Assessment of Chit Funds. - Income Tax - 1029/CBDT

INSTRUCTION NO. 1029/CBDT Dated : December 13, 1976 Section(s) Referred: 143 Statute: Income - Tax Act, 1961 Attention is invited to Instruction No. 981* dated the 17th July, 1976 (F.No. 173/46/75-IT(AI)). 2. The Board have further considered the question of assessment of Chit Funds, the following guidelines should be borne in mind:- 1. The assessing officers should requisition the names and addresses of all agents of a Chit Fund company with a view of establishing their identity as it sometimes happens that commission is drawn in the names of benami persons which ultimately benefits some of the Directors of the Company. 2. It is understood that many contributors to the fund use different names in order to invest their unaccounted monies and these benami names are likely to recur in different series. To safeguard against this, a list of common subscribers in a particular series as also in different series should be obtained from the chit fund companies and their source of contribution checked. 3. If the assessing officer has any ground to believe that the Directors or their family members have siphoned off the monies of the fund, their investments and wealth should come under scrutiny. In particular the I.T.O. should examine whether the expenses on salaries, publicity, travelling etc. are not inflated or disproportionate to the magnitude of the business of the Chit Fund company. Heavy expenses on the above score should be checked by the I.T.O. and may be disallowed by him if he feels that they do not pertain to the legitimate business needs of the company. 4. The genuineness of cash credits and bad debts should be thoroughly scrutinised. 5. The assessment of Chit Fund companies should be completed on top priority basis so that the assessment for a particular year is completed before the close of the assessment year. This procedure will help early realisation of the tax demand and will take care of hazards caused due to sudden discontinuance or failure of Chit Fund business. 6. On the windfall gain earned by lucky contributors who bid in the auction and draw money but did not subscribe further to the Chit Fund due to discontinuance of its business, taxibility under the head "Casual and non-recurring receipt" may be considered. 7. On the discontinuance of a particular Chit Fund business, the loss arising the assessees who subscribe to the Chit Fund without drawing or winning any amount may be considered as capital loss and not allowed to be carried forward or set off against other capital gains or other income, by considering the nature of above receipts as "Casual and non-recurring".