Rules 42 to 44

Tax clearance certificate

The statutory background

42.1 Under section 230(1) of the Act, the following persons are normally not allowed to leave India unless such a person obtains from the competent authority, a tax clearance certificate. This requirement can be relaxed by Government by exempting certain persons by issue of notifications.

Persons covered :

n  A person who is not domiciled in India.

n  A person who is domiciled in India at the time of his departure but—

      (i)  intends to leave India as an emigrant; or

     (ii)  intends to proceed to another country on a work permit with the object of taking up any employment or other occupation in that country; or

    (iii)  in respect of whom circumstances exist which, in the opinion of an income-tax authority, render it necessary for him to obtain a tax clearance certificate.

The competent authority can issue an exemption certificate in the case of a person not domiciled in India, if the authority is satisfied that such person intends to return to India. Rule 42 to Rule 44 prescribe the modalities for obtaining such a clearance certificate or exemption certificate.

The requirements prescribed

42.2 The following requirements are prescribed in rules 42 to 44 :

n  The application for tax clearance certificate or exemption certificate must be made to the competent authority in Form No. 31.

n  In the case of persons domiciled in India or in case of persons who are assessed by an Assessing Officer anywhere in India the application must be accompanied by an authorisation from the jurisdictional Assessing Officer in Form No. 32.

n  The tax clearance certificate is to be issued in Form No. 33, and it will be valid for the period mentioned therein.

n  The exemption certificate is to be issued in Form No. 34, and it shall be valid for the period mentioned therein.

n  The tax clearance certificate or the exemption certificate should be produced by the person leaving India to the customs authorities, if so requested by any Customs Officer.

The exempted persons

42.3 The persons exempted from the operation of section 230 are specified in Notification SRO 961, dated 25-5-1953 and GSR 52, dated 31-3-1984 [Annexes 42.1 & 42.4].

The competent authority

42.4 The competent authorities are notified in Notification No. SRO 963, dated 25-5-1953 [Annex 42.2].

Certain relaxations

42.5 The procedure in the case of Indian nationals proceeding abroad temporarily has been modified by the Board, vide Circular No. 31, dated 15-11-1960  and Letter F. No. 458/3/72-FTD, dated 15-5-1973 [Annexes 42.3 & 42.5].

In the case of foreign employees not domiciled in India, the system of issuing one-time clearance certificate has been introduced in certain situations, vide Circular No. 546, dated 4-10-1989 [Annex 42.6].

Enforcement in writ proceedings

42.6 The issue of a tax clearance certificate by the ITO is ‘purely an executive matter’, and there is no legal obligation on the ITO to issue such a certificate. Hence a writ petition seeking directions to the ITO to issue such a certificate is not maintainable, since there is no question of enforcement of any fundamental or statutory right against the ITO - Kalinga Air Lines (P.) Ltd. v. ITO [1972] 85 ITR 443 (Cal.).

Refusal to issue certificate

42.7 The Assessing Officer can refuse to issue the tax clearance certificate or exemption certificate only if the tax arrears legally due are not paid or satisfactory arrangements are not made for their payment. If no tax is legally due from a person, the tax clearance certificate cannot be refused to him - Mrs. A. Sattler  v. ITO [1970] 76 ITR 306 (Mys.), affirmed in ITO v. Mrs. A. Sattler [1973] 92 ITR 576 (SC).

annexure to Rules 42 to 44

Annex 42.1

Notification No. SRO 961, dated 25-5-1953

Persons exempted from obtaining tax clearance certificate under section 46A(1) of the 1922 Act

In exercise of the powers conferred by sub-section (1) of section 46A of the Indian Income-tax Act, 1922 (11 of 1922), the Central Government hereby directs that the provisions of the said section shall not apply to the following persons, namely :

     (1)  All persons below the age of eighteen years;

     (2)  Persons who are not domiciled in India, provided that the total period spent in India does not exceed one hundred and twenty days;

     (3)  (a)       All persons who are for the time being holding any civil post under the Union or a State or local authority, and all persons who are for the time being holding posts connected with defence;

