Income Tax Act, 1961

‘Domestic company’ means an Indian company, or any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income, as per Section 2(22A).

Dividend, according to Section 2(22) includes-

(a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company;

(b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not;

(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not;

(d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not;

(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in

profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;

but ‘dividend’ does not include-

(a) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the shares is not entitled in the event of liquidation to participate in the surplus assets;

(b) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31s t day of March, 1964 (and before the 1s t day of April, 1965);

(c) any advance or loan made to a shareholder (or the said concern) by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company;

(d) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off;

(e) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956.

(f) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).

Dividend income (Section 8): For the purposes of inclusion in the total income of an assessee-

(a) any dividend declared by a company or distributed or paid by it within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e) of clause (22) of Section 2,shall be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the case may be;

(b) any interim dividend shall be deemed to be the income of the previous year, in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it.

Interest on securities (Clause 28B of Section 2) means-

(i) interest on any security of the Central Government or a State Government,

(ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or provincial Act.

Capital asset

(i) Long term capital asset means a capital asset which is not a short term capital asset, as per Clause 29A of Section 2.

(ii) Short term capital asset means a capital asset held by an assessee for not more than thirty-six months* immediately preceding the date of its transfer, (Clause 42A of Section 2)* twelve months in the case of a share held in a company or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established

under the Unit Trust of India Act, 1963 or a unit of a Mutual Fund specified under clause (23D) of section 10 or a zero coupon bond.

Capital gains (Section 45)

Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections (54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H), be chargeable to income -tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.

Where any person has had at any time during previous year any beneficial interest in any securities, then any profits or gains arising from transfer made by the depository or participant of such beneficial interest in respect of securities shall be chargeable to income-tax as the income of the beneficial owner of the previous year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be registered owner of securities by virtue of sub-section (1) of section 10 of the Depositories Act, 1996, and for the purposes of section 48 and proviso to clause ( 42A) of section 2, the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method.

Types of capital gains

1. Long term capital gain means capital gain arising from the transfer of a long term capital asset, as per Clause 29B of Section 2.

2. Short term capital gain means capital gain arising from the transfer of a short term capital asset, as per Clause 42B of Section 2.

PAN compulsory for Securities transaction

The Income-tax (Eighth Amendment) Rules, 2002 made it mandatory for a person to quote permanent account numbers (PAN), issued by the income tax department, for securities transactions of over Rs. 1 lakh.

Tax on long-term capital gains (Section 112)

Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head ‘Capital gains’, the tax payable by the assessee on the total income shall be the aggregate of,-

(a) in the case of an individual or a Hindu undivided family, being a resident,-

i). the amount of income -tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been his total income; and

ii). the amount of income -tax calculated on such long-term capital gains at the rate of twenty per cent:

(b) in the case of a domestic company,-

i). the amount of income -tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been its total income; and

ii). the amount of income -tax calculated on such long-term capital gains at the rate of [twenty] per cent:

(c) in the case of a non-resident (not being a company) or a foreign company,-

i). the amount of income -tax payable on the total income as reduced by the amount of such long-term capital gains , had the total income as so reduced been its total income; and

ii). the amount of income -tax calculated on such long-term capital gains at the rate of twenty percent;]

(d) in any other case of a resident,-

i). the amount of income -tax payable on the total income as reduced by the amount of long-term capital gains, had the total income as so reduced been its total income; and

ii). the amount of income -tax calculated on such long-term capital gains at the rate of twenty per cent

Where the gross total income of an assessee includes any income arising from the transfer of a long term capital asset, the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.

Where the total income of an assessee includes any income arising from the transfer of a long-term capital asset, the total income shall be reduced by the amount of such income and the rebate under section 88 shall be allowed from the income-Tax on the total income as so reduced.

Bookmark the permalink.