Convenor taking over a vacant Chit, is treated as subscriber for all purposes. - Income Tax - 981/CBDT

INSTRUCTION NO. 981/CBDT Dated : July 17, 1976 Section(s) Referred: 143 Statute: Income - Tax Act, 1961 A Chit Fund is instituted normally for certain specified sum which is contributed by the holders of the tickets of the Fund in instalments over a period of time. The usual practice in cases where all the tickets are not fully subscribed at the commencement of the Chit, is for the organiser or the convenor (whether individual, HUF, firm or company) to subscribe for such vacant Chits on their own account so as to make the Chit complete, vis-a-vis a number of subscribers. This ensures that the Chit amount is secured. 2. In the event of the convenor taking over a vacant Chit, the convenor is treated as subscriber for all purposes, entitled to all the rights and is responsible for all the liabilities of a subscriber. In other words the convenor is entitled to bid in the auction or participate in the draw and is also entitled to the dividend payable to ordinary subscribers. Therefore, the dividend earned by the convenor by taking up vacant chits would be a return on its own investment or receipt incidental to the carrying on of a business of running Chit Fund. This will be assessable as income of the Chit Fund. 3. There may be cases where with a view to attract subscribers, convenor may allot vacant chits taken over by it to new subscribers even after the commencement of the Chit. The convenor may transfer the tickets originally taken over by it on account of vacancies to new subscribers or even to existing subscribers. In such a situation the dividend declared in the earlier period may be paid over to such new subscribers who are admitted later. 4. Board desires that in the assessment of persons carrying on a business of Chit Fund the relevant rules under which the Chit Fund are conducted should be carefully scrutinised. If the convenor earns any dividend on vacant chits taken over by it such dividend should be treated as business income of the Chit Fund. On the other hand any dividend made over by the convenor on vacant chits subsequently transferred to new subscribers should be allowed as a business expenditure.