          (b)  all persons whose salaries or emoluments are fixed by law or are specified in the Second Schedule to the Constitution or are determined under article 186 or 221 read with article 238(8) and 238(3) respectively;

          (c)  the wives of the persons referred to in clauses (a) and (b);

          (d)  British officers and other ranks proceeding ex-India on termination of their contract of service with the Government of India and the wives of such officers;

     (4)  (a)       all Diplomatic envoys of foreign and Commonwealth countries accredited to India and their wives;

          (b)  foreign Consular Officers de carriere posted in India and their wives;

          (c)  Trade Commissioners and Trade Agents de carriere of foreign and Commonwealth countries posted in India and their wives;

          (d)  members of the staff of the establishment of any of the officers mentioned in clauses (a), (b) and (c) above, provided they are nationals of the country represented by that officer, and are wholetime employees of the Government of that country and are not engaged in a private occupation for gain in India and their wives; and

          (e)  officials of the United Nations and specialised agencies of the United Nations to whom the United Nations (Privileges and Immunities) Act, 1947 (66 of 1947), is applicable and their wives;

     (5)  (a)       officials and representatives of foreign and Commonwealth Governments visiting India on the business of their Governments and their wives;

          (b) officials of foreign and Commonwealth Governments functioning in India who are exempt from payment of income-tax under an agreement entered into between the said Governments and the Government of India and the wives of such officials;

     (6)  (a)       all persons permitted by the Protector of Emigrants to depart out of India to Ceylon, Burma or Malaya for unskilled work;

          (b)  all persons permitted by the Protector of Emigrants under section 17 of the Indian Emigration Act, 1922 (7 of 1922) to be recruited for being engaged on skilled work in an overseas country except those in respect of whom the Protector of Emigrants declares that a tax clearance or an exemption certificate is necessary;

     (7)  (a)       all seamen holding Indian continuous discharge certificates proceedings from India under an agreement of service with a shipowner or an agent or master of a ship, provided that the employers agree to be responsible for the payment of tax due from the seamen in respect of their wages;

          (b)  all seamen holding foreign continuous discharge certificates proceedings from India under an agreement of service with a shipowner or an agent or master of a ship, provided that their proceeding stay in India was a duration not exceeding 90 days;

     (8)  (a)       all persons proceeding on pilgrimage by sea to the huj, provided that they travel in deck class on pilgrim ships with return tickets, hold pilgrim passes, and are not in possession of international passports;

          (b)  all persons proceeding on pilgrimage by sea to Iran and Iraq, provided that they travel in deck class with return tickets, hold pilgrim passes, and are not in possession of international passports:

Provided that subject to such general or special directions as the Central Government may issue, a competent authority may, at his discretion, require any of the aforesaid persons to obtain from him a tax clearance or an exemption certificate.

annex 42.2

Notification No. SRO 963, dated 25-5-1953

Competent authority appointed by Central Government under section 46A(1) of the 1922 Act

In pursuance of the provisions of section 46A of the Indian Income-tax Act, 1922 (11 of 1922), the Central Government hereby appoints every Income-tax Officer (Foreign Section) subordinate to any of the Commissioners of Income-tax specified in the Schedule hereto annexed as a competent authority for the purposes of the said section :

SCHEDULE

      1.  The Commissioner of Income-tax, Bombay City.

      2.  The Commissioner of Income-tax, West Bengal, Calcutta.

      3.  The Commissioner of Income-tax, Delhi.

      4.  The Commissioner of Income-tax, Madras.

      5.  The Commissioner of Income-tax, Hyderabad.

      6.  The Commissioner of Income-tax, Bombay North, Baroda.

      7.  The Commissioner of Income-tax, Travancore-Cochin, Bangalore.

      8.  The Commissioner of Income-tax, Bihar and Orissa, Patna.

annex 42.3

Circular  No. 31(LIXVi-10) [F. No. 46/43/60-IT], dated 15-11-1960

Requirement of issue of exemption certificates to Indian nationals proceeding abroad temporarily - Modification of

1. Under section 46A(1), the obligation of obtaining a tax clearance certificate before one leaves India lies upon :

     (a)  persons of non-Indian domicile, and

     (b)  such persons of Indian domicile who, in the opinion of the income-tax authority, have no intention of returning to India.

