Income Tax Act

Official PDF pages 11–15

SOURCE PDF PAGE 11
( 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 accu -
mulated profits, whether 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),—
( i )   as an 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, with or without a right to participate
in profits) holding not less than 10% of the voting power; or
( ii )   as an advance or loan to any concern in which such shareholder
is a member or a partner and in which he has a substantial
interest (herein referred to as the said concern); or
( iii )   made on behalf, or for the individual benefit, of any such
shareholder,
to the extent to which the company in either case possesses accu -
mulated profits;
( f )  
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[ *** ]
but does not include—
( i )   a distribution made under sub-clause ( c ) or ( d ) in respect of any
share issued for full cash consideration, where the holder of the
share is not entitled in the event of liquidation to participate in the
surplus assets;
( ii )   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;
( iii )   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;
( iv )   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);
2.   Omitted by the Finance Act, 2026, w.e.f.   1-4-2026 . Prior to its omission, sub-clause ( f ) read
as under :
‘( f )   any payment by a company on purchase of its own shares from a shareholder as per
section 68 of the Companies Act, 2013 (18 of 2013),’

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[ ( v )   any advance or loan between two group entities, where,—
( A )   one of the group entities is a “Finance Company” or a “Finance
Unit”;
( B )   the other group entity to the transaction is located in a country
or territory outside India; and
( C )   the parent entity or the principal entity of such group is listed
on the stock exchange in a country or territory outside India,
for the purposes of items ( B ) and ( C ), the country or territory outside
India shall be specified by the Central Government, by notification, ]
where,—
( A )   “accumulated profits” for the purposes of—
( I )   sub-clauses ( a ), ( b ), ( d ) and ( e ), shall include all profits of the
company up to the date of distribution or payment referred
to in those sub-clauses;
( II )   sub-clause ( c ), shall include all profits of the company up to
the date of liquidation, but shall not, where the liquidation is
consequent   on the compulsory acquisition of its undertaking
by the Government or a corporation owned or controlled by
the Government under any law in force, include any profits
of the company before three successive tax years immediately
preceding the tax year in which such acquisition took place;
( B )   in respect of an amalgamated company, the accumulated profits,
whether capitalised or not, or loss, as the case may be, shall be
increased by the accumulated profits, whether capitalised or not,
of the amalgamating company on the date of amalgamation;
( C )   “concern” means a Hindu undivided family or a firm or an associ -
ation of persons or a body of individuals or a company;
( D )   a person shall be deemed to have a substantial interest in a concern,
other than a company, if he is, at any time during the tax year, bene -
ficially entitled to not less than 20% of the income of such concern;
( E )   for the purposes of sub-clause ( v ),—
( I )   “Finance Company” and “Finance Unit” shall have the same
meaning as respectively assigned to them in regulation 2(1)
( e ) and ( f ) of the International Financial Services Centres
Authority (Finance Company) Regulations, 2021 made under
the International Financial Services Centres Authority Act,
3.   Substituted by the Finance Act, 2026, w.e.f.   1-4-2026 . Prior to its substitution, sub-clause
( v ) read as under :
‘( v )   any advance or loan between two group entities, where,—
( A )   one of the group entity is a “Finance Company” or a “Finance Unit”; and
( B )   the parent entity or principal entity of such group is listed on stock exchange
in a country or territory outside India other than the country or territory
outside India as specified by the Board in this behalf,’

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2019 (50 of 2019), and is set up as a global or regional cor -
porate treasury centre for undertaking treasury activities or
treasury services as per the relevant regulations made by the
International Financial Services Centres Authority established
under section 4 of the said Act;
3a
[ ( II )   “group entity” shall have the same meaning as assigned to the
expression “group entities” in clause ( m ) of sub-regulation (1)
of regulation 2 of the International Financial Services Authority
(Payment Services) Regulations, 2024 made under the Inter -
national Financial Services Centres Authority Act, 2019 (50 of
2019);
( III )   “parent entity” or “principal entity” in relation to one or more
other group entities, shall be an entity of which other group
entities are subsidiary and such entity,—
( a )   exercises or controls more than one-half of the total voting
power either at its own or together with one or more of its
subsidiaries; or
( b )   controls the composition of the Board of Directors; ]
( 41 )   “document” includes an electronic record as defined in section 2(1)( t ) of
the Information Technology Act, 2000 (21 of 2000);
( 42 )   “domestic company” means—
( i )   an Indian company; or
( ii )   any other company which has made the prescribed arrangements
within India for the declaration and payment of the dividends
(including dividends on preference shares) payable out of its income
liable to tax under this Act;
( 43 )   “electoral trust” means a trust so approved by the Board as per the scheme
made by the Central Government;
( 44 )   “fair market value”, in relation to a capital asset, means—
( a )   the price that the capital asset would ordinarily fetch on sale in the
open market on the relevant date; and
( b )   where the price referred to in sub-clause ( a ) is not ascertainable,
such price as determined in the manner, as may be prescribed;
( 45 )   “firm” shall have the same meaning as assigned to it in section 4 of the
Indian Partnership Act, 1932 (9 of 1932), and shall include a “limited
liability partnership” as defined in section 2(1)( n ) of the Limited Liability
Partnership Act, 2008 (6 of 2009);
( 46 )   “foreign company” means a company which is not a domestic company;
( 47 )   “foreign currency” shall have the same meaning as assigned to it in
section 2( m ) of the Foreign Exchange Management Act, 1999 (42 of
1999);
3a.   Items ( II ) and ( III ) substituted for item ( II ) by the Finance Act, 2026, w.e.f.   1-4-2026 . Prior
to its substitution, item ( II ) read as under :
‘( II )   “group entity”, “parent entity” and “principal entity” shall be such entities which
satisfy such conditions as may be prescribed in this behalf;’

