1.INCOME-TAX ACT, 1961*[43 OF 1961][AS AMENDED BY FINANCE ACT, 2008]An Act to consolidate and amend the law relating toincome-tax and super-taxBE it enacted by Parliament in the Twelfth Year of the Republic ofIndia as follows :CHAPTER IPRELIMINARYShort title, extent and commencement.11. 2(1) This Act may be called the Income-tax Act, 1961.(2) It extends to the whole of India.(3) Save as otherwise provided in this Act, it shall come into force on the1st dayof April, 1962.Definitions.2. In this Act, unless the context otherwise requires,3[(1) advance tax means the advance tax payable in accordance with theprovisions of Chapter XVII-C;]1. For applicability of the Act to State of Sikkim, see section 26 of theFinance Act, 1989.For extension of Act to Continental Shelf of India, see Notification No. GSR304(E), dated31-3-1983. For details, see Taxmanns Master Guide to Income-tax Act.2. For effective date for the applicability of the Act in the State of Sikkim,see NotificationNo. SO 148(E), dated 23-2-1989. For details, see Taxmanns Master Guideto Income-taxAct.3. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.*Amendments made by the Finance Act, 2008 notwithstanding thedates from which theycome into effect, have been printed in italics enclosed with boldsquare brackets.Amendments made by the Finance Act, 2007 coming into force fromApril 1, 2008 have alsobeen printed in italics but enclosed within medium square brackets.1.14[5(1A)] 6agricultural income7 means89[(a) any rent10 or revenue derived from land10 which is situated inIndia and is used for agricultural purposes;](b) any income derived from such land10 by(i) agriculture10; or(ii) the performance by a cultivator or receiver of rent-in-kind ofany process ordinarily employed by a cultivator or receiverof rent-in-kind to render the produce raised or received byhim fit to be taken to market10; or(iii) the sale by a cultivator or receiver of rent-in-kind of theproduce raised or received by him, in respect of which noprocess has been performed other than a process of thenature described in paragraph (ii) of this sub-clause ;(c) any income derived from any building owned and occupied by

2. the receiver of the rent or revenue of any such land, or occupiedby the cultivator or the receiver of rent-in-kind, of any land withrespect to which, or the produce of which, any process mentionedin paragraphs (ii) and (iii) of sub-clause (b) is carried on :9[Provided that(i) the building is on or in the immediate vicinity of the land, andis a building which the receiver of the rent or revenue or thecultivator, or the receiver of rent-in-kind, by reason of hisconnection with the land, requires as a dwelling house, or asa store-house, or other out-building, and(ii) the land is either assessed to land revenue in India or issubject to a local rate assessed and collected by officers of theGovernment as such or where the land is not so assessed toland revenue or subject to a local rate, it is not situated(A) in any area which is comprised within the jurisdictionof a municipality (whether known as a municipality,municipal corporation, notified area committee, townarea committee, town committee or by any other name)S. 2(1A) I.T. ACT, 1961 1.24. Renumbered as clause (1A) by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1989.5. For relevant case laws, see Taxmanns Master Guide to Income-tax Act.6. See rules 7 and 8 for manner of computation of income which is partiallyagricultural andpartially from business. See also rules 7A & 7B.7. The Finance Act, 1973 introduced for the first time a scheme of partiallyintegratedtaxation of non-agricultural income with incomes derived from agriculturefor thepurposes of determining the rate of income-tax that will apply to certainnon-corporateassessees. The scheme is since continued by the Annual Finance Acts.The provisionsapplicable for the assessment year 2008-09 are contained in section2(2)/2(13)(c) and PartIV of the First Schedule to the Finance Act, 2008.8. See also Circular No. 310, dated 29-7-1981 and Circular No. 5/2003,dated 22-5-2003. Fordetails, see Taxmanns Master Guide to Income-tax Act.9. Substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962.10. For meaning of the terms/expressions rent, revenue, derived,revenue derived fromland, such land, agriculture and market, see Taxmanns Direct TaxesManual, Vol. 3.or a cantonment board and which has a population ofnot less than ten thousand according to the last precedingcensus of which the relevant figures have beenpublished before the first day of the previous year ; or(B) in any area within such distance, not being more thaneight kilometres, from the local limits of any municipalityor cantonment board referred to in item (A), as the 3. Central Government may, having regard to the extentof, and scope for, urbanisation of that area and otherrelevant considerations, specify in this behalf by notificationin the Official Gazette11.]12[13[Explanation 1.]For the removal of doubts, it is hereby declaredthat revenue derived from land shall not include and shall be deemednever to have included any income arising from the transfer of anyland referred to in item (a) or item (b) of sub-clause (iii) of clause (14)of this section.]14[Explanation 2.For the removal of doubts, it is hereby declaredthat income derived from any building or land referred to in subclause(c) arising from the use of such building or land for any purpose(including letting for residential purpose or for the purpose of anybusiness or profession) other than agriculture falling under subclause(a) or sub-clause (b) shall not be agricultural income;]The following Explanation 3 shall be inserted after Explanation 2in clause (1A) of section 2 by the Finance Act, 2008, w.e.f. 1-4-2009 :Explanation 3.For the purposes of this clause, any income derivedfrom saplings or seedlings grown in a nursery shall be deemed to beagricultural income;15[16[(1B)] amalgamation, in relation to companies, means the merger ofoneor more companies with another company or the merger of two ormore companies to form one company (the company or companieswhich so merge being referred to as the amalgamating company orcompanies and the company with which they merge or which isformed as a result of the merger, as the amalgamated company) insuch a manner that(i) all the property of the amalgamating company or companiesimmediately before the amalgamation becomes the property ofthe amalgamated company by virtue of the amalgamation ;(ii) all the liabilities of the amalgamating company or companiesimmediately before the amalgamation become the liabilities ofthe amalgamated company by virtue of the amalgamation ;1.3 CH. I - PRELIMINARY S. 2(1B)11. For specified urban areas, refer Taxmanns Direct Taxes Circulars.12. Inserted by the Finance Act, 1989, w.r.e.f. 1-4-1970.13. Explanation renumbered as Explanation 1 by the Finance Act, 2000,w.e.f. 1-4-2001.14. Inserted, ibid.15. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.16. Renumbered as clause (1B) by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1989.(iii) shareholders holding not less than 17[three-fourths] in value of theshares in the amalgamating company or companies (other thanshares already held therein immediately before the amalgamationby, or by a nominee for, the amalgamated company or itssubsidiary) become shareholders of the amalgamated companyby virtue of the amalgamation,otherwise than as a result of the acquisition of the property of onecompany by another company pursuant to the purchase of suchproperty by the other company or as a result of the distribution of 4. such property to the other company after the winding up of thefirstmentionedcompany ;]18[(1C) Additional Commissioner means a person appointed to be anAdditionalCommissioner of Income-tax under sub-section (1) of section117;(1D) Additional Director means a person appointed to be an AdditionalDirector of Income-tax under sub-section (1) of section 117 ;](2) annual value, in relation to any property, means its annual value asdetermined under section 23 ;(3) 19[* * *](4) Appellate Tribunal means the Appellate Tribunal constituted undersection 252 ;(5) approved gratuity fund means a gratuity fund which has been andcontinues to be approved by the 20[Chief Commissioner or Commissioner]in accordance with the rules contained in Part C of the FourthSchedule ;(6) approved superannuation fund means a superannuation fund orany part of a superannuation fund which has been and continues tobe approved by the 20[Chief Commissioner or Commissioner] inaccordance with the rules contained in Part B of the Fourth Schedule;21(7) assessee22 means a person by whom 23[any tax] or any other sumofmoney is payable under this Act, and includes(a) every person in respect of whom any proceeding under this Acthas been taken for the assessment of his income 24[or assessmentof fringe benefits] or of the income of any other person in respectof which he is assessable, or of the loss sustained by him or bysuch other person, or of the amount of refund due to him or tosuch other person ;S. 2(7) I.T. ACT, 1961 1.417. Substituted for nine-tenths by the Finance Act, 1999, w.e.f. 1-4-2000.18. Clauses (1C) and (1D) inserted by the Finance Act, 2007, w.r.e.f. 1-6-1994.19. Clause (3) omitted by the Direct Tax Laws (Amendment) Act, 1987,w.e.f. 1-4-1988.20. Substituted for Commissioner, ibid.21. For relevant case laws, see Taxmanns Master Guide to Income-taxAct.22. For meaning of the term assessee, see Taxmanns Direct TaxesManual, Vol. 3.23. Substituted for income-tax or super-tax by the Finance Act, 1965,w.e.f. 1-4-1965.24. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.(b) every person who is deemed to be an assessee under any provisionof this Act ;(c) every person who is deemed to be an assessee in default underany provision of this Act ;25[(7A) Assessing Officer means the Assistant Commissioner 26[orDeputyCommissioner] 27[or Assistant Director] 26[or Deputy Director] or the 5. Income-tax Officer who is vested with the relevant jurisdiction byvirtue of directions or orders issued under sub-section (1) or subsection(2) of section 120 or any other provision of this Act, and the28[Additional Commissioner or] 29[Additional Director or] 30[JointCommissioner or Joint Director] who is directed under clause (b) ofsub-section (4) of that section to exercise or perform all or any of thepowers and functions conferred on, or assigned to, an AssessingOfficer under this Act ;](8) assessment31 includes reassessment ;(9) assessment year means the period of twelve months commencingon the 1st day of April every year ;32[(9A) Assistant Commissioner means a person appointed to be anAssistantCommissioner of Income-tax 33[or a Deputy Commissioner ofIncome-tax] under sub-section (1) of section 117 ;]34[(9B) Assistant Director means a person appointed to be an AssistantDirector of Income-tax under sub-section (1) of section 117;](10) average rate of income-tax means the rate arrived at by dividing theamount of income-tax calculated on the total income, by such totalincome ;35[(11) block of assets means a group of assets falling within a class ofassetscomprising(a) tangible assets, being buildings, machinery, plant or furniture;1.5 CH. I - PRELIMINARY S. 2(11)25. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.26. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.27. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.28. Inserted by the Finance Act, 2007, w.r.e.f. 1-6-1994.29. Inserted, ibid., w.r.e.f. 1-10-1996.30. Substituted for Deputy Commissioner or Deputy Director by theFinance (No. 2) Act,1998, w.e.f. 1-10-1998. Earlier or Deputy Director was inserted by theFinance (No. 2) Act,1996, w.e.f. 1-10-1996.31. For the meaning of the term assessment, see Taxmanns DirectTaxes Manual, Vol. 3.32. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.33. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.34. Inserted by the Finance Act, 2007, w.r.e.f. 1-4-1988.35. Substituted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999. Prior toits substitution, clause(11), as inserted by the Taxation Laws (Amendment & MiscellaneousProvisions) Act, 1986,w.e.f. 1-4-1988, read as under :(11) block of assets means a group of assets falling within a class ofassets, beingbuildings, machinery, plant or furniture, in respect of which the samepercentageof depreciation is prescribed ; 6. Original clause was earlier omitted by the Finance Act, 1965, w.e.f. 1-4-1965.(b) intangible assets, being know-how, patents, copyrights, trademarks,licences, franchises or any other business or commercialrights of similar nature,in respect of which the same percentage of depreciation is prescribed;](12) Board means the 36[Central Board of Direct Taxes constitutedunder the Central Boards of Revenue Act, 1963 (54 of 1963)] ;37[(12A) books or books of account includes ledgers, day-books, cashbooks,account-books and other books, whether kept in the written form oras print-outs of data stored in a floppy, disc, tape or any other form ofelectro-magnetic data storage device;]38(13) business39 includes any trade39, commerce or manufacture oranyadventure39 or concern in the nature of trade39, commerce or manufacture;40(14) capital asset means property41 of any kind held by an assessee,whether or not connected with his business or profession, but doesnot include(i) any stock-in-trade, consumable stores or raw materials held forthe purposes of his business or profession ;42[(ii) personal effects43, that is to say, movable property (includingwearing apparel and furniture) held for personal use 43 by theassessee or any member of his family dependent on him, butexcludes(a) jewellery;(b) archaeological collections;S. 2(14) I.T. ACT, 1961 1.636. Substituted for Central Board of Revenue constituted under the CentralBoard ofRevenue Act, 1924 (4 of 1924) by the Central Boards of Revenue Act,1963, w.e.f. 1-1-1964.37. Inserted by the Finance Act, 2001, w.e.f. 1-6-2001.38. For relevant case laws, see Taxmanns Master Guide to Income-taxAct.39. For the meaning of the terms/expressions business, trade,adventure and in thenature of trade, see Taxmanns Direct Taxes Manual, Vol. 3.40. For relevant case laws, see Taxmanns Master Guide to Income-taxAct.41. For the meaning of the term property, see Taxmanns Direct TaxesManual, Vol. 3.42. Substituted by the Finance Act, 2007, w.e.f. 1-4-2008. Prior to itssubstitution, sub-clause(ii), as substituted by the Finance Act, 1972, w.e.f. 1-4-1973, read as under:(ii) personal effects, that is to say, movable property (including wearingapparel andfurniture, but excluding jewellery) held for personal use by the assessee oranymember of his family dependent on him. 7. Explanation.For the purposes of this sub-clause, jewellery includes(a) ornaments made of gold, silver, platinum or any other precious metal oranyalloy containing one or more of such precious metals, whether or notcontaining any precious or semi-precious stone, and whether or not workedor sewn into any wearing apparel ;(b) precious or semi-precious stones, whether or not set in any furniture,utensilor other article or worked or sewn into any wearing apparel ;43. For the meaning of the expressions personal effects and personaluse, see TaxmannsDirect Taxes Manual, Vol. 3.(c) drawings;(d) paintings;(e) sculptures; or(f) any work of art.Explanation.For the purposes of this sub-clause, jewelleryincludes(a) ornaments made of gold, silver, platinum or any otherprecious metal or any alloy containing one or more of suchprecious metals, whether or not containing any precious orsemi-precious stone, and whether or not worked or sewn intoany wearing apparel;(b) precious or semi-precious stones, whether or not set in anyfurniture, utensil or other article or worked or sewn into anywearing apparel ;]44[(iii) agricultural land45 in India, not being land situate(a) in any area which is comprised within the jurisdiction of amunicipality45 (whether known as a municipality, municipalcorporation, notified area committee, town area committee,town committee, or by any other name) or a cantonmentboard and which has a population45 of not less than tenthousand according to the last preceding census of which therelevant figures have been published before the first day ofthe previous year ; or(b) in any area within such distance, not being more than eightkilometres, from the local limits of any municipality orcantonment board referred to in item (a), as the CentralGovernment may, having regard to the extent of, and scopefor, urbanisation of that area and other relevant considerations,specify in this behalf by notification in the OfficialGazette46;]47[(iv) 6 per cent Gold Bonds, 1977,48[or 7 per cent Gold Bonds, 1980,]49[or National Defence Gold Bonds, 1980,] issued by the CentralGovernment ;]50[(v) Special Bearer Bonds, 1991, issued by the Central Government ;]1.7 CH. I - PRELIMINARY S. 2(14)44. Substituted for (iii) agricultural land in India by the Finance Act, 1970,w.e.f. 1-4-1970.45. For the meaning of the terms/expressions agricultural land,municipality and population,see Taxmanns Direct Taxes Manual, Vol. 3.46. For specified urban areas, refer Taxmanns Direct Taxes Circulars. 8. 47. Inserted by the Taxation Laws (Amendment) Act, 1962, w.e.f. 13-12-1962.48. Inserted by the Finance (No. 2) Act, 1965, w.e.f. 1-4-1965.49. Inserted by the Taxation Laws (Amendment & MiscellaneousProvisions) Act, 1965, w.e.f.4-12-1965.50. Inserted by the Special Bearer Bonds (Immunities and Exemptions)Act, 1981, w.e.f.12-1-1981.51[(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999notified by the Central Government ; ]52(15) 53charitable purpose54 includes relief of the poor, education54,medical relief, and the advancement of any other 54object of generalpublic utility 55[* * *] ;The following clause (15) shall be substituted for clause (15) ofsection 2 by the Finance Act, 2008, w.e.f. 1-4-2009 :(15) charitable purpose includes relief of the poor, education, medicalrelief, and the advancement of any other object of general publicutility:Provided that the advancement of any other object of general publicutility shall not be a charitable purpose, if it involves the carrying onof any activity in the nature of trade, commerce or business, or anyactivity of rendering any service in relation to any trade, commerce orbusiness, for a cess or fee or any other consideration, irrespective of thenature of use or application, or retention, of the income from suchactivity;56[(15A) Chief Commissioner means a person appointed to be a ChiefCommissioner of Income-tax under sub-section (1) of section 117 ;]57[58[(15B)] child, in relation to an individual, includes a step-child and anadopted child of that individual ;]59[(16) Commissioner means a person appointed to be a CommissionerofIncome-tax under sub-section (1) of section 117 60[* * *] ;]61[(16A) Commissioner (Appeals) means a person appointed to be aCommissionerof Income-tax (Appeals) under sub-section (1) of section 117 ;]62[(17) company means(i) any Indian company, or(ii) any body corporate incorporated by or under the laws of acountry outside India, or(iii) any institution, association or body which is or was assessable orwas assessed as a company for any assessment year under theS. 2(17) I.T. ACT, 1961 1.851. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.52. See also Circular No. 395, dated 24-9-1984. For details, seeTaxmanns Master Guide toIncome-tax Act.53. For relevant case laws, see Taxmanns Master Guide to Income-taxAct.54. For the meaning of terms/expression charitable purpose, educationand object ofgeneral public utility, see Taxmanns Direct Taxes Manual, Vol. 3. 9. 55. not involving the carrying on of any activity for profit omitted by theFinance Act, 1983,w.e.f. 1-4-1984.56. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.57. Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.58. Renumbered by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.59. Substituted by the Finance Act, 1970, w.e.f. 1-4-1970.60. Words , and includes a person appointed to be an AdditionalCommissioner of Incometaxunder that sub-section omitted by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1988.61. Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978.62. Substituted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.Indian Income-tax Act, 1922 (11 of 1922), or which is or wasassessable or was assessed under this Act as a company for anyassessment year commencing on or before the 1st day of April,1970, or(iv) any institution, association or body, whether incorporated or notand whether Indian or non-Indian, which is declared by generalor special order of the Board to be a company :Provided that such institution, association or body shall be deemedto be a company only for such assessment year or assessmentyears (whether commencing before the 1st day of April, 1971, oron or after that date) as may be specified in the declaration ;](18) company in which the public are substantially interesteda companyis said to be a company in which the public63 are substantiallyinterested64[(a) if it is a company owned by the Government or the Reserve Bankof India or in which not less than forty per cent of the shares areheld (whether singly or taken together) by the Government or theReserve Bank of India or a corporation owned by that bank ; or]65[(aa) if it is a company which is registered under section 25 of theCompanies Act, 1956 (1 of 1956)66 ; or(ab) if it is a company having no share capital and if, having regard toits objects, the nature and composition of its membership andother relevant considerations, it is declared by order of the Boardto be a company in which the public are substantially interested :Provided that such company shall be deemed to be a company inwhich the public are substantially interested only for such assessmentyear or assessment years (whether commencing before the1st day of April, 1971, or on or after that date) as may be specifiedin the declaration ; or]67[(ac) if it is a mutual benefit finance company, that is to say, a companywhich carries on, as its principal business, the business ofacceptance of deposits from its members and which is declaredby the Central Government under section 620A68 of the CompaniesAct, 1956 (1 of 1956), to be a Nidhi or Mutual BenefitSociety ; or]69[(ad) if it is a company, wherein shares (not being shares entitled to afixed rate of dividend whether with or without a further right 10. to participate in profits) carrying not less than fifty per cent ofthe voting power have been allotted unconditionally to, or1.9 CH. I - PRELIMINARY S. 2(18)63. For the meaning of the term public, see Taxmanns Direct TaxesManual, Vol. 3.64. Substituted by the Finance Act, 1964, w.e.f. 1-4-1964.65. Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.66. For text of section 25 of the Companies Act, 1956, see Appendix.67. Inserted by the Finance Act, 1985, w.r.e.f. 1-4-1984.68. For text of section 620A of the Companies Act, 1956, and notifiedNidhi(s) thereunder, seeAppendix.69. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.acquired unconditionally by, and were throughout the relevantprevious year beneficially held by, one or more co-operativesocieties ;]70[(b) if it is a company which is not a 71private company as defined inthe Companies Act, 1956 (1 of 1956), and the conditions specifiedeither in item (A) or in item (B) are fulfilled, namely :(A) shares in the company (not being shares entitled to afixed rate of dividend whether with or without a furtherright to participate in profits) were, as on the last day of therelevant previous year, listed in a recognised stock exchangein India in accordance with the Securities Contracts(Regulation) Act, 1956 (42 of 1956), and any rules madethereunder ;72[(B) shares in the company (not being shares entitled to afixed rate of dividend whether with or without a furtherright to participate in profits) carrying not less than fiftyper cent of the voting power have been allotted unconditionallyto, or acquired unconditionally by, and werethroughout the relevant previous year beneficially heldby(a) the Government, or(b) a corporation established by a Central, State or ProvincialAct, or(c) any company to which this clause applies or anysubsidiary company of such company 73[if the whole ofthe share capital of such subsidiary company has beenheld by the parent company or by its nominees throughoutthe previous year.]Explanation.In its application to an Indian company whosebusiness consists mainly in the construction of ships or in themanufacture or processing of goods or in mining or in thegeneration or distribution of electricity or any other form ofpower, item (B) shall have effect as if for the words not lessthan fifty per cent, the words not less than forty per centhad been substituted ;]](19) co-operative society means a co-operative society registered underthe Co-operative Societies Act, 1912 (2 of 1912), or under any otherlaw for the time being in force in any State for the registration ofcooperativesocieties ; 11. S. 2(19) I.T. ACT, 1961 1.1070. Substituted by the Finance Act, 1969, w.e.f. 1-4-1970. Earlier, clause(b) was amended firstby the Finance Act, 1965, w.e.f. 1-4-1965 and then by the Finance Act,1966, w.e.f. 1-4-1966.71. Clause (iii) of section 3(1) of the Companies Act, 1956, defines privatecompany. For textof section 3, see Appendix.72. Substituted by the Finance Act, 1983, w.e.f. 2-4-1983.73. Substituted for where such subsidiary company fulfils the conditionslaid down in clause(b) of section 108 by the Finance Act, 1987, w.e.f. 1-4-1988.74[(19A) Deputy Commissioner means a person appointed to be aDeputyCommissioner of Income-tax 75[* * *] under sub-section (1) of section117 ;76[(19AA) demerger, in relation to companies, means the transfer,pursuant toa scheme of arrangement under sections 391 to 39477 of the CompaniesAct, 1956 (1 of 1956), by a demerged company of its one or moreundertakings to any resulting company in such a manner that(i) all the property of the undertaking, being transferred by thedemerged company, immediately before the demerger, becomesthe property of the resulting company by virtue of the demerger;(ii) all the liabilities relatable to the undertaking, being transferred bythe demerged company, immediately before the demerger,become the liabilities of the resulting company by virtue of thedemerger;(iii) the property and the liabilities of the undertaking or undertakingsbeing transferred by the demerged company are transferred atvalues appearing in its books of account immediately before thedemerger;(iv) the resulting company issues, in consideration of the demerger,its shares to the shareholders of the demerged company on aproportionate basis;(v) the shareholders holding not less than three-fourths in value ofthe shares in the demerged company (other than shares alreadyheld therein immediately before the demerger, or by a nomineefor, the resulting company or, its subsidiary) become shareholdersof the resulting company or companies by virtue of thedemerger,otherwise than as a result of the acquisition of the property orassets of the demerged company or any undertaking thereof bythe resulting company;(vi) the transfer of the undertaking is on a going concern basis;(vii) the demerger is in accordance with the conditions, if any, notifiedunder sub-section (5) of section 72A by the Central Governmentin this behalf.Explanation 1.For the purposes of this clause, undertaking shallinclude any part of an undertaking, or a unit or division of anundertaking or a business activity taken as a whole, but does notinclude individual assets or liabilities or any combination thereof notconstituting a business activity. 12. 1.11 CH. I - PRELIMINARY S. 2(19AA)74. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.75. Words or an Additional Commissioner of Income-tax omitted by theFinance (No. 2) Act,1998, w.e.f. 1-10-1998. Earlier the quoted words were inserted by theFinance Act, 1994,w.e.f. 1-6-1994.76. Clauses (19AA) and (19AAA) inserted by the Finance Act, 1999, w.e.f.1-4-2000.77. For text of sections 391 to 394 of the Companies Act, 1956, seeAppendix.Explanation 2.For the purposes of this clause, the liabilities referredto in sub-clause (ii), shall include(a) the liabilities which arise out of the activities or operations of theundertaking;(b) the specific loans or borrowings (including debentures) raised,incurred and utilised solely for the activities or operations of theundertaking; and(c) in cases, other than those referred to in clause (a) or clause (b), somuch of the amounts of general or multipurpose borrowings, ifany, of the demerged company as stand in the same proportionwhich the value of the assets transferred in a demerger bears tothe total value of the assets of such demerged company immediatelybefore the demerger.Explanation 3.For determining the value of the property referred toin sub-clause (iii), any change in the value of assets consequent totheir revaluation shall be ignored.Explanation 4.For the purposes of this clause, the splitting up or thereconstruction of any authority or a body constituted or establishedunder a Central, State or Provincial Act, or a local authority or a publicsector company, into separate authorities or bodies or local authoritiesor companies, as the case may be, shall be deemed to be ademerger if such split up or reconstruction fulfils 78[such conditionsas may be notified in the Official Gazette79, by the Central Government];(19AAA) demerged company means the company whose undertaking istransferred, pursuant to a demerger, to a resulting company;](19B) Deputy Commissioner (Appeals) means a person appointed to be aDeputy Commissioner of Income-tax (Appeals) 80[or an AdditionalCommissioner of Income-tax (Appeals)] under sub-section (1) ofsection 117 ;]81[(19C) Deputy Director means a person appointed to be a DeputyDirectorof Income-tax 82[* * *] under sub-section (1) of section 117 ;](20) 83director, manager and managing agent, in relation to acompany,have the meanings respectively assigned to them in the CompaniesAct, 1956 (1 of 1956) ;S. 2(20) I.T. ACT, 1961 1.1278. Substituted for the conditions specified in sub-clauses (i) to (vii) of thisclause, to theextent applicable by the Finance Act, 2000, w.e.f. 1-4-2000.79. For notified conditions, see Taxmanns Master Guide to Income-tax Act. 13. 80. Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.81. Inserted, ibid.82. Words or an Additional Director of Income-tax omitted by the Finance(No. 2) Act, 1998,w.e.f. 1-10-1998.83. Clauses (13), (24) and (25) of section 2 of the Companies Act, 1956,define expressionsdirector, manager and managing agent, respectively. For text ofprovisions, seeAppendix.84[(21) Director General or Director means a person appointed to be aDirector General of Income-tax or, as the case may be, a Director ofIncome-tax, under sub-section (1) of section 117, and includes aperson appointed under that sub-section to be 85[an AdditionalDirector of Income-tax or] a 86[Joint] Director of Income-tax or anAssistant Director 87[or Deputy Director] of Income-tax ;](22) 88dividend89 includes(a) any distribution89 by a company of accumulated profits89, whethercapitalised or not, if such distribution entails the release by thecompany to its shareholders of all or any part of the assets of thecompany ;(b) any distribution89 to its shareholders by a company of debentures,debenture-stock, or deposit certificates in any form, whetherwith or without interest, and any distribution to its preferenceshareholders of shares by way of bonus, to the extent to which thecompany possesses accumulated profits89, whether capitalised ornot ;(c) any distribution89 made to the shareholders of a company on itsliquidation, to the extent to which the distribution is attributableto the accumulated profits of the company immediately before itsliquidation, whether capitalised or not ;(d) any distribution89 to its shareholders by a company on the reductionof its capital, to the extent to which the company possessesaccumulated profits89 which arose after the end of the previousyear ending next before the 1st day of April, 1933, whether suchaccumulated profits have been capitalised or not ;(e) any payment by a company, not being a company in which thepublic are substantially interested, of any sum (whether as representinga part of the assets of the company or otherwise)90[made after the 31st day of May, 1987, by way of advance or loanto a shareholder91, being a person who is the beneficial owner ofshares (not being shares entitled to a fixed rate of dividendwhether with or without a right to participate in profits) holdingnot less than ten per cent of the voting power, or to any concern1.13 CH. I - PRELIMINARY S. 2(22)84. Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.85. Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.86. Substituted for Deputy by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.87. Inserted, ibid.88. For relevant case laws, see Taxmanns Master Guide to Income-taxAct. 14. 