. Section 197 of the Income-tax Act also provides that in the case of taxpayers other than companies, the Assessing Officer, on an application made to him, can issue a certificate for deduction of tax at a lower rate than the rates in force, or for no deduction of tax at source if he is satisfied that the total income of the recipient so warrants. Where any such certificate is given, the payer of the interest income, e.g., a bank manager during the validity of the certificate, is to deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.

Responsibility and procedure for deduction of tax.

10. The responsibility for deducting tax at source in terms of the provisions of section 194A, has been cast on the payer of the interest income in terms of section 204 of the I.T. Act. Where the payer is a company, the company itself including the principal officer thereof will be responsible for deducting tax at source. In the case of banks, which are generally companies, the banks themselves will be responsible for deducting tax at source. However, since the bank branches maintain their separate accounts and pay interest to the depositors, the officer-in-charge of the branch is expected to deduct tax at source and also comply with other legal obligations as discussed in the succeeding paragraphs.

11. The procedure regarding deduction of tax at source, is contained in sections 200, 201, 203, 203A, 206 and 206A of the Income-tax Act, 1961 and in rules 30, 31, 36A, 37 and 114A of the Income-tax Rules, 1962. According to the provisions of section 200 of the Income-tax Act, any person deducting tax in accordance with the provisions, inter alia, of section 194A, shall pay, within the prescribed time the tax so deducted to the credit of the Central Government. In the case of deduction by or on behalf of the Government, the tax is required to be paid on the day of the deduction itself. In other cases, generally, the payment is to be made within one week of the last day of the month in which deduction is made. In special cases, the Assessing Officer, with the approval of the Deputy Commissioner can also permit a tax-deductor to pay the income-tax deducted at source on quarterly basis. For this purpose, a consolidated application may be made by the head office of the bank, on behalf of all its branches to the concerned Assessing Officer. The Assessing Officer can also grant a consolidated permission in respect of all the branches of the concerned bank. Once such a permission is granted, it will not be necessary for each branch of the bank to obtain separate permission in its case.

If a person fails to deduct tax at source, or, after deducting, fails to pay it to the credit of the Central Government, he shall be liable to action under the provisions of section 201. Sub-section (1A) of section 201 lays down that such person shall be liable to pay simple interest at the rate of fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Further, section 271C lays down that a person who fails to deduct tax at source shall be liable to pay, by way of penalty, a sum, equal to the amount of tax which he failed to deduct at source. In this regard, attention is also invited to the provisions of section 276B of the Income-tax Act which lays down that if a person fails to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years and with fine.

12. Further, according to the provisions of section 203 of the Income-tax Act, 1961, every person responsible for deducting tax at source is required to furnish a certificate to the payee to the effect that tax has been deducted and to specify therein the amount so deducted, the rate at which tax has been deducted and other prescribed particulars. The certificate has to be furnished within the period prescribed by rule 31(3) of the Income-tax Rules, 1962. The certificate for tax deduction under section 194A has to be issued generally within one month and fourteen days from the date of credit or payment of interest, in Form No. 16A (copy enclosed). If the payer fails to furnish this certificate, he shall be liable to pay, under section 272A of the Income-tax Act, by way of penalty, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues.

13. Under the provisions of section 203A of the Income-tax Act, 1961, it is obligatory for all persons responsible for deducting tax at source to obtain a tax deduction account number (TAN) from the concerned Assessing Officer, and quote the same in the TDS certificates and the challans and returns relating to TDS. Detailed instructions in this regard are available in this Department’s Circular No. 497, dated 9-10-1987. A copy of Form No. 49B, for making the application for obtaining the TAN from the Assessing Officer is enclosed for ready reference. If a person fails to comply with the provisions of section 203A, he shall be liable to pay, under section 272BB of the I.T. Act, by way of penalty, a sum which may extend to Rs. 5,000.

14. According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public

15.1 Section 206A, read with rule 37AA, provides that a person paying interest to a resident without deduction of tax at source has to furnish an annual return giving details of such interest paid. This return is to be filed in Form No. 27A and is to be furnished within 30 days from the end of the financial year in which such interest has been paid. If a person fails to furnish in due time the annual return, he is liable to pay, under section 272A of the Act, by way of penalty, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the default continues.