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( 48 )   “hearing” includes communication of data and documents through
electronic mode;
( 49 )   “income” includes—
( a )   profits and gains;
( b )   dividend;
( c )   voluntary contributions received by—
( i )   a registered non-profit organisation; or
( ii )   an association referred to in Schedule III (Table: Sl. No. 23);
or
( iii )   any University or other educational institution or any hospital
or other institution referred to in Schedule VII (Table: Sl. No.
19); or
( iv )   an electoral trust;
( d )   the value of any perquisite or profit   in lieu   of salary taxable under
sections 17 and 18;
( e )   any special allowance or benefit, other than perquisite included
under sub-clause ( d ), specifically granted to the assessee to meet
expenses wholly, necessarily and exclusively for the performance
of the duties of an office or employment of profit;
( f )   any allowance granted to the assessee either to meet his personal
expenses at the place where the duties of his office or employment
of profit are ordinarily performed by him or at a place where he
ordinarily resides or to compensate him for the increased cost of
living;
( g )   the value of any benefit or perquisite, whether convertible into
money or not, obtained from a company, either by a director or
by a person who has a substantial interest in the company, or by
a relative of the director or such person, and any sum paid by any
such company in respect of any obligation which, but for such
payment, would have been payable by the director or that person;
( h )   the value of any benefit or perquisite, whether convertible into
money or not, obtained by any representative assessee mentioned
in section 303(1)( c ) or ( d ) or by any person on whose behalf or
for whose benefit any income is receivable by the representative
assessee (such person being herein referred to as the beneficiary),
and any sum paid by the representative assessee in respect of any
obligation which, but for such payment, would have been payable
by the beneficiary;
( i )   any sum chargeable to income-tax under—
( A )   section 26(2)( b ) or ( c ) or ( d ) or section 38 or 95;
( B )   section 26(2)( e ) or ( g );

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( j )   the value of any benefit or perquisite taxable under section
26(2)( f );
( k )   any capital gains chargeable under section 67;
( l )   the profits and gains of any business of insurance carried on by a
mutual insurance company or by a co-operative society, computed
as per section 55 or any surplus taken to be such profits and gains
as per Schedule XIV;
( m )   the profits and gains of any business of banking (including provid -
ing credit facilities) carried on by a co-operative society with its
members;
( n )   any winnings from lotteries, crossword puzzles, races including
horse races, card games and other games of any sort or from gam -
bling or betting of any form or nature;
( o )   any sum received by the assessee from his employees as contribu-
tions to any provident fund or superannuation fund or any fund
set up under the provisions of the Employees’ State Insurance
Act, 1948 (34 of 1948), or any other fund for the welfare of such
employees;
( p )   any sum received under a Keyman insurance policy including the
sum allocated by way of bonus on such policy;
( q )   any sum referred to in section 26(2)( h );
( r )   the fair market value of inventory referred to in section 26(2)( j );
( s )   any sum referred to in section 92(2)( k ) or ( l );
( t )   any sum of money referred to in section 92(2)( h );
( u )   any sum of money or value of property referred to in section
92(2)( m );
( v )   any   compensation   or   other   payment   referred   to   in   section
92(2)( j );
( w )   assistance in the form of a subsidy or grant or cash incentive or duty
drawback or waiver or concession or reimbursement (by whatever
name called) by the Central Government or a State Government
or any authority or body or agency, in cash or kind, to the assessee
other than—
( i )   the subsidy or grant or reimbursement which is taken into
account for determination of the actual cost of the asset as
per section 39(1)( d ) and (3); or
( ii )   the subsidy or grant by the Central Government for the pur -
pose of the corpus of a trust or institution established by the
Central Government or a State Government,