89. For the meaning of the terms dividend, distribution and profits, seeTaxmannsDirect Taxes Manual, Vol. 3.90. Substituted for by way of advance or loan to a shareholder, being aperson who has asubstantial interest in the company, by the Finance Act, 1987, w.e.f. 1-4-1988.91. For the meaning of the term shareholder, see Taxmanns DirectTaxes Manual, Vol. 3.in which such shareholder is a member or a partner and in whichhe has a substantial interest (hereafter in this clause referred toas the said concern)] or any payment by any such company onbehalf, or for the individual benefit, of any such shareholder, tothe extent to which the company in either case possesses accumulatedprofits92 ;but dividend does not include(i) a distribution made in accordance with sub-clause (c) or subclause(d) in respect of any share issued for full cash consideration,where the holder of the share is not entitled in the event ofliquidation to participate in the surplus assets ;93[(ia) a distribution made in accordance with sub-clause (c) or subclause(d) in so far as such distribution is attributable to thecapitalised profits of the company representing bonus sharesallotted to its equity shareholders after the 31st day of March,1964, 94[and before the 1st day of April, 1965] ;](ii) any advance or loan made to a shareholder 95[or the said concern]by a company in the ordinary course of its business, where thelending of money is a substantial part of the business of thecompany ;(iii) any dividend paid by a company which is set off by the companyagainst the whole or any part of any sum previously paid by it andtreated as a dividend within the meaning of sub-clause (e), to theextent to which it is so set off;96[(iv) any payment made by a company on purchase of its own sharesfrom a shareholder in accordance with the provisions of section77A97 of the Companies Act, 1956 (1 of 1956);(v) any distribution of shares pursuant to a demerger by the resultingcompany to the shareholders of the demerged company (whetheror not there is a reduction of capital in the demerged company).]Explanation 1.The expression accumulated profits, wherever itoccurs in this clause, shall not include capital gains arising before the1st day of April, 1946, or after the 31st day of March, 1948, and beforethe 1st day of April, 1956.Explanation 2.The expression accumulated profits in sub-clauses(a), (b), (d) and (e), shall include all profits of the company up to the dateof distribution or payment referred to in those sub-clauses, and insub-clause (c) shall include all profits of the company up to the date92. For the meaning of the terms profits and distribution, see TaxmannsDirect TaxesManual, Vol. 3.93. Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.94. Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.95. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 15. 96. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.97. For text of section 77A of the Companies Act, 1956, see Appendix.S. 2(22) I.T. ACT, 1961 1.14of liquidation, 98[but shall not, where the liquidation is consequent onthe compulsory acquisition of its undertaking by the Government ora corporation owned or controlled by the Government under any lawfor the time being in force, include any profits of the company priorto three successive previous years immediately preceding the previousyear in which such acquisition took place].99[Explanation 3.For the purposes of this clause,(a) concern means a Hindu undivided family, or a firm or anassociation of persons or a body of individuals or a company ;(b) a person shall be deemed to have a substantial interest in aconcern, other than a company, if he is, at any time during theprevious year, beneficially entitled to not less than twenty percent of the income of such concern ;]1[(22A) domestic company means an Indian company, or any othercompanywhich, in respect of its income liable to tax under this Act, hasmade the prescribed arrangements for the declaration and payment,within India, of the dividends (including dividends on preferenceshares) payable out of such income ;]2[(22AA) document includes an electronic record as defined in clause (t)3ofsub-section (1) of section 2 of the Information Technology Act, 2000(21 of 2000); ]4[5[(22B)] fair market value, in relation to a capital asset, means(i) the price that the capital asset would ordinarily fetch on sale in theopen market on the relevant date ; and(ii) where the price referred to in sub-clause (i) is not ascertainable,such price as may be determined in accordance with the rulesmade under this Act ;](23) 6firm, partner and partnership have the meanings respectivelyassigned to them in the Indian Partnership Act, 1932 (9 of 1932) ; butthe expression partner shall also include any person who, being aminor, has been admitted to the benefits of partnership ;1.15 CH. I - PRELIMINARY S. 2(23)98. Inserted by the Direct Taxes (Amendment) Act, 1964, w.r.e.f. 1-4-1962.99. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.1. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.2. Inserted by the Finance Act, 2001, w.e.f. 1-6-2001.3. For definition of document under section 2(1)(t) of the InformationTechnology Act,2000, see Appendix.4. Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.5. Renumbered as clause (22B) by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1989.6. Section 4 of the Indian Partnership Act, 1932, defines expressions firm,partner andpartnership as follows : 16. Partnership is the relation between persons who have agreed to sharethe profits of abusiness carried on by all or any of them acting for all.Persons who have entered into partnership with one another are calledindividuallypartners and collectively a firm, and the name under which theirbusiness is carried onis called the firm name.7[(23A) foreign company means a company which is not a domesticcompany ;]8[(23B) fringe benefits means any fringe benefits referred to in section115WB;]9(24) income10 includes10(i) profits and gains10 ;(ii) dividend ;11[(iia) voluntary contributions received by a trust created wholly orpartly for charitable or religious purposes or by an institutionestablished wholly or partly for such purposes 12[or by an associationor institution referred to in clause (21) or clause (23), or by afund or trust or institution referred to in sub-clause (iv) or subclause(v) 13[or by any university or other educational institutionreferred to in sub-clause (iiiad) or sub-clause (vi) or by anyhospital or other institution referred to in sub-clause (iiiae) or subclause(via)] of clause (23C) of section 10].Explanation.For the purposes of this sub-clause, trustincludes any other legal obligation ;](iii) the value of any perquisite or profit in lieu of salary taxable underclauses (2) and (3) of section 17 ;14[(iiia) any special allowance or benefit, other than perquisite includedunder sub-clause (iii), specifically granted to the assessee to meetexpenses wholly, necessarily and exclusively for the performanceof the duties of an office or employment of profit ;(iiib) any allowance granted to the assessee either to meet his personalexpenses at the place where the duties of his office or employmentof profit are ordinarily performed by him or at a placewhere he ordinarily resides or to compensate him for the increasedcost of living ;]S. 2(24) I.T. ACT, 1961 1.167. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.8. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.9. For relevant case laws, see Taxmanns Master Guide to Income-tax Act.10. For the meaning of the terms/expression income, includes andprofits and gains, seeTaxmanns Direct Taxes Manual, Vol. 3.11. Inserted by the Finance Act, 1972, w.e.f. 1-4-1973.12. Substituted for or by a trust or institution of national importancereferred to in clause(d) of sub-section (1) of section 80F by the Direct Tax Laws (Amendment)Act, 1989, w.e.f.1-4-1989. Earlier, the said expression was substituted for , not beingcontributions made 17. with a specific direction that they shall form part of the corpus of the trust orinstitutionby the Direct Tax Laws (Amendment) Act, 1987, with effect from the samedate.13. Substituted for or by any university or other educational institutionreferred to in subclause(vi) or by any hospital or other institution referred to in sub-clause (via) bytheFinance Act, 2006, w.e.f. 1-4-2007. Earlier the quoted words were insertedby the FinanceAct, 2006, w.r.e.f. 1-4-1999.14. Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1962.(iv) the value of any benefit or perquisite15, whether convertible intomoney or not, obtained from a company either by a director or bya person who has a substantial interest in the company, or by arelative of the director or such person, and any sum paid by anysuch company in respect of any obligation which, but for suchpayment, would have been payable by the director or otherperson aforesaid ;16[(iva) the value of any benefit or perquisite15, whether convertible intomoney or not, obtained by any representative assessee mentionedin clause (iii) or clause (iv) of sub-section (1) of section 160or by any person on whose behalf or for whose benefit anyincome is receivable by the representative assessee (such personbeing hereafter in this sub-clause referred to as the beneficiary)and any sum paid by the representative assessee in respect of anyobligation which, but for such payment, would have been payableby the beneficiary ;](v) any sum chargeable to income-tax under clauses (ii) and (iii) ofsection 28 or section 41 or section 59 ;17[(va) any sum chargeable to income-tax under clause (iiia) of section28 ;]18[(vb) any sum chargeable to income-tax under clause (iiib) of section28 ;]19[(vc) any sum chargeable to income-tax under clause (iiic) of section28 ;]20[(vd)] the value of any benefit or perquisite taxable under clause (iv) ofsection 28 ;21[(ve) any sum chargeable to income-tax under clause (v) of section28 ;](vi) any capital gains chargeable under section 45 ;(vii) the profits and gains of any business of insurance carried on bya mutual insurance company or by a co-operative society, computedin accordance with section 44 or any surplus taken to besuch profits and gains by virtue of provisions contained in theFirst Schedule ;1.17 CH. I - PRELIMINARY S. 2(24)15. For the meaning of the expression benefit or perquisite, seeTaxmanns Direct TaxesManual, Vol. 3.16. Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980.17. Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1962. 18. 18. Inserted, ibid., w.r.e.f. 1-4-1967.19. Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1972.20. Relettered by the Finance Act, 1990, w.r.e.f. 1-4-1962. Earlier theoriginal sub-clause (va)was inserted by the Finance Act, 1964, w.e.f. 1-4-1964.21. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.22[(viia) the profits and gains of any business of banking (includingproviding credit facilities) carried on by a co-operative societywith its members;](viii) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original subclause(viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;]23[(ix) any winnings from lotteries24, crossword puzzles, races includinghorse races, card games and other games of any sort or fromgambling or betting of any form or nature whatsoever.]25[Explanation.For the purposes of this sub-clause,(i) lottery includes winnings from prizes awarded to any personby draw of lots or by chance or in any other mannerwhatsoever, under any scheme or arrangement by whatevername called ;(ii) card game and other game of any sort includes any gameshow, an entertainment programme on television or electronicmode, in which people compete to win prizes or any othersimilar game ;]26[(x) any sum received by the assessee from his employees ascontributions to any provident fund or superannuation fund orany fund set up under the provisions of the Employees StateInsurance Act, 1948 (34 of 1948), or any other fund for the welfareof such employees ;]27[(xi) any sum received under a Keyman insurance policy including thesum allocated by way of bonus on such policy.Explanation.For the purposes of this clause*, the expressionKeyman insurance policy shall have the meaning assigned to itin the Explanation to clause (10D) of section 10 ;]28[(xii) any sum referred to in 29[clause (va)] of section 28;]30[(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;]31[(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;](25) Income-tax Officer means a person appointed to be an Income-taxOfficer under 32[* * *] section 117 ;S. 2(25) I.T. ACT, 1961 1.1822. Inserted by the Finance Act, 2006, w.e.f. 1-4-2007.23. Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.24. For the meaning of the term lotteries, see Taxmanns Direct TaxesManual, Vol. 3.25. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.26. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.27. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.28. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.29. Substituted for clause (vii) by the Finance Act, 2003, w.e.f. 1-4-2003.30. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005.31. Inserted by the Finance Act, 2007, w.e.f. 1-4-2007.32. Words sub-section (1) of omitted by the Direct Tax Laws(Amendment) Act, 1989, w.r.e.f. 19. 1-4-1988. Earlier, that expression was inserted by the Direct Tax Laws(Amendment) Act,1987, with effect from the same date.*Should be read as sub-clause.33[(25A) India means the territory of India as referred to in article 1 of theConstitution, its territorial waters, seabed and subsoil underlyingsuch waters, continental shelf, exclusive economic zone or any othermaritime zone as referred to in the Territorial Waters, ContinentalShelf, Exclusive Economic Zone and other Maritime Zones Act, 1976(80 of 1976), and the air space above its territory and territorialwaters;](26) Indian company means a company formed and registered underthe Companies Act, 1956 (1 of 1956), and includes(i) a company formed and registered under any law relating tocompanies formerly in force in any part of India (other than theState of Jammu and Kashmir 34[and the Union territoriesspecified in sub-clause (iii) of this clause]) ;35[(ia) a corporation established by or under a Central, State orProvincial Act ;(ib) any institution, association or body which is declared by theBoard to be a company under clause (17) ;](ii) in the case of the State of Jammu and Kashmir, a companyformed and registered under any law for the time being in forcein that State ;36[(iii) in the case of any of the Union territories of Dadra and NagarHaveli, Goa, Daman and Diu, and Pondicherry, a companyformed and registered under any law for the time being in forcein that Union territory :]Provided that the 37[registered or, as the case may be, principal officeof the company, corporation, institution, association or body] in allcases is in India ;38[(26A) infrastructure capital company means such company whichmakesinvestments by way of acquiring shares or providing long-termfinance to any enterprise or undertaking wholly engaged in the1.19 CH. I - PRELIMINARY S. 2(26A)33. Substituted by the Finance Act, 2007, w.r.e.f. 25-8-1976. Prior to itssubstitution, clause(25A), as inserted by the Taxation Laws (Extension to Union Territories)Regulation, 1963,w.e.f. 1-4-1963, read as under :(25A) India shall be deemed to include the Union territories of Dadra andNagar Haveli,Goa, Daman and Diu, and Pondicherry,(a) as respects any period, for the purposes of section 6 ; and(b) as respects any period included in the previous year, for the purposesofmaking any assessment for the assessment year commencing on the 1stdayof April, 1963, or for any subsequent year ;34. Inserted by the Taxation Laws (Extension to Union Territories)Regulation, 1963, w.e.f.1-4-1963. 20. 35. Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.36. Inserted by the Taxation Laws (Extension to Union Territories)Regulation, 1963, w.e.f.1-4-1963.37. Substituted for registered office of the company by the Finance (No.2) Act, 1971, w.e.f.1-4-1971.38. Clauses (26A) and (26B) inserted by the Finance Act, 2006, w.e.f. 1-4-2006.Now State of Goa.business referred to in sub-section (4) of section 80-IA or sub-section(1) of section 80-IAB or an undertaking developing and building ahousing project referred to in sub-section (10) of section 80-IB or aproject for constructing a hotel of not less than three-star category asclassified by the Central Government or a project for constructing ahospital with at least one hundred beds for patients;(26B) infrastructure capital fund means such fund operating under a trustdeed registered under the provisions of the Registration Act, 1908 (16of 1908) established to raise monies by the trustees for investment byway of acquiring shares or providing long-term finance to anyenterprise or undertaking wholly engaged in the business referred toin sub-section (4) of section 80-IA or sub-section (1) of section 80-IABor an undertaking developing and building a housing project referredto in sub-section (10) of section 80-IB or a project for constructing ahotel of not less than three-star category as classified by the CentralGovernment or a project for constructing a hospital with at least onehundred beds for patients;](27) 39[* * *](28) Inspector of Income-tax means a person appointed to be anInspector of Income-tax under sub-section 40[(1)] of section 117 ;41[42(28A) interest means interest payable in any manner in respect ofanymoneys borrowed or debt incurred (including a deposit, claim orother similar right or obligation) and includes any service fee or othercharge in respect of the moneys borrowed or debt incurred or inrespect of any credit facility which has not been utilised ;]43[(28B) interest on securities means,(i) interest on any security of the Central Government or a StateGovernment ;(ii) interest on debentures or other securities for money issued by oron behalf of a local authority or a company or a corporationestablished by a Central, State or Provincial Act ;]44[(28BB) insurer means an insurer, being an Indian insurance company,asdefined under clause (7A) of section 245 of the Insurance Act, 1938 (4of 1938), which has been granted a certificate of registration undersection 3 of that Act;]46[(28C) Joint Commissioner means a person appointed to be a JointCommissionerof Income-tax or an Additional Commissioner of Incometaxunder sub-section (1) of section 117;S. 2(28C) I.T. ACT, 1961 1.20 21. 39. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.40. Substituted for (2), ibid.41. Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.42. See also Letter F. No. 164/18/77-IT(A-I), dated 13-7-1978. For details,see TaxmannsMaster Guide to Income-tax Act.43. Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.44. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.45. For text of section 2(7A) of the Insurance Act, see Appendix.46. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.(28D) Joint Director means a person appointed to be a Joint Director ofIncome-tax or an Additional Director of Income-tax under subsection(1) of section 117;](29) legal representative has the meaning assigned to it in clause (11) ofsection 2 of the Code of Civil Procedure, 1908 (5 of 1908)47 ;48[(29A) long-term capital asset means a capital asset which is not ashorttermcapital asset ;(29B) long-term capital gain means capital gain arising from the transferof a long-term capital asset ;]49[(29C) maximum marginal rate means the rate of income-tax (includingsurcharge on income-tax, if any) applicable in relation to the highestslab of income in the case of an individual 50[, association of personsor, as the case may be, body of individuals] as specified in the FinanceAct of the relevant year ;]51[(29D) National Tax Tribunal means the National Tax Tribunalestablishedunder section 3 of the National Tax Tribunal Act, 2005;](30) non-resident means a person who is not a resident 52[, and for thepurposes of sections 92, 93 53[* * *] and 168, includes a person who isnot ordinarily resident within the meaning of clause (6) of section 6] ;54(31) person includes(i) an individual55,(ii) a Hindu undivided family55,(iii) a company,(iv) a firm56,(v) an association of persons56 or a body of individuals56, whetherincorporated or not,(vi) a local authority, and(vii) every artificial juridical person, not falling within any of thepreceding sub-clauses.1.21 CH. I - PRELIMINARY S. 2(31)47. Clause (11) of section 2 of the Code of Civil Procedure defines legalrepresentative asfollows :(11) legal representative means a person who in law represents theestate of a deceasedperson, and includes any person who intermeddles with the estate of thedeceasedand where a party sues or is sued in a representative character the personon whomthe estate devolves on the death of the party so suing or sued ; 22. 48. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.49. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.50. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.51. Inserted by the National Tax Tribunal Act, 2005, with effect from a dateyet to be notified.52. Inserted by the Finance Act, 1999, w.e.f. 1-4-1999. Earlier these wordswere omitted by theFinance (No. 2) Act, 1998, w.e.f. 1-4-1999.53. , 113 omitted by the Finance Act, 1965, w.e.f. 1-4-1965.54. For relevant case laws, see Taxmanns Master Guide to Income-taxAct.55. For the meaning of the term/expression individual and Hinduundivided family, seeTaxmanns Direct Taxes Manual, Vol. 3.56. For the meaning of the term/expressions firm, association of personsand body ofindividuals, see Taxmanns Direct Taxes Manual, Vol. 3.57[Explanation.For the purposes of this clause, an association ofpersons or a body of individuals or a local authority or an artificialjuridical person shall be deemed to be a person, whether or not suchperson or body or authority or juridical person was formed or establishedor incorporated with the object of deriving income, profits orgains;](32) person who has a substantial interest in the company, in relation toa company, means a person who is the beneficial owner of shares, notbeing shares entitled to a fixed rate of dividend whether with orwithout a right to participate in profits, carrying not less than twentyper cent of the voting power ;(33) prescribed means prescribed by rules made under this Act ;(34) previous year means the previous year as defined in section 3 ;58(35) principal officer, used with reference to a local authority or acompany or any other public body or any association of persons orany body of individuals, means(a) the secretary, treasurer, manager or agent of the authority,company, association or body, or(b) any person connected with the management or administration ofthe local authority, company, association or body upon whom the59[Assessing] Officer has served a notice of his intention of treatinghim as the principal officer thereof ;60(36) profession includes vocation61 ;62[(36A) public sector company means any corporation established by orunder any Central, State or Provincial Act or a Government company63as defined in section 617 of the Companies Act, 1956(1 of 1956) ;](37) 64public servant has the same meaning as in section 21 of the IndianPenal Code (45 of 1860) ;65[(37A) rate or rates in force or rates in force, in relation to anassessmentyear or financial year, meansS. 