15.2 Further, sub-section (2) of section 197A provides that the person responsible for paying the interest income is to deliver one copy each of the declaration on Form No. 15H, referred to in para 7, to the concerned Chief Commissioner or Commissioner before the 7th day of the month next following the month in which the declaration is furnished to him. Failure to deliver copies of this form will attract penalty under section 272A on the above lines.

Deduction of tax in the case of joint accounts.

16. Doubts may sometimes arise in this connection about the manner of deducting tax at source from interest income on deposits in joint names. Reference for this purpose may please be made to Board Circular No. 256 dated 29-5-1979. An extract from this circular is reproduced below for ready reference :

“ . . . in the case of deposit in joint names, say in two names, in the absence of any proof to the contrary, both the persons can be treated as payees for the purpose of deduction of tax under section 194A of the Act. As such, unless the person paying the interest on such deposit(s) has definite information about the beneficial ownership of the deposit(s), the interest payable under a joint account can be aggregated with the amount of interest payable by that person to any one of the payees in their separate or independent accounts. The persons responsible for deducting the tax are advised that, in the absence of any information to the contrary, they may aggregate the interest on a joint account with the interest on deposit in the individual’s account who has higher interest income. Thus, if there is a deposit of Rs. 5,000 in a joint account of M/s. XY and there are deposits of Rs. 4,000 in the name of X and Rs. 3,000 in the name of Y with the same payer, the rate of interest being 12% per annum, the payer may aggregate the interest in the joint account amounting to Rs. 600 with the interest of Rs. 480 on the deposit of X and hence the aggregate interest during a financial year exceeds Rs. 1,000 (this limit has since been raised to Rs. 2,500) he may deduct the tax at the prescribed rate. The fact that the joint account may be styled as M/s. YX instead of M/s. XY will not make any difference.”

17. These instructions are not exhaustive and are issued with a view to help the persons responsible for making deduction of tax at source under section 194A of the Income-tax Act. However, where there is any doubt, a reference may be made to the relevant provisions of the Income-tax Act, 1961 and the Finance (No. 2) Act, 1991. In case any assistance is needed, the Income-tax Officer concerned or the Local Public Relations Officer of the Income-tax Department may please be approached.

Circular: No. 617, dated 22-11-1991.

FORM NO. 15A

[See rule 29A]

Statement under the proviso to section 194A(1) of the Income-tax Act, 1961, relating to deduction of tax from income by way of interest other than income chargeable under the head “Interest on securities”

*I/We,........................................................................................................ , do hereby declare

[name of the person entitled to receive the interest]

that *my/our estimated total income assessable for the assessment year next following the financial year 19.....—19..... will be less than the minimum liable to income-tax.

2. I give below the other necessary particulars :

(a) Full name and address of the person(s) making the statement.....................................

(b) Father’s name .........................................

(d) Name of Income-tax Circle/Ward/District where last assessed to tax (if not assessed to income-tax at any time, state “NOT ASSESSED”) .........................................

3. I further declare that to the best of my knowledge and belief the information furnished above is correct, complete and is truly stated.

Place.................... ..................................

Date..................... Signature

ATTESTATION BY GAZETTED OFFICER

Certified that the above statement has been signed in my presence by Shri/Sarvashri........................who *is/are known to me.

Place....................	...................................
Date.....................	Name, designation and signature of the Gazetted Officer

Note: *Delete whichever is not applicable.

FORM NO. 15H

[See Rule 29C(3)]

Declaration under section 197A(1) of Income-tax Act, 1961, to be made
by an individual claiming receipt of interest other than
“interest on securities” without deduction of tax

I..............., son/daughter/wife of...................resident of...................@ do hereby declare—

1. that the sums, particulars of which are given below, stand in my name and beneficially belong to me, and the interest in respect of such sums is not includible in the total income of any other person under sections 60 to 64 of the Income-tax Act, 1961:

Name and address of the person to whom the sums are given on interest

Amount of such sums

Date(s) on which such sums were given on interest

Period for which such sums were given on interest

Rate of interest

2. that my present occupation is.....................;

3. that the tax on my estimated total income including the interest on securities referred to in paragraph 1 above, computed in accordance with the provisions of the Income-tax Act, 1961, for the previous year ending on ................... relevant to the assessment year 19.....—19..... will be nil ;

4. *that I have not been assessed to income-tax at any time in the past but I fall within the jurisdiction of the Chief Commissioner or Commissioner of Income tax, ....................;

that I was last assessed to income-tax for the assessment year 19.....—19..... by the Assessing Officer..................., Circle/Ward/District and the permanent account number allotted to me is...........................;

5. that I am resident in India within the meaning of section 6 of the Income-tax Act, 1961.

