Provisions at a glance , Provisions explained - Income Tax - 148//1974

CIRCULAR NO. 148 DATED 15-11-1974 COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Provisions at a glance Provisions explained 64 COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Provisions at a glance SECTION/SCHEDULE PARTICULARS 3 Assessment years for which and persons by whom compul-sory deposits are to be made 2 4 (part) Cases in which compulsory deposits are required to be made 3 4 (part) and Sch. Quantum of compulsory deposits 4-5 5 Time for making compulsory deposits 6-8 6 and 14 (part) Order by the Income-tax Officer for compulsory deposits in certain cases 9 7 (part) Interest payable on compulsory deposits 11 7(3) Inclusion of interest on compulsory deposits in the categories of income entitled to exemption up to Rs. 3,000 under section 80L of the Income-tax Act 13 8 Repayment of compulsory deposits 12 9 Intimation regarding compulsory deposits 14 10 Penalty for failure to make compulsory deposits 15 11 Authorities 16 12 Appeal and revision 17 13 Rectification of mistakes 18 14 Collection and recovery of compulsory deposit and penalty 19 15 Rounding off of "current income", "correct income", compulsory deposit and penalty 20 15 Miscellaneous provisions 21 Paragraphs 2 Manner of making compulsory deposits 10 (e) and (4) (part) of the Scheme Circular NO. 148, dated 15-11-1974 Explanatory Notes COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Introduction 1. The President promulgated the Compulsory Deposit Scheme (Income-tax Payers) Ordinance, 1974 on 17-7-1974 to provide for compulsory deposits by certain categories of income-tax payers in the higher income brackets. This Ordinance has since been replaced, with minor modifications, by the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 (38 of 1974). Under section 19 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 (hereafter in this circular referred to as "the Act"), the Central Government is empowered to frame a scheme or schemes in relation to compulsory deposits and the Central Government have, in exercise of this power, framed the Compulsory Deposit (Income-tax Payers) Scheme, 1974 (hereafter in this circular referred to as "the Scheme"). The Act has come into force with effect from 17-7-1974 and the Scheme with effect from 15-11-1974. This circular explains the main provisions of the Act and the Scheme. COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Assessment years for which and persons by whom compulsory deposits are to be made 2. Compulsory deposit will have to be made for the assessment years 1975-76 and 1976-77 by the following categories of income-tax payers: ( a ) individuals who are citizens of India; ( b ) Hindu undivided families; ( c ) trustees of discretionary trusts [that is to say, trustees appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913), if the income in respect of which they are liable to income-tax as representative-assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown]; and ( d ) persons who are assessable under the Income-tax Act in respect of the total income of individuals, Hindu undivided families or trustees referred to in ( a ), ( b ) or ( c ) above. It will thus be seen that companies, partnership firms, associations of persons, bodies of individuals and artificial juridical persons are outside the purview of the Scheme and do not have to make compulsory deposits except in cases where they are chargeable to income-tax as representative-assessees on behalf of individuals, Hindu undivided families or trustees of discretionary trusts. [Section 3 of the Act] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Cases in which compulsory deposits are required to be made 3. The liability to make compulsory deposits, in relation to an assessment year, will arise only in cases where the "current income" of the person liable to make compulsory deposit exceeds Rs. 15,000. The expression "current income" means: ( a ) in the case of a person required to pay advance tax under the Income-tax Act during the financial year immediately preceding the relevant assessment year, the aggregate of the total income [exclusive of capital gains and income referred to in section 2( 24 )( ix ) of the Income-tax Act] and the net agricultural income which forms the basis for computation of advance tax payable by him during that financial year; ( b ) in the case of any other person ( e.g., persons having income chargeable to tax only under the head "Salaries", persons who have previously been assessed by way of regular assessment but in whose cases the Income-tax Officer has not issued a notice for payment of advance tax) the aggregate of the total income [exclusive of capital gains, and income referred to in section 2( 24 )( ix ) of the Income-tax Act] of the period which would be the previous year for the relevant assessment year and the net agricultural income as estimated by him of that period. For this purpose, the "total income" of the depositor will be computed in accordance with the provisions of the Income-tax Act, after taking into account the various exemptions and deductions allowed under the law (including the deduction allowable with reference to qualifying savings through specified