2.9 Query: Issue relating to Section 32AB of the Income-tax Act, 1961.
1. According to the querist, under Section 32AB(5) of the Income-tax Act, 1961, a deposit with IDBI can be withdrawn within five years for the purpose specified in the Scheme or in the circumstances specified below:
(a) Closure of business;
(b) Death of an assessee;
(c) Partition of a Hindu undivided family;
(d) Dissolution of a firm;
(e) Liquidation of a company.
2. The querist has stated that the Scheme is ambiguous regarding withdrawal of the fund after five years. He has sought the opinion of the Expert Advisory Committee on the following issue:
“Whether free withdrawal of the deposit from IDBI is permissible after five years and if so the procedure thereof and the element of Income –tax on the amount withdrawn.”
Opinion April 24, 1991
1. The Committee notes sub-sections (5A) and (6) of Section 32AB which state as under:
“(5A) Any amount standing to the credit of the assessee in the deposit account shall not be allowed to be withdrawn before the expiry of a period of five years from the date of deposit except for the purposes specified in the Scheme or in the circumstances specified below:
(a) Closure of business;
(b) Death of an assessee;
(c) Partition of a Hindu undivided family;
(d) Dissolution of a firm;
(e) Liquidation of a company.
[Explanation: For the removal of doubts, it is hereby declared that nothing contained in this sub- section shall affect the operation of the provisions of sub- section (5AA) or sub-section (6) in relation to any withdrawals made from the deposit account either before or after the expiry of a period of five years from the date of deposit.]
(6) Where any amount, standing to the credit of the assessee in the deposit account, released during any previous year by the Development Bank for being utilised by the assessee for the purposes specified in the scheme or at the closure of the account in circumstances other than the circumstances specified in clauses (b), (c) and (e) of sub-section (5A), is not utilised in accordance with and within the time specified in the scheme, either wholly or in part, the whole of such amount, as the case may be, part thereof which is not so utilised shall be deemed to be profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year”.
2. Paragraphs 14.4, 14.5 and 14.6 of Circular No. 550 dated 1.1.1990 issued by the Central Board of Direct Taxes states as under:
“14.4 Sub-section (5A) of Section 32AB of the Income-tax Act provides that the amounts deposited with the Development Bank in accordance with the Scheme, shall not permitted to be withdrawn before the expiry of a period of five years from the date of deposit except in the case of (a) closure of business, (b) death of the taxpayer, (c) partition of Hindu undivided family, (d) dissolution of the firm, (e) liquidation of the company, and (f) in such other circumstances as may be specified in the Scheme. This sub-section is being interpreted in a manner that in a case withdrawal is made by a taxpayer of any amount standing of his credit in the deposit account after a period of five years from the date of deposit, the condition regarding the purposes for which a withdrawal can be made as specified in the Scheme do not have to be complied with, and no tax will be levied on the amount of withdrawal. Such an interpretation is against the legislative intent and may lead to protracted litigation.
14.5 With a view of clarify the correct legislative intention in this regard, an amendment has been made in Section 32AB, so as to provide that where any amount is released by the Development Bank even after a period a five years from the date of deposit and the same is not utilised in accordance with and within the time specified in the Scheme, the same shall be deemed to be the profits and gains of business or profession of the previous year in which such withdrawal is made and shall, accordingly, be chargeable to tax.
14.6 Further, as the circumstances mentioned in clauses (a) and (b) of sub-section (5A) may be used for tax avoidance purposes, it has been provided by inserting sub-section (5AA) that money withdrawn or obtained consequent to the closure of the account because of closure of businesses or dissolution of firm will be subject to tax in the year of withdrawal or of closure of account and shall be assessed in the hands of the same business or firm as if the business was not closed or the firm was not dissolved”.
3. The Committee also notes that the procedure of withdrawal of amount deposited with IDBI under Section 32AB is prescribed in paragraphs 9 and 10 of the Investment Deposit Account Scheme, 1986.
4.The Committee is of the following opinion:
(i) After five years from the date of deposit under Section 32AB with IDBI, withdrawal of the deposits from IDBI is permissible. However, if the amount withdrawn is not utilised in accordance with and within the time specified in the scheme, the same shall be deemed to be the profits and gains of the business or profession of the previous year in which such amount is withdrawn and shall accordingly be chargeable to income-tax as the income of that previous year.
(ii) The procedure of withdrawal of the deposit with IDBI is laid down in paragraph 9 of the Investment Deposit Account Scheme. ___________________________ |