.....................................................

Signature of the declarant

Verification

I...............................................do hereby declare that to the best of my knowledge and belief what is stated above is correct, complete and is truly stated.

Verified today, the...........................................day of .......................19.......

Place ................	..............................................
	Signature of the declarant

Notes :

1. @ Give complete postal address.

2. The declaration should be furnished in duplicate.

3. *Delete whichever is not applicable.

4. Before signing the verification, the declarant should satisfy himself that the information furnished in the declaration is true, correct and complete in all respects.

5. Any person making a false statement in the declaration shall be liable to prosecution under section 277 of the Income-tax Act, 1961, and on conviction be punishable—

(i) in a case where tax sought to be evaded exceeds one lakh rupees, with rigorous imprisonment which shall not be less than six months but which may extend to seven years and with fine;

(ii) in any other case, with rigorous imprisonment which shall not be less than three months but which may extend to three years and with fine.

[FOR USE BY THE PERSON TO WHOM THE DECLARATION IS FURNISHED]

1. Name and address of the person responsible for paying the interest on sums mentioned in Paragraph 1 of the declaration

2. Date on which the declaration was furnished by the declarant

3. Period for which interest is credited/paid

4. Amount of interest

5. Rate on which interest is credited/paid

Forwarded to the Chief Commissioner or Commissioner of Income-tax,................

Place........	.........................................................................
Date...........	Signature of the person responsible
	for paying interest other than
	“interest on securities”

FORM NO. 16A

[See rule 31(1)(b)]

Certificate of deduction of tax at source under section 203 of
the Income-tax Act, 1961

[For interest on securities; dividends; interest on time deposits referred to in clauses (vii) and (viia) of sub-section (3) of section 194A; insurance commission; payments in respect of deposits under National Savings Scheme; payments on account of repurchase of units by the Mutual Fund or Unit Trust of India; commission, remuneration or prize on sale of lottery tickets; commission or brokerage; income from units referred to in section 196B]

Name and address of the person deducting tax	TDS circle where Annual Return under section 206 is to be delivered	Name and address of the person to whom payment made or in whose account it is credited
.........................................................	...............................	.......................................................
.........................................................	...............................	.......................................................
.........................................................	...............................	.......................................................
.........................................................	...............................	.......................................................
.........................................................	...............................	.......................................................
TAX DEDUCTION A/C NO. OF THE DEDUCTOR	NATURE OF PAYMENT	PAN/GIR NO. OF THE PAYEE
PAN/GIR NO. OF THE DEDUCTOR		FOR THE PERIOD ...... 19..... TO 19.....

DETAILS OF PAYMENT, TAX DEDUCTION AND DEPOSIT OF TAX INTO
CENTRAL GOVERNMENT ACCOUNT

Certified that a sum of Rs. (in words) ...................... has been deducted at source and paid to the credit of the Central Government as per details given above.

Place.................	.................................................................
Date..................	Signature of person responsible
	for deduction of tax
	Full Name............................................
	Designation.........................................

FORM NO. 49B

[See rule 114A]

Form of application for allotment of tax deduction account
number under section 203A

The Assessing Officer,

...............................................

Sir,

Whereas I/we am/are liable to deduct tax in accordance with Chapter XVII under the heading ‘B. - Deduction at source’ of the Income-tax Act, 1961 ;

And whereas no tax deduction account number has been allotted to me/us;

I/We hereby request that a tax deduction account number be allotted to me/us;

I/We give below the necessary particulars :—

1. Full name and address

2. Status [whether individual, HUF, company, etc.]

3. If an individual—

(a) name of father (or husband)

(b) age

4. If firm/HUF/AOP/BOI/company, the names and addresses of partners/members/directors

5. Source(s) of income

6. Particulars of business, if any :

Name Address Nature of business

(i) Head Office

(ii) Branch(es)

7. Date on which the tax was last deducted in accordance with Chapter XVII under the heading ‘B.-Deduction at source’ of the Income-tax Act, 1961

8. The nature of payments from which tax has been or will be deducted

9. Whether permanent account number has been allotted or not, if so, state the number

.............................