media, e.g., contributions to provident funds, payments towards life insurance premia). Similarly, the "net agricultural income" will be computed after allowing deduction in respect of expenses, etc., as provided in the rules for the computation of such income contained in the Finance Act of the relevant year. [Section 4 (Part) of the Act] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Quantum of deposits 4. Subject to certain marginal provisions explained later in this paragraph, the compulsory deposits will be required to be made at the following rates: ( a ) where the current income exceeds Rs. 15,000 but does not exceed Rs. 25,000 4 per cent of the current income; ( b ) where the current income exceeds Rs. 25,000 but does not exceed Rs. 70,000 Rs. 1,000 plus 6 per cent of the excess over Rs. 25,000; ( c ) where the current income exceeds Rs. 70,000 Rs. 3,700 plus 8 per cent of the excess over Rs. 70,000. The amount of compulsory deposit required to be made in a case where the current income exceeds Rs. 15,000 by a small margin will not, however, exceed the amount by which the current income exceeds Rs. 15,000. The marginal limit for this purpose is Rs. 15,620. Further, if the compulsory deposit required to be made works out to less than Rs. 100, the depositor will not be required to make any deposit. The result will, therefore, be that— ( a ) in a case where the current income is less than Rs. 15,100, no compulsory deposit will be required to be made; ( b ) in a case where the current income is equal to or more than Rs. 15,100 but does not exceed Rs. 15,620, the compulsory deposit will be equal to the excess of the current income over Rs. 15,000; and ( c ) in a case where such aggregate income exceeds Rs. 15,620, the compulsory deposit will be calculated at the rates indicated in the table above. The operation of the foregoing provisions in the case of income-tax payers is illustrated by the following examples: Example I . Rs. Current income 15,050 No compulsory deposit will be required to be made as the current income is less than Rs. 15,100. Example II Current income 15,500 Since the current income does not exceed rs.15,620, the compulsory deposit required to be made will be equal to Rs. 500, i.e., the amount by which the current income exceeds Rs. 15,000. Example III Current income 20,000 The compulsory deposit required to be made will be Rs. 800, i.e., 4% of Rs. 20,000. Example IV Current income 30,000 The compulsory deposit required to be made will be Rs. 1,300, i.e., Rs. 1,000 being 4 per cent of Rs. 25,000 plus 6 per cent of the balance of Rs. 5,000. COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 5. Since salaried employees, including those with income exceeding Rs. 15,000 per annum, will be required to deposit the entire increase in their salary and one-half of their additional dearness allowance under the Additional Emoluments (Compulsory Deposit) Act, 1974, the deposits made by them under the aforesaid Act during the financial year immediately preceding the relevant assessment year will be set off against the deposits required to be made under the Act for that assessment year. Thus, in a case where the current income of a taxpayer amounts to Rs. 30,000 and a sum of Rs. 400 has been deducted from his salary income as compulsory deposit under the Additional Emoluments (Compulsory Deposit) Act, the compulsory deposits required to be made by him under the Act will be reduced by Rs. 400. In other words, in such a case the compulsory deposit under the Act will amount to Rs. 900 only [Rs. 1,300 as calculated in Example IV in the preceding paragraph minus Rs. 400 deducted under the Additional Emoluments (Compulsory Deposit) Act]. In this connection, it may be mentioned that the amount deducted under the Additional Emoluments (Compulsory Deposit) Act, 1974, is not included in the total income of the taxpayer for the previous year in which the deduction is made, while the amount of the compulsory deposits made under the Act is not allowed as deduction in computing the taxable income. Thus, in the aforesaid example, the total income of Rs. 30,000 would have been arrived at without including the sum of Rs. 400 deducted from his salary income under the Additional Emoluments (Compulsory Deposit) Act. [Section 4 (Part) and the Schedule to the Act] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Time for making compulsory deposits 6. In the case of income-tax payers who are liable to pay advance tax, compulsory deposits are required to be made by them voluntarily before the expiry of the date on which the last instalment of advance tax is payable by them under section 211 or, as the case may be, under sub-section (3A) of section 212 of the Income-tax Act. Therefore, the compulsory deposit, in the generality of cases will fall due on 15th December or 15th March of the financial year immediately preceding the relevant assessment year according as the date for payment of the last instalment of advance tax falls on 15th December or 15th March. However, in a case where the Commissioner has, under the proviso to section 212(3A) of the Income-tax Act, extended the date for furnishing the estimate of advance tax, the compulsory deposit will be required to be made voluntarily before the date