2(37A) I.T. ACT, 1961 1.2257. Inserted by the Finance Act, 2002, w.e.f. 1-4-2002. 23. 58. For relevant case laws, see Taxmanns Master Guide to Income-taxAct.59. Substituted for Income-tax by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1988.60. For relevant case laws, see Taxmanns Master Guide to Income-taxAct.61. For the meaning of the term vocation, see Taxmanns Direct TaxesManual, Vol. 3.62. Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.63. Section 617 of the Companies Act, 1956, defines Governmentcompany as follows :617. Definition of Government company.For the purposes of this Act,Governmentcompany means any company in which not less than fifty-one per cent ofthe paid-up sharecapital is held by the Central Government, or by any State Government orGovernments,or partly by the Central Government and partly by one or more StateGovernments andincludes a company which is a subsidiary of a Government company asthus defined.64. Section 21 of the Indian Penal Code defines public servant. For text ofsection 21, seeAppendix.65. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.(i) for the purposes of calculating income-tax under the first provisoto sub-section (5) of section 132, or computing the income-taxchargeable under sub-section (4) of section 172 or sub-section (2)of section 174 or section 175 or sub-section (2) of section 176 ordeducting income-tax under section 192 from income chargeableunder the head Salaries 66[* * *] or 67[computation of theadvance tax payable under Chapter XVII-C in a case not fallingunder 68[section 115A or section 115B 69[or section 115BB 70[orsection 115BBB] or section 115E] or] section 164 69[or section164A 71[* * *]] 72[or section 167B], the rate or rates of income-taxspecified in this behalf in the Finance Act of the relevant year, andfor the purposes of computation of the advance tax payableunder Chapter XVII-C 73[in a case falling under section 115A orsection 115B 74[or section 115BB 75[or section 115BBB] or section115E] or section 164 74[or section 164A 76[* * *]] 77[or section 167B],the rate or rates specified in section 115A or 78[section 115B orsection 115BB 79[or section 115BBB] or section 115E or section164 or section 164A 76[* * *] 77[or section 167B], as the case may be,]or the rate or rates of income-tax specified in this behalf in theFinance Act of the relevant year, whichever is applicable ;](ii) for the purposes of deduction of tax under sections 193, 194, 194A80[, 194B] 81[, 194BB] 82[and 194D], the rate or rates of income-taxspecified in this behalf in the Finance Act of the relevant year ;]1.23 CH. I - PRELIMINARY S. 2(37A)66. or sub-section (9) of section 80E from any payment referred to thereinomitted by the 24. Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Originally, thesaid expressionwas inserted by the Finance Act, 1968, w.e.f. 1-4-1968.67. Substituted for computation of the advance tax payable underChapter XVII-C, the rateor rates of income-tax specified in this behalf in the Finance Act of therelevant year bythe Finance Act, 1970, w.e.f. 1-4-1971.68. Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.69. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.70. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.71. or section 167A omitted by the Direct Tax Laws (Amendment) Act,1989, w.e.f. 1-4-1989.Earlier this expression was inserted by the Direct Tax Laws (Amendment)Act, 1987, w.e.f.1-4-1988.72. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.73. Substituted for in a case falling under section 164, the rate specified inthat section bythe Finance Act, 1976, w.e.f. 1-6-1976.74. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.75. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.76. or section 167A omitted by the Direct Tax Laws (Amendment) Act,1989, w.e.f. 1-4-1989.Earlier this expression was inserted by the Direct Tax Laws (Amendment)Act, 1987, w.e.f.1-4-1988.77. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.78. Substituted for section 115B or, as the case may be, section 164 bythe Direct Tax Laws(Amendment) Act, 1987, w.e.f. 1-4-1988.79. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.80. Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.81. Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.82. Substituted for , 194D and 195 by the Finance (No. 2) Act, 1991,w.e.f. 1-10-1991.83[(iii) for the purposes of deduction of tax under section 195, the rateor rates of income-tax specified in this behalf in the Finance Actof the relevant year or the rate or rates of income-tax specified in84[an agreement entered into by the Central Government undersection 90, or an agreement notified by the Central Governmentunder section 90A, whichever is applicable by virtue of theprovisions of section 90, or section 90A, as the case may be];85(38) recognised provident fund means a provident fund which has beenand continues to be recognised by the 86[Chief Commissioner orCommissioner] in accordance with the rules contained in Part A of theFourth Schedule, and includes a provident fund established under ascheme framed under the Employees Provident Funds Act, 1952 (19of 1952) ; 25. (39) 87[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;](40) regular assessment means the assessment made under88[subsection(3) of] section 143 or section 144 ;(41) relative, in relation to an individual, means the husband, wife,brother or sister or any lineal ascendant or descendant of thatindividual ;89[(41A) resulting company means one or more companies (including awholly owned subsidiary thereof) to which the undertaking of thedemerged company is transferred in a demerger and, the resultingcompany in consideration of such transfer of undertaking, issuesshares to the shareholders of the demerged company and includesany authority or body or local authority or public sector company ora company established, constituted or formed as a result of demerger;](42) resident means a person who is resident in India within the meaningof section 6 ;S. 2(42) I.T. ACT, 1961 1.2483. Substituted by the Finance Act, 1992, w.e.f. 1-6-1992. Prior to itssubstitution, sub-clause(iii) was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.84. Substituted for an agreement entered into by the Central Governmentunder section 90,whichever is applicable by virtue of the provisions of section 90 by theFinance Act, 2006,w.e.f. 1-6-2006.85. See also Circular No. 153, dated 30-11-1974. For details, seeTaxmanns Master Guide toIncome-tax Act.86. Substituted for Commissioner by the Direct Tax Laws (Amendment)Act, 1987, w.e.f.1-4-1988.87. Prior to omission, clause (39) was substituted by the Direct Tax Laws(Second Amendment)Act, 1989, w.e.f. 1-4-1989. Earlier clause (39) was omitted by the DirectTax Laws(Amendment) Act, 1987, w.e.f. 1-4-1989 and was later reintroduced by theDirect Tax Laws(Amendment) Act, 1989, w.e.f. 1-4-1989.88. Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989.89. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.1.25 CH. I - PRELIMINARY S. 2(42A)90[91(42A) 92[short-term capital asset means a capital asset held by anassesseefor not more than 93[thirty-six] months immediately preceding thedate of its transfer :]94[Provided that in the case of a share held in a company 95[or anyother security listed in a recognised stock exchange in India or a unitof the Unit Trust of India established under the Unit Trust of India Act,1963 (52 of 1963) or a unit of a Mutual Fund specified under clause(23D) of section 10] 96[or a zero coupon bond], the provisions of thisclause shall have effect as if for the words thirty-six months, thewords twelve months had been substituted.]97[Explanation 1].(i) In determining the period for which any capital 26. asset is held by the assessee(a) in the case of a share held in a company in liquidation, there shallbe excluded the period subsequent to the date on which thecompany goes into liquidation ;(b) in the case of a capital asset which becomes the property of theassessee in the circumstances mentioned in 98[sub-section (1)] ofsection 49, there shall be included the period for which the assetwas held by the previous owner referred to in the said section ;99[(c) in the case of a capital asset being a share or shares in an Indiancompany, which becomes the property of the assessee inconsideration of a transfer referred to in clause (vii) of section 47,there shall be included the period for which the share or sharesin the amalgamating company were held by the assessee ;]1[(d) in the case of a capital asset, being a share or any other security(hereafter in this clause referred to as the financial asset) subscribedto by the assessee on the basis of his right to subscribe tosuch financial asset or subscribed to by the person in whosefavour the assessee has renounced his right to subscribe to suchfinancial asset, the period shall be reckoned from the date ofallotment of such financial asset ;(e) in the case of a capital asset, being the right to subscribe to anyfinancial asset, which is renounced in favour of any other person,the period shall be reckoned from the date of the offer of such90. Inserted by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962.91. See also Circular No. 415, dated 14-3-1985 and Circular No. 704,dated 28-4-1995. Fordetails and relevant case laws, see Taxmanns Master Guide to Income-taxAct.92. Substituted for the portion beginning with short-term capital asset andending withpreceding the date of its transfer ; by the Finance Act, 1973, w.e.f. 1-4-1974. Earlier clause(42A) was first amended by the Finance Act, 1966, w.e.f. 1-4-1966 andlater by the FinanceAct, 1968, w.e.f. 1-4-1969.93. Substituted for sixty by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.94. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.95. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.96. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.97. Existing Explanation renumbered as Explanation 1 by the Finance Act,1994, w.e.f.1-4-1995.98. Substituted for clauses (i) to (iii) by the Finance (No. 2) Act, 1967,w.e.f. 1-4-1967.99. Inserted, ibid.1. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.right by the company or institution, as the case may be, makingsuch offer ;]2[(f) in the case of a capital asset, being a financial asset, allottedwithout any payment and on the basis of holding of any otherfinancial asset, the period shall be reckoned from the date of theallotment of such financial asset ;]3[(g) in the case of a capital asset, being a share or shares in an Indian 27. company, which becomes the property of the assessee in considerationof a demerger, there shall be included the period forwhich the share or shares held in the demerged company wereheld by the assessee ;]4[(h) in the case of a capital asset, being trading or clearing rights of arecognised stock exchange in India acquired by a person pursuantto demutualisation or corporatisation of the recognised stockexchange in India as referred to in clause (xiii) of section 47, thereshall be included the period for which the person was a memberof the recognised stock exchange in India immediately prior tosuch demutualisation or corporatisation;(ha) in the case of a capital asset, being equity share or shares in acompany allotted pursuant to demutualisation or corporatisationof a recognised stock exchange in India as referred to in clause(xiii) of section 47, there shall be included the period for which theperson was a member of the recognised stock exchange in Indiaimmediately prior to such demutualisation or corporatisation;]5[(hb) in the case of a capital asset, being any specified security or sweatequity shares allotted or transferred, directly or indirectly, by theemployer free of cost or at concessional rate to his employees(including former employee or employees), the period shall bereckoned from the date of allotment or transfer of such specifiedsecurity or sweat equity shares;](ii) In respect of capital assets other than those mentioned inclause (i), the period for which any capital asset is held by the assesseeshall be determined subject to any rules which the Board may makein this behalf.]6[Explanation 2.For the purposes of this clause, the expressionsecurity7 shall have the meaning assigned to it in clause (h) of section2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).]S. 2(42A) I.T. ACT, 1961 1.262. Inserted by the Finance Act, 1995, w.e.f. 1-4-1996.3. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.4. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.5. Inserted by the Finance Act, 2007, w.e.f. 1-4-2008.6. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.7. Clause (h) of section 2 of the Securities Contracts (Regulation) Act,1956, definessecurities as follows :(h) securities include(i) shares, scrips, stocks, bonds, debentures, debenture stock or othermarketablesecurities of a like nature in or of any incorporated company or otherbody corporate;(Contd. on p. 1.27)8[Explanation 3.For the purposes of this clause, the expressionsspecified security and sweat equity shares shall have the meaningsrespectively assigned to them in the Explanation to clause (d) of subsection(1) of section 115WB;]9[(42B) short-term capital gain means capital gain arising from thetransferof a short-term capital asset ;]10[(42C) slump sale means the transfer of one or more undertakings as a 28. result of the sale for a lump sum consideration without values beingassigned to the individual assets and liabilities in such sales.Explanation 1.For the purposes of this clause, undertaking shallhave the meaning assigned to it in Explanation 1 to clause (19AA).Explanation 2.For the removal of doubts, it is hereby declared thatthe determination of the value of an asset or liability for the solepurpose of payment of stamp duty, registration fees or other similartaxes or fees shall not be regarded as assignment of values toindividual assets or liabilities ; ]11[(43) tax in relation to the assessment year commencing on the 1st dayofApril, 1965, and any subsequent assessment year means income-taxchargeable under the provisions of this Act, and in relation to anyother assessment year income-tax and super-tax chargeable underthe provisions of this Act prior to the aforesaid date 12[and in relationto the assessment year commencing on the 1st day of April, 2006, andany subsequent assessment year includes the fringe benefit taxpayable under section 115WA] ;]13[(43A) tax credit certificate means a tax credit certificate granted to anyperson in accordance with the provisions of Chapter XXII-B14 and anyscheme made thereunder ;]1.27 CH. I - PRELIMINARY S. 2(43A)(Contd. from p. 1.26)(ia) derivative;(ib) units or any other instrument issued by any collective investmentscheme tothe investors in such schemes;(ic) security receipt as defined in clause (zg) of section 2 of theSecuritisation andReconstruction of Financial Assets and Enforcement of Security InterestAct, 2002;(id) units or any other such instrument issued to the investors under anymutualfund scheme;(ii) Government securities;(iia) such other instruments as may be declared by the Central Governmentto besecurities; and(iii) rights or interest in securities;8. Inserted by the Finance Act, 2007, w.e.f. 1-4-2008.9. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.10. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000. Earlier clause (42C)was inserted by theDirect Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990 and lateron omitted bythe Finance Act, 1990, w.e.f. 1-4-1990.11. Substituted by the Finance Act, 1965, w.e.f. 1-4-1965.12. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.13. Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.14. Chapter XXII-B was omitted by the Finance Act, 1990, w.e.f. 1-4-1990.(43B) 15[* * *]16[(44) Tax Recovery Officer means any Income-tax Officer who may beauthorised by the Chief Commissioner or Commissioner, by general 29. or special order in writing, to exercise the powers of a Tax RecoveryOfficer 17[and also to exercise or perform such powers and functionswhich are conferred on, or assigned to, an Assessing Officer under thisAct and which may be prescribed];](45) total income means the total amount of income referred to insection 5, computed in the manner laid down in this Act ;(46) 18[* * *]19(47) 20[transfer21, in relation to a capital asset, includes,(i) the sale21, exchange21 or relinquishment21 of the asset ; or(ii) the extinguishment of any rights therein21 ; or(iii) the compulsory acquisition thereof under any law ; or(iv) in a case where the asset is converted by the owner thereof into,or is treated by him as, stock-in-trade of a business carried on byhim, such conversion or treatment ;] 22[or]23[(iva) the maturity or redemption of a zero coupon bond; or]24[(v) any transaction involving the allowing of the possession of anyimmovable property to be taken or retained in part performanceof a contract of the nature referred to in section 53A25 of theTransfer of Property Act, 1882 (4 of 1882) ; or(vi) any transaction (whether by way of becoming a member of, oracquiring shares in, a co-operative society, company or otherassociation of persons or by way of any agreement or anyarrangement or in any other manner whatsoever) which has theeffect of transferring, or enabling the enjoyment of, any immovableproperty.Explanation.For the purposes of sub-clauses (v) and (vi),immovable property shall have the same meaning as in clause (d) ofsection 269UA;]S. 2(47) I.T. ACT, 1961 1.2815. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original clause(43B) was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972.16. Substituted by the Direct Tax Laws (Amendment) Act, 1987 [asamended by the Direct TaxLaws (Amendment) Act, 1989], w.r.e.f. 1-4-1988. Prior to substitutionclause (44) wassubstituted by the Finance Act, 1963, w.r.e.f. 1-4-1962.17. Inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f. 13-7-2006.18. Omitted by the Finance Act, 1965, w.e.f. 1-4-1965.19. For relevant case laws, see Taxmanns Master Guide to Income-taxAct. For Letter F. No.34/11/65-IT(A-I), dated 15-1-1966, Circular No. 751, dated 10-2-1997 andCircular No.2/2008, dated 22-2-2008, see Taxmanns Master Guide to Income-tax Act.20. Substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.21. For the meaning of the terms/expression transfer, sale, exchange,relinquishmentand extinguishment of any rights therein, see Taxmanns Direct TaxesManual, Vol. 3.22. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.23. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006. 30. 24. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.25. For text of section 53A of the Transfer of Property Act, 1882, seeAppendix.26[(48) zero coupon bond means a bond(a) issued by any infrastructure capital company or infrastructurecapital fund or public sector company on or after the 1st day ofJune, 2005;(b) in respect of which no payment and benefit is received orreceivable before maturity or redemption from infrastructurecapital company or infrastructure capital fund or public sectorcompany; and(c) which the Central Government may, by notification27 in theOfficial Gazette, specify in this behalf.28[***]]29[Previous year defined.3. For the purposes of this Act, previous year means the financial yearimmediatelypreceding the assessment year :Provided that, in the case of a business or profession newly set up, or asourceof income newly coming into existence, in the said financial year, thepreviousyear shall be the period beginning with the date of setting up of thebusiness orprofession or, as the case may be, the date on which the source of incomenewlycomes into existence and ending with the said financial year.]CHAPTER IIBASIS OF CHARGECharge of income-tax.304. 31(1) Where any Central Act enacts that income-tax32 shall becharged forany assessment year at any rate or rates, income-tax at that rate or thoserates shall be charged for that year in accordance with, and 33[subject tothe1.29 CH. II - BASIS OF CHARGE S. 426. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006. Earlier clause (48)was omitted by theDirect Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. It was later re-introduced by theDirect Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989 and againomitted by the FinanceAct, 1992, w.e.f. 1-4-1993.27. For specified bonds, see Taxmanns Master Guide to Income-tax Act.See also rules 8B &8C and Form No. 5B.28. Explanation omitted by the Finance Act, 2006, w.e.f. 1-4-2006. Prior toits omission,Explanation read as under :Explanation.For the purposes of this clause, the expressionsinfrastructure capitalcompany and infrastructure capital fund shall have the same meaningsrespectively 31. assigned to them in clauses (a) and (b) of Explanation 1 to clause (23G) ofsection 10.29. Substituted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to itssubstitution, section 3 wasamended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989and the DirectTax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.30. See also Circular No. 142, dated 1-8-1974, Circular No. 447, dated 22-1-1986, CircularNo. 573, dated 21-8-1990, Circular No. 776, dated 8-6-1999 and InstructionNo. 747 [F. No.288/29/74-IT(A-II)], (relevant extracts), dated 30-8-1974. For details, seeTaxmannsMaster Guide to Income-tax Act.31. For relevant case laws, see Taxmanns Master Guide to Income-taxAct.32. For the meaning of the term income-tax, see Taxmanns Direct TaxesManual, Vol. 3.33. Substituted for subject to the provisions of this Act by the Direct TaxLaws (Amendment)Act, 1987, w.e.f. 1-4-1989.provisions (including provisions for the levy of additional income-tax) of, thisAct]34 in respect of the total income34 of the previous year 35[* * *] ofevery person :Provided that where by virtue of any provision of this Act income-tax is tobecharged in respect of the income of a period other than the previous year,income-tax shall be charged accordingly.