Signed

(Applicant)

Verification

I/We,.........................................................in my/our capacity as.............................................................

[name] [designation]

do hereby declare that what is stated above is true to the best of my/our information and belief.

Verified today this the..........................................day of..........................19.......at.........................

[place]

.............................

Signed

(Applicant)

1071. Clarification regarding deduction from interest on time deposits with banks

1. Please refer to Board’s Circular No. 617, dated 22-11-1991 regarding deduction of tax at source from interest other than ‘interest on securities’ under section 194A of the Income-tax Act with particular reference to the new provisions in relation to deduction of tax from interest on time deposits with banks.

2. A question has arisen as to whether the interest paid/credited by banks on time deposits from 1-4-1991 to 30-9-1991 has to be included for the purpose of deduction of tax at source after 1-10-1991. It is clarified that since the provisions relating to tax deduction at source from interest on time deposits with banks came into force w.e.f. 1-10-1991, only the interest paid or credited after this date will be liable for deduction of tax at source at the specified rate. The interest paid/credited during the period 1-4-1991 to 30-9-1991 will be reckoned only for the purposes of seeing whether the aggregate interest paid/credited during the financial year exceeds the limit of Rs. 2,500 which will determine the liability to deduct tax at source from payments made/credited after 1-10-1991.

Circular : No. 626, dated 12-2-1992.

1072. Applicability of the provisions in respect of income paid or credited to a member of co-operative bank

1. Under section 194A of the Income-tax Act, 1961 tax is deductible at source from any payment of income by way of interest other than income by way of interest on securities. Clause (v) of sub-section (3) of section 194A exempts such income credited or paid by a co-operative society to a member thereof from the requirement of TDS. On the other hand, clause (viia) of sub-section (3) of section 194A exempts from the requirement of TDS such income credited or paid in respect of deposits (other than time deposits made on or after 1-7-1995) with a co-operative society engaged in carrying on the business of banking.

2. Representations have been received in the Board seeking clarification as to whether a member of a co-operative bank may receive without TDS interest on time deposit made with the co-operative bank on or after 1-7-1995. The Board has considered the matter and it is clarified that a member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposits with such co-operative bank without TDS under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (viia) of the said sub-section are applicable only in case of a non-member depositor of the co-operative bank, who shall receive interest only on deposits other than time deposits made on or after 1-7-1995 without TDS under section 194A.

3. A question has also been raised as to whether nominal members, associate members and sympathizer members are also covered by the exemption under section 194A(3)(v). It is hereby clarified that the exemption is available only to such members who have joined in application for the registration of the co-operative society and those who are admitted to membership after registration in accordance with the bye-laws and rules. A member eligible for exemption under section 194A(3)(v) must have subscribed to and fully paid for at least one share of the co-operative bank, must be entitled to participate and vote in the General Body Meetings and/or Special General

Circular : No. 9/2002, dated 11-9-2002.

1073. Exemption from requirement of deduction of income-tax at source on payment to Sri Sathya Sai Central Trust, Sri Sathya Sai Medical Trust and Sri Sathya Sai Institute of Higher Learning, Bangalore, whose incomes are exempt under section 10(23C) of the Income-tax Act, 1961

1. The matter regarding grant of exemption from deduction of income-tax at source under sections 194A, 194-I and 194K of the Income-tax Act on the payment of incomes to Shri Sathya Sai Central Trust, Sri Sathya Sai Medical Trust and Shri Sathya Sai Institute of Higher Learning, Bangalore, whose incomes are exempt for assessment years 2002-03 to 2004-05 under section 10(23C)(iv), 10(23C)(via) and 10(23C)(vi) of the Income-tax Act, 1961 respectively has been examined by the Board.

2. It has been decided by the Board that in the cases of Sri Sathya Sai Central Trust, Shri Sathya Sai Medical Trust and Shri Sathya Sai Institute of Higher Learning, Bangalore, the incomes by way of—

(i) interest other than ‘income by way of interest on securities’

(ii) rent, and

(iii) income in respect of units of a Mutual Fund specified under section 10(23D) or of the Unit Trust of India

may be paid to these Institutions without deduction of income-tax at source. The provisions of this Circular shall be applicable for the financial years 2002-03 and 2003-04 (assessment years 2003-04 and 2004-05).

