Spread over of income. - Income Tax - 252/CBDT

INSTRUCTION NO. 252/CBDT Dated: December 26, 1970 Instructions have been issued from time to time on the question of spread over of income. In this connection attention is invited to boards F.NO.58/22/63-IT(INV) dated the 12th May 1964, chairman's D.O.NO.58/22/63 -IT(INV) dated the 21st August 1964. D.O.No.16/15/65-IT(INV) dated 16th March 1965. Hitherto the boards instructions were that ordinarily the concealed income should be taxed in the year in which it appears in the account books but it may be spread over if there is reason to believe that it was earned in earlier years. Such a spread over of income should not however ordinarily be for more than 4 years. In cases where there is sufficient material to show that the income was earned over a longer period the spread over may be granted upto 8 years but in no case beyond 8 years without the prior approval of the board. 2. The Director of Revenue Audit has brought to the notice of the board that spread over of income has been granted by the Commissioners even beyond 8 years on the ground that the 8 years limit applies not to the final peak credit but to each years peak credit. In such cases although the spread over was granted for more than 8 years boards approval was not obtained. 3. The question has been reconsidered by the board. While the commissioners should strictly follow the instructions mentioned above it is necessary to point out that spread over of income cannot always be restricted to 8 years in some cases. It is for this reason that it has been provided in the earlier circulars that if a spread over beyond 8 years was contemplated, the boards approval should be obtained. The kind of cases the board had in view where spread over could be granted beyond 8 years were as under:- i) In cases where there was sufficient material to show that income was earned beyond the 8 years period; and ii) There could be cases where a sizable portion of the credits comprising the peak credits had occurred in a year prior to that in which the peak was reached and the increase during the intervening period. The total period of the spread over may in such cases exceed eight years. It is also necessary to ensure that the spread over is not granted in such a manner that a part of the income legitimately assessable escapes assessment. It is not possible to envisage all circumstances in which spread over of income beyond 8 years can be granted. However wherever it is considered that spread over of income should be granted beyond 8 years the boards approval should be obtained.