2. The practice, hitherto, has been to require all Indian nationals to obtain exemption certificates, which were being issued under terms of the proviso to section 46A(1). This procedure served the purpose of helping the airways and shipping companies in ensuring that they did not unknowingly carry any Indian national from whom tax might be due and who might not be likely to return to India.

3. It has been represented that above-mentioned requirement of obtaining exemption certificates is causing inconvenience and hardship to the large body of Indian nationals who have no intention of avoiding their tax liability by leaving India for good. The carriers have also been representing for a reduction in their responsibility under section 46A(2) for checking up the certificates held by the increasing number of travellers carried by them and accounting for them before the income-tax authorities. The matter has carefully been considered by the Government and it has been decided that henceforward the present system of requiring exemption certificate from all Indian nationals going abroad should be modified. Tax clearance certificate shall be required to be produced only by such persons of Indian domicile who, in the opinion of the income-tax authority, are not likely to return to India and against whom there may be at present or anticipated liability to tax. The procedure to be followed in regard to such cases is set out below :

1. When it comes to the notice of any income-tax authority that any assessee in his jurisdiction, against whom there is a present or anticipated liability to tax, is likely to leave India for good, he should immediately communicate the name and address of such assessee to all the Collectors of Customs at the various air/sea ports, with the request that the said person should be asked to produce a tax clearance certificate before his departure from India. This communication should be sent in triplicate in the attached specimen form, and one copy thereof should also be sent to the assessee concerned for his information.

2. The Collectors of Customs will send a copy of the communication referred to above to the Customs authorities at the various air/sea ports who will require the said person to produce his tax clearance certificate when he arrives for clearance at the time of his departure.

Rule 5 of the Income-tax (Tax Clearance Certificate) Rules, 1953 already empowers the Customs Officers to ask any person leaving India to produce before them for examination, tax clearance certificate held by him.

3. If any such person does not produce his tax clearance certificate before the Customs authority concerned, the said authority will make over a copy of the Income-tax Officer’s communication referred to in sub-part 2 to the officer-in-charge of the ship or aircraft by which he is travelling and also bring to his notice that the said person has failed to produce his tax clearance certificate under section 46A(1).

If, in spite of the information from the Customs authority, the carriers or their agents allow such a person to travel by the ship or aircraft without a tax clearance certificate, they shall be liable under section 46A(2) for making good the tax liability of such person.

4. The instructions in this circular shall come into force with effect from December 1, 1960. It may be noted that these instructions do not apply to the cases of foreign nationals regarding whom the existing procedure of issuing exemption or tax clearance certificates shall continue as before.

5. Copies of this circular have been endorsed to all Collectors of Customs and  to all airways and shipping companies in India for information and necessary action.

SPECIMEN FORM OF THE COMMUNICATION FROM THE INCOME-TAX
AUTHORITY TO THE COLLECTORS OF CUSTOMS

[Vide  para 3(1) of the Circular]

From

The Income-tax Officer,

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

The Collectors of Customs/Central Excise & Land Customs,

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

Sir,

Whereas I have reason to believe that Shri................................................................... of............................................................................................................................................................................

(address)

intends to proceed abroad and is not likely to return to India, and is being informed that he should obtain a tax clearance certificate under section 46A of the Indian Income-tax Act, 1922 before his departure, I request you to issue instructions to the customs authorities at the various air/sea ports in your jurisdiction to examine his tax clearance certificate, when he arrives for clearance. They may also please be advised that in the event of his failure to produce a tax clearance certificate, the officer-in-charge of the ship or aircraft by which he is travelling should be informed of it in writing and that in the event of his being allowed to proceed without a tax clearance certificate the undersigned should be intimated of the fact.

annex 42.4

Notification No. GSR 52, dated 31-3-1984

Provision of the section not apply to any individual referred to in section 10(8) - Notification issued under sub-section (1) of section 230

1. In exercise  of the powers conferred by sub-section (1) of section 230 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies that the provisions of the said section shall not apply to any individual as is referred to in clause (8) of section 10 of the said Act and whose source of income in India is as specified in that clause.