Circular : No. 12/2002, dated 22-11-2002.

1073A. Exemption to some entities

See Sl. Nos. 1016 to 1018.

1074. Institutions notified under sub-clause (f) of clause (iii) of sub-section (3) for the purposes of non-deduction of tax at source from interest credited or paid thereto

In pursuance of sub-clause (f) of clause (iii) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government has notified the following institutions for the purpose of the said clause :

Institutions		Notification
		No.	Date
Industrial Credit and Investment Corporation of India Ltd., Bombay	SO	3200	4-9-1967
Gujarat Co-operative Housing Finance Society Ltd., Ahmedabad
Maharashtra Co-operative Housing Finance Society Ltd., Bombay	SO	3482	23-9-1967
Andhra Pradesh Industrial Development Corporation Ltd., Hyderabad	SO	4203	2-12-1967
National Industrial Development Corporation Ltd., New Delhi	SO	95	4-1-1968
Madras Industrial Investment Corporation Ltd., Madras	SO	1227	30-3-1968
State Industrial and Investment Corporation of Maharashtra Ltd., Bombay	SO	1854	17-5-1968
National Small Industries Corporation Ltd., New Delhi	SO	2149	13-6-1968
Kerala State Industrial Development Corporation Ltd., Trivandrum	SO	2882	24-8-1968
Hindustan Steel Ltd., P.O. Hinoo, Ranchi
Minerals & Metals Trading Corporation of India Ltd., New Delhi	SO	4222	23-11-1968
State Trading Corporation of India Ltd., New Delhi
Amratlal Ravjibhai Parikh, Ahmedabad	SO	851	22-2-1969
Madhya Pradesh Audyogic Vikas Nigam Ltd., Bhopal	SO	1516	16-4-1969¹
Madhya Pradesh State Road Transport Corporation, Bhopal	SO	1581	21-4-1969¹
Gujarat Electricity Board, Baroda	SO	1825	30-4-1969
Hindustan Machine Tools Ltd., Bangalore	SO	2127	22-5-1969
National Textile Corporation Ltd., New Delhi	SO	2128	25-5-1969
Agricultural Finance Corporation Ltd., Bombay	SO	2164	22-5-1969
Tea Board Calcutta	SO	3070	22-7-1969
Gujarat State Textile Corporation Ltd., Ahmedabad	SO	4712	21-11-1969
Madhya Pradesh State Textile Corporation Ltd., Madhya Pradesh	SO	825	8-2-1970
Indian Overseas Bank, Madras
Indian Bank, Madras
Allahabad Bank, Calcutta
Dena Bank, Bombay
Canara Bank, Bangalore
Union Bank of India, Bombay
United Commercial Bank, Calcutta
Bank of Baroda, Bombay	SO	710	16-2-1970²
Punjab National Bank, New Delhi
Bank of India, Bombay
Central Bank of India, Bombay
United Bank of India, Calcutta
Bank of Maharashtra, Poona
Syndicate Bank, Mysore
District, Taluka, Nagar and Gram Panchayats constituted under the Gujarat Panchayat Act, 1961, within the State of Gujarat	SO	828	24-2-1970
Market Committees established under the State Agricultural Produce Markets Act in various States	SO	2203	16-6-1970
Any corporation established by a Central, State or Provincial Act
Any company in which all the shares are held (Whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that Bank	SO	3489	22-10-1970
Any undertaking or
Cawnpore Anti-Tuberculosis Association, Kanpur	SO	315(E)	29-3-1972
Amratlal Ravjibhai Parikh, Ahmedabad
Amratlal Ravjibhai Parikh, Baroda	SO	362	16-11-1973
Amratlal Ravjibhai Parikh, Anand
Amratlal Ravjibhai Parikh, Nadiad
Maharashtra State Textile Corporation Ltd., Bombay	SO	2479	16-7-1974
Kerala State Textile Corporation Ltd., Cochin	SO	2677	21-9-1974
Steel Authority of India Ltd., New Delhi	SO	1247	11-3-1975
Amratlal Ravjibhai Parikh, Prop. Chandrakant Amratlal Parikh, Baroda Amratlal Ravjibhai Parikh, Prop. Mukundlal Amratlal Parikh, Nadiad	SO	1533	11-3-1976
Amratlal Ravjibhai Parikh, Prop. Balkrishna Amratlal Parikh Anand
Indian Dairy Corporation, Baroda	SO	1684	11-3-1976
Development Corporation of Konkan Ltd., Bombay	SO	1685	11-3-1976
Madras Fertilizers Ltd., Madras	SO	2043	25-5-1979
Tamilnadu Handloom Finance and Trading Corporation Ltd., Madras	SO	4000	26-11-1979
National Textile Corporation (Delhi, Punjab, Rajasthan) Ltd., New Delhi	SO	116	26-12-1979
Pratap Spinning, Weaving and Manufacturing Co. Ltd., Amalner	SO	723	28-2-1980
Housing Development Finance Corpn. Ltd., Bombay	SO	1724	2-6-1980
Management Development Institute, New Delhi	SO	1377	22-4-1981
Textile Corporation of Marathwada Ltd., Aurangabad	SO	3661	11-10-1982
Aspee Agricultural Research and Development Foundation, Bombay	SO	3779	22-10-1982
Fertilisers & Chemicals Travancore Ltd., Udyogamandal	SO	2412	18-5-1983
Army Group Insurance Fund, New Delhi	SO	819	24-2-1984
Air Force Group Insurance Society, New Delhi	SO	2825	5-6-1985
Naval Group Insurance Fund, New Delhi	SO	2551	29-5-1986
West Bengal Electronics Industry Development Corpn. Ltd., Calcutta	SO	621	28-1-1990
West Bengal Industrial Development Corpn. Ltd., Calcutta	SO	110(E)	15-2-1999
Insurance Regulatory and Development Authority	SO	644(E)	5-7-2000
Tourism Finance Corporation of India Limited, New Delhi		13/2003	15-1-2003
	[F. No. 275/99/2002-IT(B)]
Maulana Azad Education Foundation, New Delhi		14/2003	15-1-2003
	[F. No. 275/92/2002-IT(B)]