as so extended even though such date may fall after the end of the financial year immediately preceding the relevant assessment year. COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 7. In the case of a person who is not liable to pay advance tax, the compulsory deposit will be made voluntarily before the end of the financial year immediately preceding the relevant assessment year. COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 8. The depositors will, in cases referred to above where the compulsory deposits are required to be made voluntarily, have the choice of making the deposits either in one lump sum on or before the due date or in quarterly instalments so however that not more than one payment will be made in one quarter, namely, April to June, July to September, October to December and January to March. [Section 5 of the Act and paragraph 3 of the Scheme] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Order by the Income-tax Officer for compulsory deposits in certain cases 9. As already explained in paragraph 3, persons liable to pay advance tax are required to make compulsory deposits on the basis of the aggregate of the total income [exclusive of capital gains and income referred to in section 2( 24 )( ix ) of the Income-tax Act] and net agricultural income which forms the basis for the computation of advance tax payable by them. The quantum of compulsory deposits in such cases cannot subsequently be varied by the Income-tax Officer. In the case of persons who are not liable to pay advance tax, the compulsory deposit has to be made on the basis of the aggregate of such total income and the net agricultural income as estimated by them. It is not unlikely that persons who are not liable to pay advance tax may not make compulsory deposits on the basis of their estimate. In order to provide for such cases, the Act empowers the Income-tax Officer to direct that the persons concerned should make a compulsory deposit with reference to his "correct income". For this purpose, "correct income" means: ( a ) where the person has furnished a return of his income for the relevant assessment year, the total income [exclusive of capital gains and income referred to in section 2( 24 )( ix ) of the Income-tax Act] returned by him as increased by the net agricultural income, if any, returned by him; ( b ) in a case where a person has failed to furnish the return of income for the relevant assessment year, the aggregate of the total income [exclusive of capital gains and income referred to in section 2( 24 )( ix ) of the Income-tax Act] determined on assessment and the net agricultural income determined on assessment. The notice by the Income-tax Officer requiring the person concerned to make the compulsory deposit will be issued in Form D appended to the Scheme and the deposits will be made within thirty-five days of the receipt of the notice of demand. [Sections 6 and 14 (Part) of the Act and paragraph 8 of the Scheme] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Manner of making compulsory deposits 10. Compulsory deposits will be accepted by all branches and offices of the Reserve Bank of India, the State Bank of India and its subsidiaries, as also all nationalised banks. The depositor will have the choice to make a deposit in any of these branches but he will be entitled to have only one account at any one time. The persons desirous of making a compulsory deposit will have to make an application to the deposit office in Form A appended to the Scheme and tender the amount of initial deposit, along with an application in the prescribed form either in cash or by a crossed cheque drawn in favour of the deposit office on a bank at the place the deposit office is situated. The deposit office will issue a pass book to each depositor in which the deposits made by him or recovered from him from time to time will be credited. The deposit office will also issue a receipt in respect of each individual deposit made by the depositor. [Paragraphs 2( e ) and 4 (Part) of the Scheme] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Interest payable on compulsory deposits 11. Compulsory deposits will carry simple interest at a rate equal to the maximum bank deposit rate which currently stands at 10 per cent per annum. With a view to facilitating the calculation of interest, it has been provided that interest will be calculated from the first day of the month immediately following the month in which the deposit is credited to the account of the depositor to the last date of the month immediately preceding the month in which the instalment of compulsory deposit becomes repayable. Where there is any increase or reduction in the bank deposit rate, interest in respect of any period after the first day of the month immediately following the month in which the bank deposit rate is increased or reduced shall be calculated at the rate so increased or reduced. [Section 7 (Part) of the Act and paragraph 9 of the Scheme] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Repayment of compulsory deposits 12. The amount of compulsory deposit made by or recovered from a depositor in any financial year will be repayable in five equal instalments commencing from the expiry of two years from the end