703/CBDT. - Income Tax - 703/CBDT

INSTRUCTION NO. 703/CBDT Dated : June 12, 1974 Section(s) Referred: 176(3) ,176(4) Statute: Income - Tax Act, 1961 Persons deriving income from profession generally offer their income for assessment on cash basis. Many a times, such persons discontinue their profession either for taking up an employment or for any other reason. At the time of discontinuance, in almost all cases of professional people, there is some outstanding fees for the service rendered by them in the earlier years. 2. Section 176(4) of Income-tax Act, 1961 provides that where any profession is discontinued in any year on account of cessation of the profession by, or the retirement or death of the person carrying on the profession, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the aforesaid person, had it been received before such discontinuance. 3. Section 176(3) casts an statutory obligation on any person discontinuing any business or profession to give notice of such discontinuation to the income-tax Officer within fifteen days thereof. Failure to comply with the provisions of Section 176(3) attracts levy of penalty under section 272 of the IT Act. Section 272 empowers the ITO to levy a penalty which shall not be less than 10 percent of the tax but which shall not exceed the amount of tax subsequently assessed on him in respect of any income of profession upto the date of discontinuance. 4. With a view to ensuring that professional receipts received after the discontinuance of profession is brought to tax, Board have decided that in such case, the ITO must invoke the provisions of Sec.133(6) for calling for the information regarding all outstanding fees in the year in which profession is discontinued. This will enable them to keep track of the receipts in the subsequent years for income tax purposes as well as to verify the amounts of debt outstanding shown in the return of net wealth. For this purpose, the ITO should keep track of the intimations received under section 176(3) or utilise information received to this effect during the course of hearing of the case. If the ITO find that in a case where intimation under section 176(3) has been received and it is covered under the summary assessment scheme, that case should be disposed of only after calling for the information regarding the outstanding fees. 5. Necessary instructions may kindly be issued to all the ITO working in your charge for their guidance and strict compliance.