2.This notification shall come into force on the date of its publication in the Official Gazette.

annex 42.5

Letter F. No. 458/3/72-FTD, dated 15-5-1973

ITO may accept guarantee under the section in cases where director/employee of company has to proceed out of India at short notice without seal of company

It has been decided by the Board that in appropriate cases where the employee/director of the company has to proceed out of India on business, at short notice, the Income-tax officer may accept the guarantee furnished under section 230 without the seal of the company, provided it has been executed by a person duly authorised in this behalf, by the articles of association or power of attorney or any other suitable document.

It may, however, not be advisable for the guarantee to cease to have effect as soon as the person returns to India. It has, therefore, been decided by the Board that the guarantee should be in operation till the party’s return to India and for a period of three months thereafter, subject to the conditions that the individual remains in India for the said period of three months and the company gives prompt notice to the Income-tax Officer of the party’s return to India.

annex 42.6

Circular No. 546,  dated 4-10-1989

Simplification of procedure regarding tax clearance certificate in case of a foreign employee not domiciled in India

1. Under the provisions of section 230 of the Income-tax Act, 1961 it has been prescribed, inter alia, that a person who is not domiciled in India cannot leave the territory of India by land, sea or air unless he obtains a certificate from the “Competent Authority” that he has no liability under various Acts mentioned therein, or that satisfactory arrangements have been made for the payment of all or any of such taxes which are or may become payable by that person.

2. One of the methods of ensuring that satisfactory arrangements have been made for the payment of such taxes is by way of obtaining guarantee from the employer of the person leaving the country that any tax found due will be paid by the employer (guarantor). Under the existing procedure the guarantee tendered by the guarantor ceases to be operative three months after the return of the employee to India if the employee remains in India during the said period of three months and the guarantor gives prompt notice to the Assessing Officer concerned of the employee’s return to India.

3. A number of representations have been received by the Board that the procedure of obtaining the tax clearance certificate in the cases of foreign employees not domiciled in India, each and every time such employee wants to go abroad, is cumbersome and time consuming. In order to alleviate this difficulty, it has been decided to provide the facility of one-time clearance certificate to the foreign employee not domiciled in India who has a fixed tenure of service in India up to five years, to travel abroad any number of times during the period of the contract of his service.

4. This one-time clearance certificate will be given in the case of those foreign employees whose employer gives a guarantee in the prescribed form that if any tax is found due against the employee during the entire period of the contract of service plus two years, the same shall be paid by the employer. The guarantee may also cover the tax liabilities of the spouse and dependents of the foreign employee; in such a case the spouse and dependents of the employee would also be entitled to the benefit of one-time clearance certificate. The revised form of guarantee which is to be used for the above purpose is enclosed. The above procedure will apply only in such cases where the employer of the foreign employee is an Indian concern, or a foreign concern which is assessed to tax in India and has a fixed place of business in India. Where the foreign employee is not interested in obtaining such a guarantee from the employer or the employer is not willing to furnish such a guarantee, the hitherto existing procedure will continue to be followed.

5. In cases where the guarantee in the revised form is furnished, the tax clearance certificate to be issued by the Assessing Officer, Foreign Section, will be made valid for journeys to be performed by the foreign employee up to the last date of the contract of service as mentioned in the guarantee form. The concerned Chief Commissioner/Director General of Income-tax will have the right to withdraw the facility in suitable cases in the interest of revenue.

FORM OF GUARANTEE

(On a non-judicial stamp paper of the appropriate amount)

To

The President of India

through

(Designation)

The Commissioner of Income-tax

and

The Income-tax Officer/Assistant

Commissioner of Income-tax/

Deputy Commissioner of Income-tax

(Designation)