(2) In respect of income chargeable under sub-section (1), income-tax shallbededucted at the source or paid in advance, where it is so deductible orpayableunder any provision of this Act.Scope of total income.365. 37(1) Subject to38 the provisions of this Act, the total income38 of anypreviousyear of a person who is a resident includes all income from whateversourcederived which(a) is received39 or is deemed to be received39 in India in such year by oron behalf of such person ; or(b) accrues39 or arises39 or is deemed39 to accrue or arise to him in Indiaduring such year ; or(c) accrues39 or arises39 to him outside India during such year :Provided that, in the case of a person not ordinarily resident in Indiawithin the meaning of sub-section (6)* of section 6, the income whichaccrues or arises to him outside India shall not be so included unlessit is derived from a business controlled in or a profession set up inIndia.(2) Subject to38 the provisions of this Act, the total income38 of anyprevious yearof a person who is a non-resident includes all income from whatever sourcederived which 32. (a) is received39 or is deemed to be received39 in India in such year by oron behalf of such person ; or(b) accrues39 or arises39 or is deemed to accrue or arise to him in Indiaduring such year.Explanation 1.Income accruing or arising outside India shall not bedeemed tobe received39 in India within the meaning of this section by reason only ofthe factthat it is taken into account in a balance sheet prepared in India.S. 5 I.T. ACT, 1961 1.3034. For the meaning of the expressions in accordance with, and subject tothe provisions of,this Act and total income, see Taxmanns Direct Taxes Manual, Vol. 3.35. or previous years, as the case may be, omitted by the Direct TaxLaws (Amendment) Act,1987, w.e.f. 1-4-1989.36. See also Circular No. 369, dated 17-9-1983. For details, seeTaxmanns Master Guide toIncome-tax Act.37. For relevant case laws, see Taxmanns Master Guide to Income-taxAct.38. For the meaning of the terms/expressions subject to and totalincome, see TaxmannsDirect Taxes Manual, Vol. 3.39. For the meaning of the terms/expressions is received, deemed to bereceived, accruesor arises, accrued or arisen and deemed to have accrued, seeTaxmanns Direct TaxesManual, Vol. 3.*Should be read as clause (6).Explanation 2.For the removal of doubts, it is hereby declared thatincomewhich has been included in the total income of a person on the basis that ithasaccrued40 or arisen40 or is deemed to have accrued40 or arisen40 to himshall notagain be so included on the basis that it is received or deemed to bereceived byhim in India.41[Apportionment of income between spouses governed byPortuguese Civil Code.5A. (1) Where the husband and wife are governed by the system ofcommunityof property (known under the Portuguese Civil Code of 1860as COMMUNIAO DOS BENS) in force in the State of Goa and in theUnionterritories of Dadra and Nagar Haveli and Daman and Diu, the income ofthe husband and of the wife under any head of income shall not beassessed asthat of such community of property (whether treated as an association ofpersons or a body of individuals), but such income of the husband and ofthe wifeunder each head of income (other than under the head Salaries) shall be 33. apportioned equally between the husband and the wife and the income soapportioned shall be included separately in the total income of the husbandandof the wife respectively, and the remaining provisions of this Act shall applyaccordingly.(2) Where the husband or, as the case may be, the wife governed by theaforesaidsystem of community of property has any income under the headSalaries, suchincome shall be included in the total income of the spouse who has actuallyearned it.]Residence in India.426. For the purposes of this Act,(1) An individual is said to be resident in India in any previous year, if he(a) is in India in that year for a period or periods amounting in all toone hundred and eighty-two days or more ; or(b) 43[* * *](c) having within the four years preceding that year been in India fora period or periods amounting in all to three hundred and sixtyfivedays or more, is in India for a period or periods amountingin all to sixty days or more in that year.44[Explanation.In the case of an individual,1.31 CH. II - BASIS OF CHARGE S. 640. For the meaning of the terms/expressions is received, deemed to bereceived, accruesor arises, accrued or arisen and deemed to have accrued or arisen, seeTaxmannsDirect Taxes Manual, Vol. 3.41. Inserted by the Finance Act, 1994, w.r.e.f. 1-4-1963.42. For relevant case laws, see Taxmanns Master Guide to Income-taxAct.43. Omitted by the Finance Act, 1982, w.e.f. 1-4-1983.44. Substituted by the Direct Tax Laws (Second Amendment) Act, 1989,w.e.f. 1-4-1990.Original Explanation was inserted by the Finance Act, 1978, w.e.f. 1-4-1979and lateramended by the Finance Act, 1982, w.e.f. 1-4-1983.(a) being a citizen of India, who leaves India in any previous year45[as a member of the crew of an 46Indian ship as defined inclause (18) of section 3 of the Merchant Shipping Act, 1958 (44of 1958), or] for the purposes of employment outside India, theprovisions of sub-clause (c) shall apply in relation to that year asif for the words sixty days, occurring therein, the words onehundred and eighty-two days had been substituted ;(b) being a citizen of India, or a person of Indian origin within themeaning of Explanation to clause (e) of section 115C, who, beingoutside India, comes on a visit to India in any previous year, theprovisions of sub-clause (c) shall apply in relation to that year asif for the words sixty days, occurring therein, the words onehundred and 47[eighty-two] days had been substituted.](2) A Hindu undivided family, firm or other association of persons is saidto be resident in India in any previous year in every case except whereduring that year the control and management48 of its affairs48 is 34. situated wholly48 outside India.(3) A company is said to be resident in India in any previous year, if(i) it is an Indian company ; or(ii) during that year, the control and management48 of its affairs48 issituated wholly48 in India.(4) Every other person is said to be resident in India in any previous yearin every case, except where during that year the control and managementof his affairs is situated wholly outside India.(5) If a person is resident in India in a previous year relevant toan assessment year in respect of any source of income, heshall be deemed to be resident in India in the previous year relevantto the assessment year in respect of each of his other sources ofincome.49[(6) A person is said to be not ordinarily resident in India in anypreviousyear if such person isS. 6 I.T. ACT, 1961 1.3245. Inserted by the Finance Act, 1990, w.e.f. 1-4-1990.46. Clause (18) of section 3 of the Merchant Shipping Act, 1958, definesIndian ship asfollows :(18) Indian ship means a ship registered as such under this Act andincludes any shipregistered at any port in India at the commencement of this Act which isrecognisedas an Indian ship under the proviso to sub-section (2) of section 22;47. Substituted for fifty by the Finance Act, 1994, w.e.f. 1-4-1995.48. For the meaning of the terms/expressions control and management,affairs andwholly, see Taxmanns Direct Taxes Manual, Vol. 3.49. Substituted by the Finance Act, 2003, w.e.f. 1-4-2004. Prior to itssubstitution, clause (6)read as under :(6) A person is said to be not ordinarily resident in India in any previousyear if suchperson is(Contd. on p. 1.33)(a) an individual who has been a non-resident in India in nine out ofthe ten previous years preceding that year, or has during theseven previous years preceding that year been in India for aperiod of, or periods amounting in all to, seven hundred andtwenty-nine days or less; or(b) a Hindu undivided family whose manager has been a nonresidentin India in nine out of the ten previous years precedingthat year, or has during the seven previous years preceding thatyear been in India for a period of, or periods amounting in all to,seven hundred and twenty-nine days or less.]Income deemed to be received.7. The following incomes shall be deemed to be received in the previousyear :(i) the annual accretion in the previous year to the balance at the creditof an employee participating in a recognised provident fund, to theextent provided in rule 6 of Part A of the Fourth Schedule ; 35. (ii) the transferred balance in a recognised provident fund, to the extentprovided in sub-rule (4) of rule 11 of Part A of the Fourth Schedule ;50[(iii) the contribution made, by the Central Government 51[or any otheremployer] in the previous year, to the account of an employee undera pension scheme referred to in section 80CCD.]Dividend income.8. 52[For the purposes of inclusion in the total income of an assessee,(a) any dividend] declared by a company or distributed or paid by itwithin the meaning of sub-clause (a) or sub-clause (b) or sub-clause(c) or sub-clause (d) or sub-clause (e) of clause (22) of section 2 shallbe deemed to be the income of the previous year in which it is sodeclared, distributed or paid, as the case may be ;53[(b) any interim dividend shall be deemed to be the income of thepreviousyear in which the amount of such dividend is unconditionally madeavailable by the company to the member who is entitled to it.]1.33 CH. II - BASIS OF CHARGE S. 8(Contd. from p. 1.32)(a) an individual who has not been resident in India in nine out of the tenprevious years preceding that year, or has not during the seven previousyears preceding that year been in India for a period of, or periodsamountingin all to, seven hundred and thirty days or more ; or(b) a Hindu undivided family whose manager has not been resident in Indiainnine out of the ten previous years preceding that year, or has not during theseven previous years preceding that year been in India for a period of, orperiods amounting in all to, seven hundred and thirty days or more.50. Inserted by the Finance (No. 2) Act, 2004, w.r.e.f. 1-4-2004.51. Inserted by the Finance Act, 2007, w.r.e.f. 1-4-2004.52. Substituted for For the purposes of inclusion in the total income of anassessee, anydividend by the Finance Act, 1965, w.e.f. 1-4-1965.53. Inserted, ibid.Income deemed to accrue or arise in India.549. 55(1) The following incomes shall be deemed56 to accrue or arise inIndia :57(i) all income accruing or arising, whether directly or indirectly, throughor from any business connection58 in India, or through or from anyproperty58 in India, or through or from any asset or source of incomein India, 59[* * *] or through the transfer of a capital asset situate inIndia.60[Explanation 1].For the purposes of this clause(a) in the case of a business of which all the operations61 are notcarried out in India, the income of the business deemed under thisclause to accrue or arise in India shall be only suc