"Own Your Own Telephone Scheme". - Income Tax - 943/CBDT

INSTRUCTION NO. 943/CBDT Dated : April 2,1976 Section(s) Referred: 37(1) ,41(1) Statute: Income - Tax Act, 1961 Recently the Board has examined a question whether the amount payable in advance for having a new telephone connection under "Own Your Own Telephone Scheme" can be allowed as revenue expenditure under section 37(1) of the Income-tax Act 1961 while computing the income under the head "profit and gains from business or profession". 2. Payment under OYT Scheme is in the nature of advance payment of rent of telephone connection and not in the nature of deposit. In view thereof. subscribers are entitled to deduct such amount as expenditure wholly and exclusively incurred for the purpose of business or profession. It is open to the subscriber either to claim the entire amount paid under the Scheme in the year in which the payment is made or proportionately in the years for which the advance payment of rent is made. Where the payment under the OYT Scheme and the installation of the telephone is in the same previous year, there is no difficulty in allowing the deduction. However, where the installation of the telephone is in the previous year subsequent to the previous year in which the deposit is made it can be argued that the payment is not allowable in the year of payment as it may be treated only as an advance, and it would also not be allowable in the year in which the telephone is installed as the payment has not been made in that year. 3. Considering practical difficulties in this regard, the Board have decided that the entire amount of payment should be allowed in the year of payment irrespective of the fact whether the telephone has been installed or not. In case the telephone is not installed at all and the money is refunded back to the assessee, it may be brought to tax in the year of receipt by invoking the provisions of section 41(1) of the Income tax Act, 1961.