of the financial year in which the deposit was made or recovered. Interest on these deposits up to the due date of each instalment will be paid along with the instalment. For obtaining repayment the depositor will be required to make an application to the deposit office in Form E and produce the pass book issued to him. The Income-tax Officer has been empowered to permit earlier repayment of the deposit or any instalment thereof together with interest due thereon in cases of extreme hardship. Where the Income-tax Officer authorises premature repayment, he will issue an order in writing and send an advice in respect thereof to the deposit office. The deposit office will, on the production of the Income-tax Officer's order by the depositor and receipt of the advice from the Income-tax Officer, make repayment immediately. [Section 8 of the Act and paragraph 10 of the Scheme] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Inclusion of interest received on compulsory deposits in the categories of income entitled to exemption up to Rs. 3,000 under section 80L of the Income-tax Act 13. Interest received on compulsory deposits will be treated as interest received on a deposit with a banking company and accordingly will qualify for inclusion in the categories of income which are exempt from income-tax up to Rs. 3,000 under section 80L of the Income-tax Act. [Section 7(3) of the Act] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Intimation regarding compulsory deposits 14. In order to enable the Income-tax Officer to verify whether the compulsory deposits have been made in the requisite amount, the taxpayer will be required to furnish along with his return of income the receipt or receipts issued by the deposit office in respect of the payments made for the relevant assessment year. Where any deduction has been made from the salary income of the depositor under the Additional Emoluments (Compulsory Deposit) Act, 1974, a certificate from the officer responsible for payment of salaries as to the amount so deducted will also be enclosed by the depositor with the return of his income. [Section 9 of the Act and paragraph 5 of the Scheme] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Penalty for failure to make compulsory deposits 15. The Act provides for levy of penalty in case of default in making compulsory deposits. In the case of a person required to pay advance tax during the financial year immediately preceding the relevant assessment year, penalty will be exigible if compulsory deposit is not made voluntarily before the expiry of the date on which the last instalment of advance tax is payable or the deposit made before such date falls short of the requisite amount. In case of failure to make compulsory deposit within the time allowed, the penalty imposable will be equal to 25 per cent of the compulsory deposit required to be made. If the compulsory deposit made within the time allowed falls short of the requisite amount, the penalty will be equal to 25 per cent of the amount of shortfall. In the case of any person who is not required to pay advance tax under the Income-tax Act, penalty will be imposed if compulsory deposit is not made voluntarily before the end of the financial year immediately preceding the relevant assessment year or the deposit made within the time allowed falls short of 75 per cent of the compulsory deposit required to be made on the basis of the depositor's "correct income". Where no compulsory deposit is made within the time allowed, the penalty imposable will be equal to 25 per cent of the compulsory deposit calculated with reference to the correct income. If the compulsory deposit made within the time allowed falls short of 75 per cent of the compulsory deposit required to be made, the penalty will be equal to 25 per cent of the amount by which the compulsory deposit actually made falls short of the compulsory deposit calculated with reference to the correct income. It should be noted that the Income-tax Officer is bound to levy a penalty in case of delay or default in making a compulsory deposit and the quantum of penalty leviable is also fixed under the statute. The Income-tax Officer has no discretion to waive the penalty or to impose a higher or lower penalty. Further, it has been specifically provided that no penalty will be imposed unless the person concerned has been heard or has been given a reasonable opportunity of being heard. [Section 10 of the Act] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Authorities 16. The Act will be administered by the income-tax authorities who will have like powers and perform like functions under the Act as they have and perform under the Income-tax Act, 1961. The jurisdiction of the income-tax authorities will also be the same for the purposes of the Act. [Section 11 of the Act] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Appeals and revision 17. An appeal against the Income-tax Officer's order imposing a penalty on a depositor under section 10 will lie to the Appellate Assistant Commissioner. The provisions of the Income-tax Act, relating to appeals, reference and revision will apply in relation to the Income-tax Officer's orders imposing penalty as they apply in relation to his order under section 