Sir,

In consideration of a certificate being issued by the Income-tax Officer/Assistant Commissioner of Income-tax/Deputy Commissioner of Income-tax (Ward/District/Circle/Range) under the provisions of section 230 of the Income-tax Act, 1961, in favour of (NAME OF FOREIGN EMPLOYEE, SPOUSE AND DEPENDENTS) [hereinafter referred to as the assessee(s), notwithstanding that the assessee(s)] has/have not made satisfactory arrangements for the payment of all or any of the tax/taxes (which terms wherever they occur in these presents include penalty and interest) which are at present due by [NAME OF ASSESSEE(S)] and payable by him/her/them or may become due by [NAME OF ASSESSEE(S)] and payable by him/her/them during the entire period of contract of service of (NAME OF FOREIGN EMPLOYEE) with the undersigned,  ending  on.......................   and during a further period of two years ending on*..........; We, the undersigned (NAME OF UNDERSIGNED), do hereby unconditionally and irrevocably guarantee due payment on demand and without demur to the Central Government of all the taxes which are or may become due and payable by the assessee(s) under the Indian Income-tax Act, 1922, the Income-tax Act, 1961, the Excess Profits Tax Act, 1940, the Business Profits Tax Act, 1947, the Wealth-tax Act, 1957, the Expenditure Tax Act, 1957 and the Gift-tax Act, 1958, or any one or more of the said Acts or other tax or taxes imposed under the Authority of the Government of India.

2. My/Our liability under this guarantee shall be co-extensive with that of the assessee(s).

3. I/We further agree that any amount certified by the Income-tax Officer/Assistant Commissioner of Income-tax/Deputy Commissioner of Income-tax having jurisdiction in the case of the assessee(s) as due and payable by the assessee(s) under all or any of the aforesaid enactments or other enactment(s) shall be accepted by me/us as conclusive evidence of the said amount being due and payable as aforesaid, and no such amount shall, in any case and under any circumstances, be disputed.

4. This guarantee shall apply to and secure the ultimate amount of tax which may be due or become due from the assessee(s) to the Central Government under all or any of the aforesaid enactments and it shall not be determined by me/us except on the terms of my/our making full provision for the payment of all such taxes to the satisfaction of the Income-tax Officer/Assistant Commissioner of Income-tax/Deputy Commissioner of Income-tax having jurisdiction in the matter.

5. Further, I/we expressly agree that my/our liability to pay such taxes to the Central Government under the terms of this guarantee shall not in any way be affected or discharged by reason of any time and/or other indulgence (including the payment of tax by instalments being granted to the assessee(s) or by reason of any other arrangement or arrangements for the payment of taxes under all or any of the aforesaid enactments being entered into with the assessee(s) or his/her heirs or representatives in exercise of all or any of the powers vested in the taxing authority under the said enactments and, in particular, that I/we, the guarantor(s) shall not be released from any of our liabilities under this guarantee by reason of exercise of the abovementioned powers by the Taxing Authority or by any deviations of these presents, or by releasing to the assessee(s) any or all of his/her/their properties or assets, and it is also agreed that vis-a-vis the Central Government, I/we the guarantor(s) hereby waive any of my/our rights as surety or otherwise which may at any time be inconsistent with any of the provisions of this guarantee.

6. Further, I/we hereby agree and declare that this guarantee shall not be determined or otherwise affected by any death/** dissolution or liquidation, but shall remain in full force and effect against me/us and my/our estate/assets until such amount of tax as is or may become due and payable hereunder is paid in full.

7. It is further declared and agreed that without prejudice to any other remedies open to the Central Government for recovering any tax which is or may become due and payable under this guarantee, the Central Government will be entitled to recover the said tax from me/us as the guarantor(s) on demand, in accordance with the rules contained in the Second Schedule to the Income-tax Act, 1961, or any modification thereof from time to time, and it shall not be necessary for the Central Government to initiate and/or exhaust any legal proceedings against the assessee(s) for the recovery of any tax as is aforementioned before suing/me/us for the recovery of the same.

8. It is further agreed that this guarantee will cease to be operative on...... (indicate the date as at above) if, and only if, I/we give notice before the date of expiry of the contract of service to the Income-tax Officer/Assistant Commissioner of Income-tax/Deputy Commissioner of Income-tax having jurisdiction in the case, regarding revoking the terms hereof and permitted by the Central Government.

(**Please strike out whichever is not applicable)

Place :                                                                                        Yours faithfully,

Date :

Signed in the presence of :

1............................................

2............................................

           (Witnesses)

And certified as correct.

Accepted for and on behalf of the President of India.