1075. Scheme notified under section 194A(4)(vi) for non-deduction of tax at source from interest other than ‘Interest on securities’

In pursuance of clause (vi) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies the Certificates/Deposit Schemes mentioned in the Table given below for the purpose of the said clause :—

Table

Description of Certificates/Deposit Schemes

1. Post Office Recurring Deposit Account

2. Post Office Time Deposit Account (1-year, 2-year, 3-year and 5-year)

3. Post Office Monthly Income Account

4. Kisan Vikas Patras

5. National Savings Certificates (VIII Issue)

6. Indira Vikas Patra

Notification : No. SO 72(E), dated 24-1-1992.

1076. Scheme notified under clause (vi) of sub-section (3) for the purposes of non-deduction of tax at source from interest credited or paid in respect of deposits thereunder

In pursuance of clause (vi) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies the following schemes as to which the said clause shall apply, namely :

(1) The Scheme of Post Office (Time Deposits) governed by the Post Office (Time Deposits) Rules, 1970.

(2) The Scheme of Post Office (Recurring Deposits) governed by the Post Office (Recurring Deposits) Rules, 1970.

Notification : No. SO 2878, dated 1-9-1970.

1077. National Deposit Scheme, 1984 notified under clause (vi) of sub-section (3) for the purposes of non-deduction of tax at source from interest on deposit made thereunder

In pursuance of clause (vi) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies the certificates mentioned in the Table below for the purposes of the said clause :

Table

Sl. No. Description of Certificates

1. National Savings Certificates (V Issue)

2. National Savings Annuity Certificates

3. National Savings Certificates (VI Issue)

4. National Savings Certificates (VII Issue)

5. Social Security Certificates

Notification : No. SO 2703, dated 1-9-1990.

1078. Investment Deposit Account Scheme, 1986 notified under clause (vi) of sub-section (3) for the purposes of non-deduction of tax at source from interest on deposits made thereunder

In pursuance of clause (vi) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies the Investment Deposit Account Scheme, 1986, framed by it, for the purposes of the said clause.