221 of the Income-tax Act. In other words, the Appellate Assistant Commissioner will have similar powers while disposing of an appeal under the Act as he has in relation to an appeal under section 221 of the Income-tax Act. The Appellate Assistant Commissioner's order could be the subject of appeal to the Income-tax Appellate Tribunal or revision by the Commissioner. Reference will also lie from Income-tax Appellate Tribunal's decision to the High Court on questions of law and further appeal from the High Court's order will lie to the Supreme Court. [Section 12 of the Act] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Rectification of mistakes 18. The Income-tax Officer, the Appellate Assistant Commissioner, the Commissioner and the Appellate Tribunal, will have the power to amend his or its orders with a view to rectifying any mistake apparent from the record within four years from the date on which such order is passed. No amendment enhancing the compulsory deposit or any penalty imposed under the Act will, however, be passed unless the authority concerned has given notice to the depositor of its intention to do so and has allowed the depositor a reasonable opportunity of being heard. [Section 13 of the Act] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Collection and recovery of compulsory deposit and penalty 19. Where any compulsory deposit or penalty has to be made or paid in pursuance of an order passed under the Act, the Income-tax Officer will serve a notice of demand on the depositor in Form D appended to the Scheme. The sum specified in the notice of demand will have to be deposited or paid within 35 days of the service of notice. The Income-tax Officer has, however, been empowered to extend the time for making the deposit or payment or to allow deposits or payments to be made by instalments subject to such conditions as he may think fit to impose. Where the depositor fails to make the compulsory deposit voluntarily within the time allowed under section 5 or fails to make the deposit or pay the penalty as required by a notice of demand, the depositor will be deemed to be in default. The provisions of Chapter XVIID of the Income-tax Act relating to recovery of arrears of tax will apply in relation to recovery of compulsory deposit or penalty under the Act in the same manner as they apply in relation to recovery of income-tax. In cases where any arrear of compulsory deposit is recovered from the depositor, the Income-tax Officer will send a communication in this behalf to the depositor requiring him to intimate the deposit office at which he has already opened an account or, where he has not opened an account, the deposit office at which he desires to open an account. On receipt of the necessary information, the Income-tax Officer will advise the deposit office concerned regarding the amount of the compulsory deposit recovered from the depositor. The necessary entries in the pass book issued by the deposit office in regard to the amount recovered by the Income-tax Officer will be made by the deposit office on receipt of intimation from the Income-tax Officer. [Section 14 of the Act and paragraph 4 (Part) of the Scheme] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Rounding off of "current income", "correct income", compulsory deposit and penalty 20. The amount of "current income", "correct income", and compulsory deposit will be rounded off to the nearest multiple of ten rupees, while the amount of penalty payable under the Act will be rounded off to the nearest rupee. [Section 15 of the Act] COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Miscellaneous provisions 21. ( 1 ) Where compulsory deposit is made by a representative-assessee who is assessable under the Income-tax Act in respect of the total income of an individual, Hindu undivided family or trustee of a discretionary trust, the provisions of Chapter XV of the Income-tax Act, relating to liability in such cases, will apply in relation to the compulsory deposits and penalties imposable under the Act as they apply in relation to income-tax payable and penalties imposable under the Income-tax Act. ( 2 ) The amount of compulsory deposit and interest thereon will not be liable to attachment under a decree or any order of any court. ( 3 ) No suit, prosecution or other legal proceedings will lie against the Government or against any officer of the Government for anything which is done or intended to be done in good faith under the Act or the Scheme. ( 4 ) Depositors will be able to nominate one or more persons who will be entitled to the repayment of compulsory deposits in the event of the death of the depositor. A provision has also been made for cancellation of the nomination or for making a fresh nomination. ( 5 ) Other procedural or ancillary matters have been provided for in the Scheme. Repeal of Compulsory Deposit (Income-tax Payers) Act, 1974 The Compulsory Deposit (Income-tax Payers) Act, 1974 would stand repeal effective from April 1, 1996. The depositors are hereby informed that the deposits made under the CD (ITP) Scheme, 1974 will cease to earn interest from that date. Issue by the Department of Economic Affairs, Ministry of Finance, Press Information Bureau. Press Release : Dated 19-3-1996.