Notification : No. SO 4247, dated 11-12-1986.

1079. Banks exempted from deducting tax at source from interest paid on deposits under clause (vii) of sub-section (3) from 1-4-1970 - Whether tax already deducted and paid into Government account could be refunded directly by banks

1. I am directed to invite a reference to the Board’s Circular No. 22/68-IT(B) [F.No. 12/23/68-IT(B)], dated 28-3/13-5-1968, and to say that the Finance Act of 1970, has made an important change in section 194A by inserting a new clause (vii) in sub-section (3) of that section. As per this clause, the provisions of section 194A are not applicable to income by way of interest credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act), or with a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). All such banking institutions are, therefore, no longer required to deduct tax from interest paid or credited to the accounts of a resident depositor.

2. Where, however, tax has already been deducted at source from interest paid by such banks to resident depositors so far during this financial year, and certificate for such deduction issued to the depositors or the tax so deducted paid into Government account, such tax, under the existing provisions of law, cannot be refunded directly by the banks to depositors concerned and it has to be credited to Government account and the depositors have to obtain necessary refund/as may be due in this behalf, from their Income-tax Officers according to the prescribed procedure. If, on the other hand, tax has been deducted but neither certificate of deduction issued to the depositor nor the amount paid into Government account, the entry in bank’s account may be written back to nullify deduction of tax.

Circular : No. 42 [F. No. 275/62/70-ITJ], dated 20-6-1970.

1080. Instructions for deduction of tax at source from interest other than interest on securities during financial year 1974-75 at the rates specified in Part II of First Schedule to Finance Act, 1974

Income-tax Surcharge

I. In the case of a person other than a company 10 per cent Nil

II. In the case of a company—

(a) where the company is a domestic company 20 per cent 1 per cent

(b) where the company is not a domestic company 7 per cent 3.5 per cent

2. Under section 195 any person responsible for paying to a non-resident, not being a company, or to a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividend within India, any interest (other than interest on securities), will be required, at the time of payment, to deduct income-tax thereon at the rates in force. The rates prescribed for the purpose in Part II of the First Schedule to the Finance Act, 1974 for the financial year 1974-75 are as under :

Income-tax Surcharge

I. In the case of a person other than a company 30 per cent 3 per cent

income-tax and surcharge in respect of the income by way of interest at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of this Schedule, if such income had been the total income, whichever is higher;

II. In the case of a company 70 per cent 3.5 per cent.

Circular : No. 134[F.No. 275/12/74-ITJ], dated 16-5-1974.

1081. Instructions for deduction of tax at source from interest other than interest on securities during financial year 1975-76 at the rates specified in Part II of First Schedule to Finance Act, 1975

1. Under section 194A any person not being an individual or a Hindu undivided family, paying to a resident, any income by way of interest (other than interest on securities) is required, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or a draft, to deduct income-tax thereon at the rates in force. The Finance Act, 1975 has amended section 194A to provide that tax would be deducted at source from interest where the income by way of interest credited or paid or likely to be credited or paid to the payee during the financial year exceeds Rs. 1,000. Before the amendment, the deduction was required to be made in cases where the amount paid or credited at any one time exceeded Rs. 400. The Amendment also provides that the person responsible for making the payment may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.

2. The rates for the financial year 1975-76 as prescribed in Part II of the First Schedule to the Finance Act, 1975 are as follows :

Income-tax Surcharge

I. In the case of a person other than a company 10 per cent Nil

II. In the case of a company—

(a) where the company is a domestic company 20 per cent 1 per cent

(b) where the company is not a domestic company 70 per cent 3.5 per cent

3. Under section 195, any person responsible for paying to a non-resident, not being a company, or to a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividend within India, any interest (other than interest on securities), will be required, at the time of payment, to deduct income-tax thereon at the rates in force. The rates prescribed for the purpose in Part II of the First Schedule to the Finance Act, 1975 for the financial year 1975-76 are as under :

Income-tax Surcharge

I. In the case of a person other than a company 30 per cent 3 per cent

income-tax and surcharge in respect of the income by way of interest at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of this Schedule¹, if such income had been the total income, whichever is higher;

II. In the case of a company 70 per cent 3.5 per cent.

Circular: No. 168 [F. No. 275/43/75-ITJ], dated 9-6-1975.